Low Risk merchant accounts allow organizations that are deemed low-risk to accept payments online and offline. In the world of merchants, the ability to process credit card transactions is vital to the survival of your business. In order to process those credit card transactions though, you need a low risk merchant account with an acquiring bank.

What is Considered a Low Risk Merchant?

There are a few industry standards that classify a merchant account as a low risk. A wider group of businesses falls in the grey area because they do not have definitive guidelines if they are what is considered a low-risk or high-risk business, that all depends on the acquiring bank. Low risk merchants qualify for traditional processing agreements, meaning lower rates. They’re able to work with acquirers and processors who offer low risk merchant services and are willing to accept better terms for the decreased risk associated with these businesses (known as a low-risk payments processor). Things that may classify your business as “low risk”:

  • Your business processes less than $20.000 per month
  • Your average ticket size is less than $50
  • You have zero to low chargeback ratio
  • You’re in a low risk vertical
  • You’re incorporated in a low risk country
  • Risk assessment factors vary from processor to processor, however, the basic ones have to do with higher rates of chargeback and fraud.

PayMystic has one of the widest lists of approved industries out of all the best low-risk merchant services providers available on the market. PayMystic works with low risk merchants like: Books, CDs, DVDs, Health & beauty products, Online apparel, Office supplies, Pet supplies, Household goods, Parking garages, Moving companies, Storage companies, Auto parts, Franchise businesses, Web Design and SEO. See our full list of verticals here.

Does My Business Classify as a Low Risk Merchant?

Merchants may be considered low risk for many reasons. Primarily, you can determine if your business classifies as a low risk business based on the Merchant Category Code. The MCC code represents the “predominant business activity of the merchant,” and can influence payment processing in a few different ways. What many people do not realize is that all card-not-present (CNP) transactions are considered to be higher risk by the banks and incur higher processing fees than card-present (CP) transactions. Why is that? Well, CNP transactions are seen as increasingly risky because EMV chip adoption has moved cyber criminals to eCommerce. This means merchants who accept CNP transactions are at an increased risk of fraud and charge-backs unless they have the proper risk management tools and a high risk processing partner who understand the unique challenges facing CNP merchants.

If a merchant is launching a new business without any prior processing history, five major factors come into play:

  • Accepting Payments in Person aka CP or Card-Present
  • Accepting Payments Online aka CNP or Card-Not-Present
  • Merchant Code Categorization (SIC/NAICS/MCC)
  • Chargeback Volume
  • Ticket Volume

While each processor calculates risk differently; charge-backs and reputational risk are key factors in their final decision. A merchant with a history of chargebacks exceeding thresholds will need to explain why, and most importantly, their plan in advance to avoid high chargebacks in the future.

Why do Chargebacks Matter in Determining Low Risk?

Chargeback laws are creations that protect the consumer’s vulnerability against fraudulent businesses. One of the essential strategies you can employ is to find legal ways of reducing the fee.

Nine of every ten chargebacks fall into the friendly fraud category, also known as non-threatening chargebacks. The variation between a traditional merchant account and a high risk merchant account is that the traditional one monitors the lowest chargeback fees. Banks follow the ratio between the chargeback and the transaction to verify if it surpasses the one percent threshold.

A traditional account with a chargeback of more than the set threshold is bound to experience sudden termination by the acquirer. The business stands the risk of going out of business, ending its procession of credit cards, or seeking a high risk merchant account.

Contrastingly, even a merchant account with bad credit rarely faces termination due to excessive chargebacks. The merchant may pay higher fines to cater to the set business dealings. It is rare for low-risk merchant account to experience termination because of excessive chargebacks. The most likely scenario is higher fees and competitiveness. This case is because the merchant has to pay a fee for each chargeback, inclusive of the required administrative costs. A low-risk payment processor will have exceedingly competitive prices for each instance. Additionally, the prices will be higher if the merchant already operates in a high chargeback scenario.

Low Risk Merchant Processing Fees

All merchants are responsible for paying certain fees in order to process credit card payments. The fees for low-risk accounts, however, will be significantly lower than those associated with high risk merchant accounts. Each processor and acquirer calculates risk differently. To be considered a low risk, a completely different set of criteria come into play. Generally speaking, risk is calculated in terms of fraud and chargebacks. How likely is the business to experience chargebacks? The more chargebacks, the higher the risk. Some merchants actually seek out low risk payment processing, as it does come with certain advantages over high risk processing.

Pros and Cons of Low Risk Merchant Accounts

Are you considered a low risk merchant? It is recommendable for you to adopt realistic expectations of the business’s proceedings. One overwhelming fact is these businesses will often pay less than their counterparts. Fortunately, you will be paying a considerably lower cost to receive the same services as high-risk businesses. Some Pros of a low risk merchant account are:

  • Instant Approval
  • Zero or low account fees
  • Competitive processing fees
  • Average chargeback fees
  • No Rolling reserve requirements

Some Cons of a low risk merchant account may be:

  • Transaction limits
  • Limited cash flow
  • Early termination fees
  • Long contract requirements with automatic renewal and yearly increments

If you’re considering the acceptance of eCommerce transactions, being labeled “low risk” can be achieved. It’s important to evaluate the pros and cons–and risks–of your business venture beforehand. Fortunately, a low-risk merchant account is obtainable depending on the vertical. The benefits of using these accounts outweigh the challenges. There are plenty of credit card processing companies that accept low-risk business types. Some of these companies specialize in a high-risk business, while others consider the low-risk section to just be a part of their overall business. PayMystic is one of the best low risk credit card processing companies on the market for small to enterprise businesses.