High Risk VS Medium Risk VS Low Risk Merchant Accounts

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Last Updated on July 7, 2023 by Corepay

In an age where eCommerce businesses are becoming easier to start up and turn a profit, payment processing is a necessary piece of the puzzle in order to drive revenue. Therefore, high-risk merchant accounts vs. low-risk merchant accounts have become an essential topic as various factors can determine your risk level as a business for acquiring banks and processors.

For this reason, we have decided to put together a thorough list of factors that can make your business considered high or low risk.

The purpose of this article is to break down the difference between low and high-risk merchant accounts, and we will also cover the grey area that is medium-risk merchant accounts. When referring to high VS low-risk merchant accounts, we are talking about the risk payment processors and banks are taking on with your business.

If you are already labeled high-risk by processors and are curious as to why, you can view our guide that covers everything you need to know about high-risk merchant accounts.

It is important to note that even if your business fits most of the criteria to be considered low-risk, the industry you operate in can still decide the risk of your merchant account.

Curious to what Corepay can do for your business? Inquire below.

High-Risk VS Medium VS Low-Risk Merchant Accounts

RIsk Levels For credit card processing

When applying for a merchant account, your payment processor will extensively review your company to determine your risk level. 

Typically, the level of risk that your business falls into will also affect how much you pay in fees, as high-risk merchant accounts are more expensive. The fees cover the additional risk that the payment processors/banks are taking on for your business.

While there are steps you can take to lower the overall risk exposure of your company, there are also factors that you can’t change, such as the industry of your business.

The following are what processors will look at when determining your risk:

  • Chargeback ratio – Does your business receive frequent chargebacks?
  • Financial stability (Both business/personal)
  • Your industry – Is your industry considered risky? (Adult, Dating, CBD, Vape, etc).
  • Average ticket size – Is the average ticket size under $50?
  • Fraud related to your industry – Does your industry experience heavy fraud, whether it be friendly or actual fraud?
  • Method of payment (card-present, VS card not present)

If your business is considered to be high-risk, it is likely related to one or all of the above bullet points. It matters if you’re high-risk or low-risk because some credit card processors won’t open a merchant account for you if you are considered high-risk.

Should you be deemed high-risk, you will likely pay more in fees to cover the risk that your acquiring banks and processors are taking on.

The main differences between high-risk merchant accounts and low-risk merchant accounts are below and organized in three categories:

Low-Risk Merchant Accounts

Low-risk merchants are typically merchants who have been operating with little to no chargebacks with a solid financial history.

Typical low-risk merchant accounts include retail shops, pet supplies, online apparel stores, parking garages, book stores, and auto parts stores.

Card-present (CP) transactions are usually frequent with low-risk merchant accounts. This means that the card was present during the transaction, which typically results in far fewer chargebacks.

Let’s take a deeper look at low-risk merchant accounts and what makes them low-risk below.

  • Average ticket sales below $50
  • You have a low chargeback ratio
  • You process less than $20 thousand per month
  • The industry you operate in has a low chargeback ratio
  • Fewer card-not-present transactions
  • The industry you operate in is not deemed risky – examples of high risk include CBD, travel, adult entertainment, online dating, firearms, etc.
  • Good personal credit
  • The business has good credit/financial stability
  • Your business rarely experiences fraud
  • Most of your business is conducted in low-risk countries such as the United States, Australia, Europe, or Japan
  • Your business is well established and proven

Being considered a low-risk merchant has its perks, but there are some downfalls.

For example, suppose your business were to experience a spike in sales that is far above $20 thousand dollars in a single month and this expectation was not set with the processor. In that caseyou could run the risk of having your merchant account frozen until the processor investigates the activity.

If you were working with a high-risk processor, you wouldn’t have to worry about this as much.

Another con to low-risk processing is that you will likely have less access to anti-fraud and chargeback prevention tools, which could help your business combat fraud.

Medium-Risk Merchant Accounts

The risk level that we haven’t touched on yet is the in-between that is medium-risk merchant accounts. These are pretty self-explanatory; however, what makes them considered medium-risk varies.

An example of an industry that could be considered medium-risk would be health & beauty merchant accounts, depending on the exact products being sold, and the billing model. There will be many factors to take into account, but these are going to be accounts that are just a little bit riskier than your typical low-risk merchant account.

