High Risk Merchant Accounts 101

Defined:Visa defines a high-risk merchant as a merchant that is at a high risk for chargebacks due to the nature of its business. According to the official site, high-risk merchants include direct marketers, travel services, outbound telemarketers, inbound teleservices and betting establishments.

Terminology: The term high-risk merchant encompasses an even wider field when it involves merchant account acquisition. Adult businesses as well as pharmaceuticals are also often included in this marginalized business sector.

And the list goes on...computer network/information services (ISP, hosting), mail order (brides, catalogs), multi-level marketing, auctions, psychics, credit counseling and computer programming services. Generally speaking, any Internet business that does not require a physical signature from the customer or the actual presence of the credit card is viewed as a high-risk business.

Typical Issues: The difficulties arising from being labeled as a high-risk merchant are numerous. But the most evident for most merchants is the hardship involved in acquiring a merchant account.

Acquirer banks, or banks that provide merchant accounts, are often limited by Visa and MasterCard from accepting high-risk merchant clients. Both Visa and MasterCard enforce strict guidelines for them to follow when it comes to dealing with high-risk merchants.

For instance, let's take a look at Visa's High-Risk Chargeback Monitoring Program (HRCMP). HRCMP is specifically targeted at reducing excessive chargebacks by high-risk merchants. HRCMP applies to all high-risk merchants that meet or exceed specified chargeback thresholds. This Visa program notifies merchant banks when a high-risk merchant has a chargeback-to-transaction rate of over one percent.

According to Visa's guidelines, under HRCMP, there is no warning period and fees may be assessed to the merchant bank immediately if a merchant has an excessive chargeback rate.

MasterCard, on the other hand, has its own security measures against high-risk merchants. MasterCard designed a system it calls MATCH, the Member Alert to Control High-risk (Merchants), to provide acquirers with the opportunity to develop enhanced or incremental risk information before entering into a merchant agreement. MATCH is a mandatory system for MasterCard acquirers.

According to MasterCard's Security Rules and Procedures : The MATCH database includes information about certain merchants (and their owners) that an acquirer has terminated. When an acquirer considers signing a merchant, MATCH can help the acquirer assess whether the merchant was terminated by another acquirer due to circumstances that could affect the decision whether to acquire for this merchant and, if a decision is made to acquire, whether to implement specific action or conditions with respect to acquiring.

Keeping these in mind, if you are a high-risk merchant you can try several options. First of which are IPSP or Internet payment service providers. These third-party constituent often have a large database of acquirers and can easily get you the merchant account you need.


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