Difference Between Low & High Risk Merchant Accounts in UK

Ever find yourself wondering what the difference is between low risk and high risk merchant accounts in UK? While comparing merchant services providers, you may have noticed the terms “low risk” and “high risk” being mentioned often. A payment processor will always assess your level of risk before providing you with a merchant account. This assessment will determine the kinds of rates you have to pay, and it may even limit your merchant account options.

What Are Low Risk Merchant Accounts?

Examples of traditionally low risk industries include:

  • Automotive / auto parts
  • Food services
  • Health and beauty
  • Hospitality
  • Household goods
  • Office supplies
  • Online apparel
  • Pet supplies
  • Professional services (doctors, attorneys, architects, etc…)

A low risk merchant account is one that has a low statistical likelihood of costing the bank money or attracting rampant fraud. As such, the payment processor considers it a smart—or at least a safe—financial investment.

What Are High Risk Merchant Accounts?

Examples of what payment processors consider as high risk businesses include:

  • Adult entertainment
  • Brokerage firms
  • Cannabis
  • Dating services
  • Life coaching and personal development
  • Online gambling
  • Tech support
  • Telemarketing
  • Timeshares
  • Travel agencies

Banks and traditional payment processors often deny high risk merchant accounts for the same reason that lending institutions deny loans to risky borrowers: Because the client may ultimately end up costing the bank money. If a merchant services provider does grant services to a high risk business, it will usually impose much higher fees to help mitigate the risk.

What Makes Certain Industries High Risk?

Some industries have a higher-than-average percentage of customer disputes and are therefore deemed high risk. If your business is part of such an industry, you may be subject to higher transaction fees and greater restrictions.

You might also be required to maintain a merchant account reserve, which works like a security deposit. If you neglect to pay any required fees or penalties, the money is taken from the reserve and your merchant account is terminated.

How do you know if your industry is high risk in the first place?

An industry is considered high risk if it has a high chargeback ratio, a significant target for fraud, or a legally problematic product or service line.

High Risk Businesses Have More Chargebacks

A chargeback occurs when a customer demands a refund from the bank. For example, if a customer pays for your three-week personal growth course and then feels ripped off when they don’t achieve enlightenment, they might complain to their bank. They might demand a refund even if your personal growth business is legitimate. The bank will usually refund the money and then hold you accountable for the full cost plus fees and penalties.

Chargebacks are inevitable in most industries, but a high chargeback ratio is a huge red flag to payment processors. It causes them to suspect that either:

  1. You’re cheating your customers (e.g. a tech support scam)
  2. You’re operating a business that attracts dishonest or dissatisfied customers (e.g. online gambling)

Either way, it’s bad news for the payment processor. That’s why they monitor chargeback ratios (the percentage of transactions that result in chargebacks). A chargeback ratio that consistently sits at or above 1% is considered high risk. Even if your business is part of a low risk industry, you will still be flagged as a high risk merchant if your chargebacks remain high. Learn how to minimise chargebacks.

High Risk Industries are Targeted Frequently by Fraud Criminals

Industries with high levels of fraud are automatically deemed high risk. That’s because dishonest businesses attract excessive chargebacks, lawsuits, and complaints. They can jeopardise the reputation of the merchant services provider, and they often disappear without a trace—leaving the merchant provider on the hook for all acquired debt.

Unfortunately, many honest and reputable businesses are treated as high risk simply because of the industry in which they operate. Tech support is a perfect example. Most tech support businesses are upstanding and legitimate, but because tech support fraud is still rampant (Microsoft alone receives over 11,000 complaints per month), all businesses endure a higher level of scrutiny.

This is one of the reasons why you may want a payment processor that actively prevents fraud as part of its services.

Verticals with Legal Concerns are Considered High Risk

Some industries, like adult entertainment and online gambling, are subject to wildly varying international laws. This can create significant liabilities for the payment processor.

