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What’s the difference between a high-risk and low-risk merchant account?


Godaddy Shopping Cart – What’s the difference between a high-risk and low-risk merchant account?

What’s the threat?


When you begin a new enterprise, you’re going to have to begin accepting bank cards. And whenever you do it, you’re going to be categorized certainly one of two methods: a high-risk or low-risk merchant account. But what’s the difference between a high-risk and low-risk merchant account?


Being labeled a high-risk merchant account means the bank card processors (additionally known as merchant service suppliers or cost service suppliers) suppose you’re at a excessive threat of receiving a lot of chargebacks and refund requests in your bank card transactions.

And for those who’re a low-risk merchant account, it means you’re at a decrease threat of being hit with chargebacks.

There isn’t any center floor. You can’t simply be a plain vanilla merchant account.


But — and that is necessary — being labeled high-risk is just not essentially a dangerous factor. In reality, there are a few benefits to being a high-risk merchant, and we’ll focus on these in a minute.

In this publish, we’ll focus on a few matters, together with:

  • What are merchant accounts?
  • What varieties of companies are labeled high-risk and low-risk.
  • The advantages of being both high-risk or low-risk.
  • Can a high-risk merchant account nonetheless settle for bank cards?
  • Should you utilize an alternate cost methodology?

Let’s get began.

What are merchant accounts?

Merchant accounts are the correct identify for bank card processing accounts.

If you need to course of bank cards and debit playing cards at your enterprise, you want a merchant account.

There are two primary varieties:

  • An in-person point-of-sale (POS) processing machine, such as you would discover at a espresso store, retail retailer or restaurant.
  • A card-not-present (CNP) transaction, which you’d do on-line or over the telephone.

You join a merchant account by a merchant service supplier. And, relying in your merchant account standing, your service supplier could also be your financial institution or they might be an unbiased bank card processor. Those unbiased suppliers will work with a variety of totally different banks to really course of your prospects’ funds.

Passenger using a credit card processing machine in a yellow taxi cab

Some banks will solely deal with sure sorts of retailers (companies) and refuse to deal with others. It might be a query of the financial institution’s personal consolation stage with the varieties of companies they need to be identified for dealing with.

For instance, playing, CBD and grownup leisure are problematic for a lot of banks, and they received’t deal with retailers in these industries. That makes them high-risk merchant accounts.

Be conscious, nonetheless, that banks could cost you greater than the unbiased merchant service supplier. This actually is an space the place it pays to buy round and discover a merchant service supplier that doesn’t have a lot of hidden charges.

Also, there are not any different particular designations for sure varieties of companies. There’s no secret account that your financial institution will provide you with since you’re their favourite buyer. You’re both high-risk or low-risk.

What are the variations between high-risk merchant accounts and low-risk merchant accounts?

There are a few causes merchant accounts get labeled as high-risk. For one factor, the age of the enterprise is a issue.

New companies are virtually all the time labeled as high-risk simply due to their age.


That designation can change as time goes by, however provided that you don’t meet any of the different elements beneath.

Another purpose merchant accounts are thought-about high-risk is that their business traditionally has a excessive variety of chargebacks. For instance, subscription providers get hit with chargebacks as a result of individuals join the free trial, and they should safe the trial with their bank card. They completely plan to cancel the trial the day earlier than the first cost kicks in, however they overlook. When they notice they’ve been charged, slightly than cancel the subscription and take the hit for their very own error, they ask the merchant to subject a chargeback to their financial institution to have the cash credited to their account.

Other retailers are labeled as high-risk as a result of they’ve a excessive gross sales quantity, or they promote high-dollar objects, resembling high-end electronics, luxurious objects and even vehicles.

And, as we talked about, some retailers have the sort of enterprise that banks fear will sully their fame, resembling playing, CBD and grownup leisure.

A high-risk merchant account normally has these traits:

  • They settle for a number of currencies (i.e., prospects are in a couple of nation).
  • Their common bank card transaction is greater than $500.
  • Their common month-to-month gross sales quantity is greater than $20,000.
  • They promote to nations related to excessive ranges of fraud (anyplace that’s not the United States, Canada, Western Europe, Japan or Australia).
  • The enterprise proprietor has a unfavorable credit ratings historical past.
  • They supply recurring or subscription funds.
  • They promote issues like high-risk software program, digital, tickets or seasonal objects.

High-risk retailers normally pay extra in bank card charges as nicely, which implies it is best to replicate that in your pricing.

