A high-risk merchant account is a payment processing account for businesses considered to be of high risk to the banks. As high-risk businesses are more prone to chargebacks, they come with the need for paying higher fees for merchant services.

Before you apply for a merchant account, it’s good to know whether you’re a high-risk merchant or a low-risk one. Merchant account providers have their criteria for categorizing businesses in terms of their potential risk, but there are several characteristics for both groups of merchants.

Note that every payment processor has its own set of guidelines, but there are some common similarities between these types of businesses.

General indicators for low-risk merchants are the following (but there are many other factors, and it’s based on compliance’s general evaluation):

Less than $20,000 processed monthly
Average credit card transaction is less than $500
The industry that a merchant operates in is considered low risk (these are, for instance, low risk-clothes and shoes, household goods, baby products)
Zero to low chargeback ratio
Minimized returns.

The more chargebacks a business comes with, the higher the risk. Therefore, the main factors that matter are industry reputation and processing history (it’s recommended to keep your chargeback ratio lower than 0.9% of your total transactions).

Here are overall characteristics of a high risk merchant, but note that it widely differs based on a certain payment processor’s guidelines:

More than $20,000 monthly sales volume
Average credit card transaction higher than $500
A business sells products and services to countries known for high levels of fraud
Bad credit history and excessive chargebacks