The following are examples that could be considered medium-risk:

  • Health and beauty – One-off purchases (not subscriptions)
  • Telecommunication services
  • Attorneys
  • Utility payments
  • Political party organizations

Keep in mind that all of these categories could also be viewed as high-risk depending on other factors such as financial history, age of the business, average ticket size, billing model, and types of products/services being offered.

High-Risk Merchant Accounts

examples of risk levels

Were you deemed high-risk by your payment processor? If so, the first thing you should do is to take some time to apply with different payment processors.

Certain processors will specialize in specific industries. At Corepay, we thrive in the adult industry, CBD, online dating, vape, and cryptocurrency payment processing world. This being said, we have a team that boasts over two decades of high-risk processing experience in all high-risk industries.

To be considered high-risk, your business will involve some of the below:

  • Risky industry
  • Poor financial history – Both personal and business
  • Processing over $20,000 monthly
  • High average ticket sales (Over $50 per ticket)
  • Majority of CNP transactions
  • High chargebacks
  • Business is rather new

When determining high-risk VS low-risk, view our infographic above to see where your business falls.

Some examples of high-risk industries include:

  • CBD
  • Firearms
  • Travel
  • Adult entertainment
  • Crypto
  • Forex
  • Vape
  • Online dating

Can You Become A Low-Risk Merchant Once You Are Determined To Be High-Risk?

Should your business be deemed high-risk, there are a number of things that you can do to make your business less risky.

With this being said, there are still factors that you can’t change, such as the industry in which you conduct your business. If you are operating in a risky industry like the adult industry or CBD, you will still be considered high-risk.

With CBD and adult entertainment specifically, you will want to make sure your payment processor knows the industry. We are proud to offer adult merchant accounts as well as CBD merchant accounts.

If you fall into a high-risk merchant category because of a poor credit/high chargeback ratio, you may be able to fix these problems long-term. However, chargebacks can single-handedly have your business deemed high-risk.

Sometimes, many chargebacks are that the business/online business isn’t set up to combat these chargebacks. Should this be the case, you might be able to lower your chargebacks, which could lead to your business being less-risky.

In an effort to reduce your chargebacks, you should do the following:

  • Speaking with your payment processor about tools and insight they can offer your business
  • Implement chargeback tools
  • Clearly state refund policy your website
  • Have a fully secure website
  • Collect customer information to get an idea as to what types of chargebacks you are dealing with

Corepay offers solutions to fight chargebacks with the help of our partner product CB-ALERT. 

Shopify For Low-Risk Processing

Shopify processing works extremely well for low-risk businesses. That being said, your business might be considered high-risk without you knowing it at the time. Should you find yourself looking for high-risk processing, look no further than Corepay. We offer bespoke payment processing at affordable rates and pride ourselves on 100% transparency.

Does Paypal Accept Low And High-Risk Businesses?

This is a question that we frequently see in the industry. Paypal will initially process payments for businesses deemed high-risk until they perform their underwriting and consider the account high-risk. 

Merchants can easily make the mistake of choosing a low-risk processing option as they are very convenient, easy to get up and running, and great for low-risk processing.

The problem for some merchants is that it can take low-risk processors up to 6 months to do their underwriting. This means you could be operating your business and find out that your merchant account has been frozen.

Once frozen, your funds can be held for up to 180 days or until Paypal finishes investigating your account.

If your account has been frozen or funds have been held, you will want to find a new payment processing solution quickly.

Before deciding on your payment processor, you will also want to make sure that the company you choose is familiar with your industry and specializes in high-risk processing.

Should you choose to process with another low-risk processor, you will run the risk of having your account terminated or frozen once again.

Wrapping Up

Now that you have a solid understanding of risk levels and what that means for your merchant account, it will be easier for you to understand payment processor language when inquiring.

Whether you’re considered low-risk, medium-risk, or high-risk, you will need reliable payment processing to grow your business.

At Corepay, we will do a full review of your business, determine your risk, and get you set up with the best payment processing solution tailored towards your business’s needs.

If you are considered high-risk, we will do everything in our power to ensure you are getting the lowest rates while also reaping the benefits that come with high-risk merchant accounts, such as being able to accept payments globally.

Fill out an application today, and we will get back to you promptly about the risk of your merchant account, as well as what steps you need to take next to grow your business and begin accepting payments.

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