Many merchants, and even agents, have a difficult time distinguishing what is high risk, and what constitutes low risk. So in order to tell fairly easily which category a business falls under, here are the basic parameters of high risk.
1. Business type
The first parameter of high risk is the business type. The Card Brands, government municipalities, and banks have developed criteria for outlining which business types are prohibited, restricted, and low risk. These high risk/restricted merchants can include, but are not limited to, auctions, bail bondsmen, travel-related businesses, affiliate marketing, nutraceuticals, psychics, and electronic cigarettes. These businesses are considered high risk based upon their business model, the product they sell, or typical processing patterns from the business type.
2. Business model.
High risk businesses are often labeled so because of their business model, which can include extended warrantees, future delivery, mail/telephone purchase orders, and eCommerce transactions. Any business that conducts a significant amount of card-not-present transactions is considered high risk.
3. Product type.
Oftentimes, the business is high risk based on the product sold. Products could simply be high ticket, which runs the risk for chargebacks, returns, and fraud. Products like tobacco, firearms, medical marijuana, and anything sexually oriented have been deemed high risk by the government due to the age and geographic restrictions placed upon these products.
4. Processing history.
Oftentimes, despite the product, business model, and type, a business is considered high risk due to the processing history. High chargeback and return ratio, a high average ticket and annual volume, and a low credit score can push a business from what is normally considered low risk to a higher risk threshold.
Check out Part 2 of our high and low risk payment processing article.