High risk merchants are those that the banking and credit institutions believe present a higher risk of financial loss. With the increasing incidence of fraud on the internet, banks are becoming more risk averse.
Historically, high risk merchants tend to have greater levels of charge backs and may be more susceptible to fraud, insolvency or other liabilities. Whether or not this is true for any particular business does not matter since all businesses within certain categories tend to be grouped together. Fast growing, high volume e-commerce merchants in any industry are considered high risk. Additionally, certain industries are almost always considered high risk. High risk merchant businesses include but are not limited to:
- Merchants in any industry who have a high transaction volume
- Travel
- Subscriptions and memberships
- Online dating
- Online gambling and games
- Digital media and downloads
- Software
- Web hosting
- Inbound call centers
- Vacation packages, certificates, and timeshares
- Adult content or products
- Electronics
- Jewelry
- Furniture
- Herbal supplements and vitamins
- Cell phone services
- Infomercial’s and direct response marketing
- Multi-level marketing
Charge backs on high risk merchant accounts tend to hold higher penalties and risk of losing the merchant facility altogether. On a volume basis, both Master Card and Visa define a high risk merchant as one where the charge back rate exceeds 1% of the sales volume. With the increase in risk aversion prevalent in the banking industry, more and more merchants considered high risk are forced to use offshore merchant processing facilities, often multiple services in multiple jurisdictions, in order to maintain their business operations. So for high risk merchants, fraud control is of even greater importance.
Access to a device intelligence network, with improved identity verification through device fingerprinting can help lower fraud risk for high risk merchants, lowering the risk of charge backs.
