High Risk versus Low Risk Merchants

What’s the difference, and why does it matter?

The ‘Risk’ of a merchant is calculated by the underwriting networks - the ones that host the most liability in the credit card transaction. Risk is assessed based on the likelihood of overturned charges, and thus, a net loss for the guarantor of the credited purchase.

The risk level of the merchant is determined by a large group of criteria - no one thing will take you from low risk to high risk, or vice versa. That said, there are several things that influence this risk calculation:

• What type of business is it?

  • B2B? eCommerce? The industry and conventional payment method influences the risk level.

  • The MCC code of the business usually has an industry reputation one way or another

• What is the method of accepting credit card payment?

  • Card present or Card Not Present (CNP)?

    • CNP transactions usually are grouped in with a higher risk assessment - this charges are more easily done with stolen credit card numbers, for example, and thus, get overturned when the fraudulent transaction is noticed

  • Is the merchant PCI Compliant?

    • PCI Compliance is a federal standard of operating that keeps customer’s credit card information safe from security breaches. This has to do with the merchant’s infrastructure around their payment processing such as wifi connectivity, or hardware and technology updates and upgrades such as EMV or virtual terminal security.

• What is the credit of the majority owner of the business?

  • Networks take into account the personal guarantor’s credit and financial history when assessing the processing account for risk. Merchants with poor credit, any bankruptcies or fraud, will be assessed for being in a higher risk category.

• What is the average ticket and high ticket ceiling amount submitted with the deal?

  • Merchants who expect to run larger tickets will be given a higher risk assessment

• How long has the merchant been in business?

All of these things and more play into the risk assessment of the business.

Why does this matter to the individual merchant? Well, one’s risk directly influences the network’s appetite for guaranteeing the merchant’s future transactions. Sometimes this means the network assesses a larger per transaction fee to the merchant’s charges. Sometimes it means the network refuses to do business with the merchant at all.

Keeping these things in mind when you’re getting ready to set up your merchant processing is an important step.