by: Bret Morrison - posted (or last updated): 8th, January 2009

High risk merchant accounts refer to businesses or companies whose products attract individuals that may be more unethical than other groups. As a result, they may express dissatisfaction with their credit card order and ask for chargeback. If the number of chargebacks are high enough then ultimately it can bankrupt the merchant.

Most people would immediately think of Adult sites as the number one on their list of high risk merchants. Proportionately there are more chargebacks in the pornography industry than in any other industry, and the next on the list is gambling sites who have a high chargeback ratios.

However, book sellers are among the lowest chargeback businesses since most readers who buy a book have no desire to ask for a refund since they already bought and received the book in the mail.

Sometimes however, Acquiring banks who issue merchant accounts use this problem in the industry to make more money off of merchants by classifying business in the high risk which have no reason to be included in that category. By being placed in the high risk category, merchants would have to pay a higher discount rate, more associate fees, high transaction costs, and often a reserve of 25% of 6-month sales revenue.

Some unethical companies like Card Services International and Humboldt Bank conspired together in the 2001 to 2003 to use this reserve to buy more underwriting from other banks so they can issue more merchant accounts. I have had many customers in the past who have sent me letter (and I still have the letters) that explained how horrible this experience was when their sales was put on freeze and held back.

The other category of high risk merchants are those that are physically outside of USA. These are just simply regarded as high risk because they don't have American residence or citizenship and hence this is regarded as being less secure entity.

See List of High Risk Merchants.

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