When making purchases online, today’s consumers expect a safe, secure and convenient shopping experience. For e-commerce retailers, this means finding a merchant account provider that makes it easy to process online payments while providing a seamless online experience to customers.
For many merchants, choosing a merchant account provider is a matter of comparing the services, fees and extras that each provides. But for others – specifically those who are considered high risk – the process becomes more difficult.
High-risk retailers are particularly vulnerable to online credit card fraud, and many merchant providers believe that businesses in high-risk industries are too difficult and risky to work with.
But what makes a business high risk, and how can high-risk merchants protect themselves from credit card fraud?
What It Means to Be a High-Risk Merchant
There are numerous reasons merchants can be considered high risk — one of the most common is doing business in a vertical with an increased risk for fraud and chargebacks, like:
- Adult entertainment
- Computer software or hardware
- Dating services
- Financial services
- Health and wellness
- Legal services
- Online gambling or casinos
- Travel and hospitality
Industry is only one determining factor of the high-risk label; another is how a merchant conducts business. Merchants can also be designated high risk if they engage in risky behaviors such as:
- Accepting recurring payments
- Conducting transactions in multiple currencies or countries with traditionally elevated levels of fraud
- Having high monthly sales volumes or individual transactions
- Having cyclical sales
- Being in an industry with historically high chargeback ratios
- Offering subscription-based products or services
- Having not yet established a payment processing history
Once merchants have been categorized as high risk, they may find it challenging to open traditional merchant accounts. They may instead find themselves at the mercy of a high-risk credit card processor’s less desirable terms and strict conditions.
While these high-risk accounts let merchants continue to process credit card transactions, the associated fees and conditions can sometimes prove disastrous to a growing business’s bottom line. And if merchants can’t control their chargeback ratios, they risk losing even this payment processing agreement, leaving merchants with few to no options for processing online transactions.
What Fraud Looks Like for High-Risk Retailers
High-risk merchants find themselves experiencing credit card fraud in multiple ways, including:
- Increased chargebacks
- Identity theft
- Account takeover
- Stolen customer user IDs and passwords
- But not every industry experiences fraud the same way.
Those with expensive inventories — like jewelry and other luxury goods — often attract fraudsters who do significant financial damage with a single transaction. Electronics retailers have customers wanting the latest and greatest devices; this demand puts them at risk of fraudsters who know they can easily resell stolen merchandise at close to the purchase price. And no merchant, regardless of industry, is immune from the financial and reputational effects of chargebacks.
What Merchants Can Do to Mitigate Their Credit Card Fraud Risk
To reduce their credit card fraud risk exposure, merchants must first understand what their specific risks are and then identify the steps needed to mitigate them, which may include:
- Keeping chargeback ratios low — ideally less than 1% of total transactions. Not only will this protect a business’s revenue, but it can even help a merchant avoid the high-risk label and regain a traditional merchant account.
- Implementing a comprehensive fraud prevention system that can stop fraudulent transactions from slipping through a merchant’s gateway.
- Clearly communicating with clients from the initial order to post-delivery surveys to help prevent transaction misunderstandings.
- Working with a safe and secure payment processing solution that can help high-risk businesses process credit card transactions.
Being a merchant in a high-risk vertical can make processing online transactions and conducting business more difficult. But with the right solutions in place, merchants can keep doing business as usual and protect themselves from credit card fraud.