What distinguishes a high-risk merchant from others?

A high-risk merchant is primarily characterized by their engagement in activities that present a greater chance of fraud or financial loss. This distinction stems from several factors related to the nature of the products or services they offer, the target market, or the regulatory landscape they operate within. Certain industries or business models are naturally associated with higher incidences of chargebacks, fraud, and financial discrepancies, making them high-risk. For example, businesses related to online gambling, adult content, or subscription services often face a higher scrutiny level due to the potential for fraudulent behavior.

The activity level or pricing strategy of a merchant does not inherently classify them as high-risk. A merchant could have a low transaction volume or offer competitive prices without being involved in fraud-related activities. Similarly, operating within a well-established industry often conveys stability and lower risk rather than indicating high risk. Thus, the primary element that defines high-risk merchants is their increased exposure to fraudulent activities and associated risks.