This may sound like a stupid question but what makes high risk merchants "high risk?"

Is it that they experience a lot of fraud/chargebacks or is it just that the company deals in specific industries like pornagraphy, gaming, and pharmaceutical goods that may not adhere to the local laws of the customers?

Yes, some industries are automatically high risk, but your own credit history would most likely affect your processing fees.

The "high risk" term applies to such merchants like:


Adult / Erotic sites, services and products.
Art dealers.
Casinos, gambling, gaming, lotteries.
Collection agencies.
Check cashing services.
Credit repair services.
Coin shops.
Escort services.
Electronics retailers.
Fine jewelry.
Hair restoration services.
High volume.
Home operated business.
Horoscope, fortune tellers.
Infomercials.
Insurance products and services.
Investment opportunities.
Mortgage services.
Multi-level marketing.
On-line malls.
Pawn services.
Pharmaceuticals.
Products with unreasonable guarantees.
Seminar-based sales.
Telemarketing.
Travel agencies, cruise lines, tour business.
Used car dealers.
Water purifiers.
Weight loss programs and centers.


Risk value is calculated by number of chargebacks may occur - that's one of the main factors. Also it is affected by sales volumes. Low sales / High chargebacks, not a good combination. It all makes high costs to the financial institution like transactions cost, money transfer, support, complains, etc.

This may sound like a stupid question but what makes high risk merchants "high risk?"

Is it that they experience a lot of fraud/chargebacks or is it just that the company deals in specific industries like pornagraphy, gaming, and pharmaceutical goods that may not adhere to the local laws of the customers?
Chargebacks is the number factor in high determining high risk. In fact, the other reasons why someone might list a category as high risk (fraud, etc.) all eventually come back to chargebacks. Chargebacks can leave the processor exposed to huge losses.

So high risk merchants are high risk more because of the "expected" chargebacks than the industry they are in ALTHOUGH the industry typically is a good indication of whether or not a merchant will be high risk.

is that a good way of putting it?

So high risk merchants are high risk more because of the "expected" chargebacks than the industry

It's the value of "costs" which may occur to payment solution provider. If "costs" are expected to be high - you are high risk merchant.

Nice write up on high risk business;

http://www.merchantaccountblog.com/archives/37