How is a "high-risk merchant" identified?

A "high-risk merchant" is identified primarily through the categorization of merchants as high profile for fraud and risk activities. This identification process involves analyzing various factors, including the nature of the business, the products or services offered, the payment methods used, and the historical data associated with the merchant, such as chargebacks, fraud rates, and compliance with industry regulations.

Identifying a merchant as high-risk is crucial for payment processors and financial institutions, as it helps them manage potential fraud and ensure compliance with regulations. Certain industries, such as online gambling, adult entertainment, and credit repair services, are often classified as high-risk due to their propensity for higher chargeback rates and regulatory scrutiny.

In contrast, evaluating customer satisfaction ratings may not provide meaningful insights into a merchant's risk level, as high customer satisfaction does not necessarily correlate with financial stability or fraud risk. Similarly, while average sales volume can indicate a merchant's business size, it does not directly inform risk categorization. Assessing geographical features can be relevant in some contexts but is not a primary determinant in identifying high-risk merchants.