Has the payment service provider you want to use for your subscription business deemed you to be a high-risk merchant? What does that mean and what can you do about it? You may be upset by their decision but being identified this way doesn’t mean you won’t be able to conduct business.

Being a high-risk merchant means your payment provider believes your business has a greater likelihood of chargebacks or fraud. Businesses classified this way will need a high-risk merchant account to accept debit and credit card payments which means there are a few things you’ll have to do before you can start collecting money.

The Risk of Card-Not-Present Transactions

Subscription businesses can fall into the high-risk category because they accept card-not-present transactions. Since you don’t physically have the customer’s card in front of you when processing the transaction, that makes you more susceptible to fraud and chargebacks. Other businesses may be automatically flagged as high-risk businesses if they belong to certain verticals, such as adult products or services.

Being identified as a high-risk merchant doesn’t mean you won’t be able to conduct business.

Other Risk Factors

Depending on your payment provider’s guidelines, you may be considered a high-risk merchant if you have many transactions each month or if your average order value is high, such as $500 or more. Your business can also be considered high risk if you accept international payments from certain countries. Or you can be seen as high risk if your business is new, and you don’t have a proven track record of reliability.

Ways Payment Processors Offset Risk

A payment processor might choose to offset your business risk by enforcing measures you need to follow. For example, they may ask for detailed business information to gain a better understanding of your risk profile or they will evaluate your finances and past payment history if you have them.

Being a high-risk merchant means you will have to pay higher interchange fees, and you will have higher chargeback fees as well. That’s the most obvious difference between your business and a low-risk merchant. As well as charging you higher fees, your payment solution provider might decide to hold back a certain amount of cash from your business in a reserve fund as a safeguard to ensure they receive these fees.

Read Your Paperwork Carefully

There may be other requirements you need to meet, so read your agreement carefully. A payment processor might not approve your account until you meet all the requirements.

No matter which payment provider you decide to go with, make sure you review all the terms and conditions in your agreement and clearly understand everything that’s expected of you. It’s also a good idea to do your research and ensure your payment provider is compliant with the Payment Card Industry Data Security Standard (PCI DSS) so your transactions are secure and the personal information of cardholders is protected.

Did you know your Merchant Category Code has a big impact on your business? Reach out to our team for details.