What is a high-risk merchant?
The accumulation of three criteria allows us to classify the risky activities of online merchants:
- Sensitive nature of the sale, such as dating sites, online gaming, or software downloads.
- High number of payment-related incidents, particularly in terms of fraud, chargebacks, and bad debts.
- Countries identified as high-risk, included in the FATF (Financial Action Task Force) “blacklist”
Thus, if an e-commerce business operates in a sensitive sector, regularly subject to fraud and chargeback issues (particularly through card payments), and is based in a country blacklisted by the FATF, it is a high-risk merchant.
Do all PSPs accept high-risk merchants?
If your high-risk business offers online payments, you should already be familiar with payment service providers such as Stripe or SecurionPay, which accept this type of e-commerce.
However, faced with the growing number of AML/CFT incidents, these PSPs are intensifying their regulations. Thus, on the merchant side, it is not uncommon to receive emails informing them that their payment accounts have been closed or frozen overnight.
Indeed, for PSPs, accepting flows from high-risk activities is far from trivial, and in particular, gives rise to significant responsibilities, in the eyes of the regulator.
What changes for high-risk e-merchants?
The “high-risk merchant” categorization distinguishes them from their less risky counterparts, and therefore leads to some notable differences in the offerings proposed by payment service providers, including:
Different pricing model
As high-risk payments involve greater risks, they are more strictly regulated by law. This is why PSP pricing is always higher than for “traditional” e-commerce merchants. This pricing includes three fees:
- Fixed fees, deducted from the amount of each card transaction processed (interchange, card networks, and services)
- Fixed fees, deducted at the start of the project (go-live)
- Exceptional fees
Restricted payment methods
High-risk merchants may encounter limitations on their payment methods compared to “traditional” e-commerce merchants. These restrictions stem in particular from the very nature of their business, which is subject to high chargebacks or fraud. This is why payment by credit card is preferred in these situations, allowing PSPs to adopt a prudent approach to protect the interests of their customers as well as their own.
Mandatory security reserve
For security reasons, payment service providers require high-risk e-merchants to set aside a security reserve, an amount retained by the payment service provider to cover potential refunds or disputes. The amount of this reserve is determined based on the risk of the activity.
More extensive underwriting procedure
When subscribing to a PSP, high-risk merchants undergo a more rigorous process, including in-depth checks on the company’s legitimacy, financial history, and compliance with applicable regulations.
Closer monitoring
The regulator requires PSPs to conduct closer monitoring and provide frequent reporting for these merchants, enabling the early detection of any suspicious activity during online card payments and thus minimizing risks.