Consider the marijuana industry in the U.S. as an example. Because the state and national laws are often at odds, legal cannabis is still predominantly a cash business. As a result, these businesses are often the subject of crime and are even shut down by the authorities on occasion. It’s a volatile enterprise.

And then there are cases in which a business is just ethically problematic—such as an online retailer that sells imitation Gucci bags. A reputable payment processor is unlikely to risk its reputation and legal standing by partnering with such an enterprise.

What Makes Some Industries Low Risk in the UK?

An industry is considered low risk if it yields a consistent return on investment for the payment processor. In other words, the merchant services provider can confidently extend service knowing that—statistically speaking—it won’t be bombarded with chargebacks or complaints and that the merchant is unlikely to disappear with unpaid fees.

It’s not enough to be part of a low risk industry, though. Your business’s level of risk is actually dictated by three additional factors:

  • The strength of your business
  • Your monthly sales volume
  • Your chargeback rate

So even if you’re in a high risk industry, you may be able to secure lower merchant fees if you can demonstrate strength in the other three areas.

The Strength of Your Business

When assessing your business, a merchant services provider may consider factors like your credit score and the number of years you’ve been in operation. New businesses are sometimes held to a higher level of scrutiny than those with a proven legacy.

Your Monthly Sales Volume

The more money your customers spend, the more the bank risks. If your monthly sales are at or below the £15,000 range, you should have no trouble remaining in the low risk category—at least for this piece of criteria. The number of transactions is also important. If your average sale exceeds £50, you may be deemed higher-risk.

Your Chargeback Rate

Once again, it’s not enough to belong to an industry with a low average chargeback rate. In order to keep your rates low, you must ensure that your own chargeback ratio remains low to zero. Otherwise, your merchant account may be placed in a higher-risk category or terminated altogether.

How to Know if Your Business Qualifies for Low or High Risk Merchant Accounts in UK

Your industry is the most important factor determining your level of risk. Certain industry distinctions—like adult entertainment, gambling, and tech support—will automatically flag you as high risk.

If your industry is low- to medium-risk, the next step is to honestly assess the strength of your own business.

Low Risk  High Risk 
Established business Newly formed or penalised business
Chargebacks below 1% Chargebacks above 1%
Good credit (e.g. a UK Equifax score above 420) Fair/poor credit (e.g. a UK Equifax score below 420)
Average monthly sales below £15,000 Average monthly sales above £15,000
Average ticket size below £50 Average ticket size above £50

Ideally, you want to be in the low risk category. After all, low risk businesses:

  • Pay the lowest merchant fees
  • Have access to more merchant features like point-of-sale solutions
  • Have access to more payment methods, currencies, and countries
  • Have the best chance of being approved by their preferred merchant provider
  • Typically aren’t required to open a merchant account reserve

If, despite your best efforts, you find yourself in the high risk category, you still have options. Your next step is to find a provider that supports high risk merchant accounts in the UK. More importantly, you want a merchant provider that will afford you their full services without charging you an exorbitant amount of money.

QPay Europe works with merchants from hundreds of industries throughout the UK and Europe. We have a 98% approval rate for new merchants, and most of our merchant accounts are up and running within 12 hours. In addition:

  • All of our merchants enjoy competitive transaction costs, which consist of just a fixed percentage and fee per transaction.
  • Our merchants have access to almost every country and currency in the world, plus a wide variety of alternative payment methods.
  • Our state-of-the-art tools are PCI-compliant, SHA-256 encrypted, and accessible from any computer or mobile device.
  • Our Fraud Scrub and chargeback technologies make it easy for any merchant to keep chargebacks at a minimum and protect their bottom line.
  • Our solution is compatible with all major shopping cart platforms and easy to integrate.

If you’d like to learn more, we invite you to sign up for your free, no-hassle quote. Decide for yourself if QPay Europe is the payment processing solution you’ve been looking for.

You might also like: