What Is High Risk?


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The term “high risk” simply means the acquiring banks believe there is a higher risk of financial loss when underwriting particular businesses. With increasing incidents of fraud on acquiring banks are becoming more risk adverse. Historically, high risk merchants tend to have greater levels of charge backs and may be more susceptible to fraud, insolvency or other liabilities. Whether or not this is true for any particular business does not matter since all businesses within certain parameters are grouped together.

Charge backs cost acquirers hundreds of millions of dollars each year. Losses from only one merchant can cost an acquirer millions of dollars. These days, few processors are willing pay for the highly qualified staff and aggressive monitoring systems necessary to mitigate risk across merchant categories. Managing risk and reserves of high risk merchants simply becomes too time consuming and expensive for most banks and processors.

Fast growing high volume e commerce merchants in any industry are considered high risk. From the perspective of an acquirer, every dollar in sales is potentially a dollar in contingent liabilities. Additionally, certain industries are almost always high risk. (see link) .

Unfortunately, merchants in high risk categories often encounter difficulties expanding or diversifying merchant accounts . Even with a substantial processing history and low charge back ratios, a merchant may find that few banks want to accept the account.

Sometimes merchants already have merchant accounts and believe the relationship with the acquiring bank is secure. Then, suddenly, the underwriting criteria of the bank changes. With very little notice, merchants may be asked to find another bank for processing. Or, rates and reserves on existing accounts may dramatically increase.

Additionally, the surge of bank mergers and acquisitions has increased the challenges a high risk merchant faces. A merchant may be shocked to learn the new entity no longer wishes to continue the merchant account relationship.

Offshore Merchant Accounts

High risk merchants must constantly be exploring new processing options. These days, it is no longer enough for a high risk merchant to have only one account. It is entirely too risky. Merchants are being forced to diversify accounts and seriously consider multiple jurisdictions to protect the future of their businesses

Offshore merchant accounts are attractive to businesses for several reasons. First, offshore processors will accept merchants that domestic banks will not accept. Secondly, a business may be seeking certain incentives or opportunities that are available in a particular jurisdiction. Third, some jurisdictions are more simply more tolerant of certain merchant categories. Fourth, international merchant accounts frequently have no caps on processing volumes, which is helpful to rapidly expanding businesses.

Specific rules and regulations apply to offshore merchant processing accounts. It is wise to work with professionals who have expertise experience and specialized knowledge to guide you in establishing your international merchant accounts . Resulting in your peace of mind and long term processing satisfaction.

Chris Miller has worked in the payment processing industry for 15 years. She has experience in both issuing and acquiring with clients located throughout the world. She currently lives in London with her husband David. http://www.highriskmerchantaccount.co.uk


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