But on the plus aspect, if you’re a high-risk merchant, you may promote throughout the world, you may promote high-value objects, and you may promote greater than $2.4 million in bank card income.

Lauren Joyner

So, you see, being a high-risk merchant isn’t all that dangerous. The extra profitable you get, the extra seemingly you could possibly be a high-risk merchant anyway.

On the different hand, low-risk retailers don’t should cope with any of those points, which is what makes them low-risk. But if the merchant had been to begin experiencing a higher-than-normal variety of chargebacks, for instance, or began recording a lot extra transactions every month, they might get relabeled by their cost service supplier and get dropped. In that case, the merchant might want to discover a new cost service supplier to work with.

A low-risk merchant account, amongst different issues, normally has these traits:

  • They settle for just one sort of forex.
  • Their cost web page is hosted by the cost service supplier.
  • The common bank card sale is lower than $500.
  • The common month-to-month gross sales quantity is lower than $20,000.
  • The enterprise normally sells low-risk objects, resembling clothes, footwear or workplace tools.
  • The enterprise is positioned in a nation that’s thought-about low-risk (United States, Canada, Western Europe, Japan and Australia).
  • They have only a few returns and chargebacks.

Basically, for those who’re not prone to fraud, for those who settle for one forex, and you don’t make an excessive amount of cash, you’ll be a low-risk merchant.

What sorts of firms have high-risk merchant accounts?

Here are a few examples of high-risk retailers. It’s not full, however for those who’re on this listing, you’re going to be tagged as high-risk.

  • Adult leisure and merchandise
  • Attorneys
  • CBD
  • Cryptocurrency, FOREX and forex buying and selling
  • Debt assortment
  • Ecommerce and different CNP transactions (particularly for high-dollar merchandise like electronics)
  • Fantasy sports activities
  • Gambling and gaming
  • Gun sellers
  • Health and magnificence
  • Hotels and lodging
  • High-price/high-dollar objects
  • Medical practices
  • MLM and community advertising and marketing
  • Nutraceuticals
  • Online relationship
  • Pharmaceuticals
  • Restaurants, particularly people who ship
  • Retail shops
  • Subscriptions, resembling month-to-month and annual memberships
  • Travel suppliers
  • Vape retailers

Note: Just as a result of your enterprise sort didn’t seem on this listing doesn’t imply you’re not high-risk. Your cost service supplier will make that designation for you.

Just bear in mind — if one supplier labels you as high-risk, they’re all going to achieve the identical conclusion. If you had been on the bubble due to previous funds or the age of your enterprise, you may discover somebody to bump you to low-risk. But no financial institution will ever label a playing web site or nutraceuticals supplier as low-risk.

What about various cost suppliers?

Person using credit card with their mobile phone

There are loads of various cost service suppliers resembling GoDaddy Payments, Venmo and PayPal. Some small companies like utilizing these cost suppliers as a result of they don’t need to cope with tools charges. Or they don’t do sufficient in gross sales to justify renting the processing tools. Or they do casual transactions, like the highschool child who mows your garden, farmers market retailers or — in my very own case — my bass guitar instructor who lives 1,200 miles away.

The drawback is that a few of these various suppliers will withhold additional charges out of your funds as a option to defend themselves from chargebacks.


That’s as a result of for those who’re hit with a chargeback, the cash comes out of your checking account instantly. And since these various suppliers don’t have entry to your checking account, they only maintain on to your cash on the entrance finish as a substitute.

And since some chargebacks can occur as late as six months after the preliminary transaction, they maintain your cash for an prolonged period of time.

To keep away from the drawback, cost suppliers like Square withhold as much as 30% of a company’s monthly credit card revenue, which might be as a lot as a number of thousand {dollars} per 30 days. The funds are withheld for so long as 120 days, and they’re launched month by month on a rolling foundation. So July’s income shall be launched in November, August’s in December and so on.

So you may suppose you’re avoiding the high-risk/low-risk merchant account subject, however to Square and the others, each account is a high-risk account and will get handled accordingly.

Next steps

When you’re able to open up a merchant account, converse to a few merchant service suppliers to seek out the one greatest suited on your explicit enterprise and the prospects you serve. If you’re unsure which type of merchant account you’ll have, get an evaluation out of your financial institution or the merchant service supplier you’ve chosen. Look for ones that don’t have a lot of hidden charges and low share charges for processing your transactions. Find one you may belief that has a lot of expertise coping with your type of enterprise.

Godaddy Shopping Cart – What’s the difference between a high-risk and low-risk merchant account?


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