Risk factors affecting your application

Your merchant account provider (acquirer) will evaluate your business for risk factors. Some risk factors may affect your access to payment processing or increase the fees you pay for your merchant account.

Financial risk

The acquirer is financially responsible for the merchant account if a merchant has insufficient funds.

There are two main types of financial risk.

Refunds or chargebacks up to 180 days from sale for undelivered or unsatisfactory goods and services or alleged fraudulent card use or without permission. This type of risk affects goods and services sold in advance, such as event tickets, travel, and insurance-like plans to service/repair appliances, electronics, and plumbing.
Card scheme assessments and fines for scheme non/compliance, violation of rules, or illegal or unsanctioned activity.

Card scheme compliance risk

If the merchant does not comply with card scheme rules and regulations, they may be fined, and again, the acquirer is ultimately financially responsible.

Acquirers try to avoid card scheme compliance risks by monitoring your business, limiting or denying service, or terminating the merchant account.

Restricted business activities and high fraud/chargeback to sales ratios for business models with high cancellation, refund and chargeback rates. These may be free or low-cost trials or inducements to purchase, converting automatically into paid purchases or subscriptions.
Dishonest business practices that misrepresent the nature of their business affairs or merchant outlet location.

Legal and regulatory risk

The acquirer may also be legally responsible if a merchant is involved in criminal activity.

Legal and regulatory risks are difficult to control in global e-commerce businesses because activities or products which are legal in one jurisdiction may be illegal in another. Licences granted by a proper authority in one may permit activity in that jurisdiction that is restricted or illegal in another. So, some acquirers will not accept businesses from high-risk industries, and they may terminate your account if they think you have entered one.

There are two main types of legal and regulatory risk.

Regulated businesses that are subject to stringent licensing requirements in strictly controlled jurisdictions, such as pharmacies, gambling and betting providers, binary options and forex, and cryptocurrency exchanges.
Legally limited or prohibited business where merchants may not be regulated, but the goods they sell are strictly controlled, such as tobacco, liquor and CBD vendors, adult entertainment providers and other merchants offering access to restricted goods.

Reputation and brand risk

The card schemes actively safeguard the integrity of their brands in the public eye by monitoring businesses operating in high brand risk (HBR) industries. Merchants in HBR industries must register and submit to ongoing monitoring by the schemes.

HBR industries include:

Pharmacy
Gambling and betting
Binary options
Forex
Cryptocurrency exchanges
Adult content

If HBR merchants do not operate diligently to maintain the highest compliance and risk management standards, they could face legal liability and jeopardise their merchant accounts.

Summary

Your business may be affected by some or all of these risk factors. Acquirers can be legally and financially responsible for their merchants' activities, and they must diligently use scheme guidelines and their judgement to assess which areas of a merchant’s business present a possible financial, compliance, legal, brand, or reputation risk.

Merchants should carefully evaluate their business models to eliminate or mitigate potential risk factors, or their acquirers may limit access to credit card processing options and charge elevated fees.

Visit our website to talk to our payment experts for more information on merchant risk factors.