If you are a business owner looking to securely accept and process electronic payments from your customers, you will need a merchant account. Your business’s merchant account will be categorised as high or low risk depending on your industry, transaction values, chargeback history, and potential exposure to fraud.
High-risk merchant accounts are for businesses in high-risk industries that sell high-value products or services, have a history of frequent chargebacks, and have an increased susceptibility to fraud.
For businesses that sell high-value products or services to customers, you are likely to have a high-risk merchant account. High-ticket business-to-consumer (B2C) sales typically have higher chargeback rates and fraud potential, increasing the risk associated with these merchant accounts.
In this blog, we discuss the various aspects of high-risk merchant accounts, including the differences between high and low-risk accounts, industries that typically use high-risk accounts, and how high-ticket merchant accounts can help prevent chargebacks and fraud.
High-Risk Merchant Account vs Low-Risk Merchant Account
A high-risk merchant account is for businesses that operate in high-ticket industries with increased risks of fraud and chargebacks. The increased financial risk can make financial institutions hesitant to work with your high-ticket business. This can increase the difficulty of obtaining a high-risk merchant account, as well as include higher processing fees, stricter account terms, and additional security measures.
On the other hand, low-risk merchant accounts are for businesses that have low financial risks, such as grocery stores or apparel businesses. These types of businesses are deemed low risk because of the low transaction values, reduced potential for fraud, and infrequent chargebacks. Low-risk accounts are easier for businesses to obtain and typically include lower processing fees, lenient underwriting guidelines, and lower security measures.
You can open a merchant account with various financial institutions, such as banks, credit card processors, and payment service providers. These financial institutions will assist your business by setting up and managing your merchant account, while also ensuring the secure and efficient processing of electronic payments. Whether your business merchant account is classified as low or high risk will depend on the financial institution’s criteria in its risk assessment.
Industries with High Ticket Merchant Accounts
We have listed a few common industries that generally use high-ticket merchant accounts:
Hotels often require high-risk merchant accounts due to the high-ticket transactions. The advance booking of rooms and services also contributes to the risk as a longer time gap between booking and service delivery can increase the chances of disputes or chargebacks. There is also increased financial uncertainty with hotels because of seasonal fluctuations in demand and changing pricing strategies.
Businesses that sell electronics are considered high risk because of the high cost associated with electronic products. In the electronics industry, there is also a high prevalence of fraud due to the cost and popularity of electronic products, which increases the likelihood of chargebacks. Electronic businesses may also face issues related to counterfeit goods and warranty claims, adding to the overall financial risk.
Jewellery businesses are considered high-risk merchants due to the high-ticket transactions from the sales of their expensive products. Customers making fraudulent claims about the authenticity of the jewellery are also common, resulting in increased risk for chargebacks. The fluctuating prices of precious metals and gemstones also add to the financial instability of jewellery businesses.
Travel agencies and travel booking platforms are considered high risk due to their high-value transactions. There is often a long gap between the payment and the customer going on the holiday, which increases the risk of cancellations and chargebacks. The travel industry is also vulnerable to external factors, such as natural disasters or political instability, which increases the financial risk of this industry.
Luxury goods retailers, such as businesses selling expensive accessories or high-end cars, require high-risk merchant accounts due to the high value of their products. The exclusivity of luxury goods also attracts fraudulent claims and chargebacks, increasing the financial risk. The associated international transactions, currency fluctuations, and import/export regulations add to the financial risk of these businesses.
What Makes High Ticket Merchant Accounts High Risk?
High-ticket accounts are high risk due to the potential for increased financial losses associated with large transaction values, chargebacks, and fraud.
The financial risks associated with high-ticket transactions are especially prevalent in businesses with B2C sales. Due to the high cost associated with the product or service, the customer is more likely to scrutinise the high-ticket item for faults or discrepancies. This increases the potential for refunds or chargebacks.
Friendly fraud is also a financial risk for businesses with high ticket B2C sales. Friendly fraud is a common type of fraud in which customers falsely dispute legitimate charges, which can be more prevalent in high-ticket industries due to the potential financial gain for the fraudster. Friendly fraud can be particularly challenging for merchants to detect and address, therefore increasing the associated risk.
High-ticket merchant accounts are also deemed high risk due to the increased risk of cyber-attacks. Cybercriminals often target high-ticket Ecommerce sites as they can potentially access valuable customer information and payment details to exploit for financial gain. The threat of data breaches and unauthorised transactions increases the financial risk of high-ticket businesses.
How High-Ticket Merchant Accounts Prevent Chargebacks & Fraud
High-ticket B2C businesses can mitigate the financial risks associated with chargebacks and fraud with a high-risk merchant account and effective merchant services.
Merchant services encompass a range of financial services and tools that protect high-ticket businesses from fraud and chargebacks. Some of these key measures include payment gateway security, fraud detection and prevention, and chargeback management and support. By leveraging the various tools, features, and support offered by merchant services providers, businesses can ensure secure and reliable payment processing.
We have listed three ways high-ticket merchant accounts can prevent chargebacks and fraud:
- Chargeback Notifications: Chargeback notifications alert merchants to potential chargebacks before they occur. This helps merchants prevent chargebacks by providing an opportunity to resolve disputes, issue refunds, or take other appropriate actions before the chargeback process begins.
- 3D Security Services: Implementing 3D Secure technology, such as Visa Secure or Mastercard SecureCode, adds an extra layer of security to online transactions. With 3D Secure technology, customers are required to authenticate their identity with a PIN or password during the transaction process, reducing the likelihood of fraudulent transactions and subsequent chargebacks.
- Fraud Protection Tools: Advanced fraud detection and prevention tools, such as machine learning algorithms, real-time monitoring, and customisable risk thresholds, identify and block suspicious transactions. These tools help merchants protect their businesses from cyber criminals who target high-ticket merchants, ultimately reducing the risk of chargebacks.
Pixxles May Work with High-Risk Merchant Accounts
Pixxles is a merchant services provider that helps Ecommerce businesses process electronic payments safely and efficiently. Our robust risk management system is designed to protect your business from the risks associated with chargebacks and fraud.
If you are a high-ticket business, you can trust that when we say yes to your high-risk merchant account, we mean yes. We will ensure that we work with your business on a tailored risk-based approach to ensure that we are proactively identifying and reducing risks to your business.
What is a high ticket transaction?
High-ticket transactions are purchases of high-value products or services, such as high-end cars or expensive holiday packages. High-ticket transactions are deemed high risk due to the increased potential for fraud and chargebacks.
Who needs a high-risk merchant account?
Businesses that operate in industries with high ticket transactions and a higher likelihood of fraud and chargebacks generally require a high-risk merchant account. High-risk merchant accounts provide these businesses with the specialised tools and support to process electronic payments securely and efficiently.