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What You Should Know About A High-Risk Merchant Account

In order to operate and grow a sustainable e-Commerce business, you need to accept credit card payments. The best way to process credit card payments is by opening a merchant account from a reputable provider.

What if your business has been labeled high-risk?  Unfortunately, this is where things can get a little tricky. The truth is that traditional banking institutions and providers do not wish to take on any additional risks associated with high-risk merchants and their verticals. The reasons are that they tend to attract a higher-than-average number of chargebacks and they are more likely to be attacked by fraudsters. 

More On High-Risk Merchant Accounts

Businesses are likely to receive the “high-risk” label if they happen to work in an industry where a bank’s reputation can be compromised.

Some examples of industries and verticals that have questionable reputations include CBD, adult entertainment, and even gambling. 

If you as a merchant have been dropped or simply have had problems with a previous payment processor, creating a poor, past history, this can also bring on a high-risk label. 

You can also be labeled high-risk if you are just starting out. The longer you have been in business, the less likely you are to be a risk to providers and banks. 

The Implications Of Being A High-Risk Business

If you have received the high-risk designation, you don’t need to worry. You still have the opportunity to accept card payments. But there is a catch.

High-risk merchants, due to the nature of their business and higher levels of risk, are required to pay higher fees to offset these risks. 

The higher fees will include processing fees. You may even be required to keep extra money aside in a reserve account to protect against chargebacks.

A reserve account is a type of “sub-account” that is associated with your merchant account. This is where a percentage of your credit card sales is kept on reserve to take care of any chargebacks that may occur. 

If funds need to be taken from the reserve, you may be placed permanently on the Terminated Merchant File list, also known as the TMF or MATCH list. This is essentially a log of merchants managed by MasterCard. Merchants are added to this file if merchants have breached the standards laid out by credit card companies. 

When acquirers add merchants to the TMF, it labels the business as risky and sends a warning to other acquirers from conducting business with them. 

This list helps banks identify high-risk merchants before offering them acquiring services. Those acquirers and processors within the Mastercard network consult the TMF list before they accept a merchant. If a merchant is found on this list, their application is likely to get rejected. 

As a merchant, you will not receive any type of notification that you have been placed on the TMF list. If your payments suddenly start getting rejected or you get rejected when applying for a new merchant account, you will discover that you have been placed on the list. 

Chargebacks are the bane of a merchant’s existence and it is imperative that they be managed and mitigated. Having a solution in place is the first line of defense, as well as improving your fulfillment processes, responding to chargebacks in a timely manner, and keeping all documentation within reach.  

High-Risk Does Not Mean Unworthy

Merchants that receive the “high-risk” designation are not banned from processing their payments. It simply means that there are much higher incidences of fraud and disputes that are more typical for this vertical. 

Risk is assessed according to the frequency of chargebacks that an acquirer would need to handle every month. This is not a negative reflection on your business. The best solution is to seek a reputable and reliable high-risk merchant provider.