high risk merchant account trends

High-Risk Merchant Account Trends 2022 and What You Need To Know

Posted: March 15, 2022 | Updated: March 15, 2022

Accepting credit cards today is a must-have for almost all businesses these days. Not only are customers shifting their purchases to third-party apps for basic things such as taxis, renting a place to live, ordering take-out, medicine, or paying for groceries, they’re looking to do it via a cashless and touchless transaction. What was expected as standard to pay via cash is now a hassle. Why would someone pull out their purse or wallet, sift through money, count it, check the change is correct when they can simply sway their phone in front of some device?!

However, most such businesses are classified as high-risk merchants since they perform too many card not present (CNP) transactions. As this high-risk merchant account tag becomes rampant and commonplace, we look at what really is a high-risk merchant account and what are some trends business owners must understand about high-risk merchant accounts in 2022. This is especially relevant today as real threats are insistent given the sophistication of nefarious actors and heightened geopolitical concerns in areas of the world that have traditionally resorted to threats of hacking and financial meddling.

What is a High-Risk Merchant? 

There are no set rules that would classify a business as a high-risk merchant but relatively specific characteristics that they represent. This can be a particular industry that may be more susceptible to illegal activity, fraud, or chargebacks. Some examples are eCommerce, gambling and gaming, or online pharmacies, to name a few. 

Then there is how a transaction is conducted that can cause alarm. Manually entering a card number poses a risk of error from data entry. Or the card is not present at the point of sale, so there’s the potential that it may be stolen. 

Finally, most businesses outside Australia, Canada, the European Union, Japan, the UK, and the US are high-risk. Not because only companies in these jurisdictions are trustworthy, but rather that these jurisdictions have one the most vigorous bank regulatory environment.

Below are some trends to consider for 2022 for high-risk businesses

Expect to spend more to protect against fraud

According to research published by the Association of Certified Fraud Examiners (ACFE) and Grant Thornton, an accountancy firm, 51% of respondents have recently experienced an uptick in fraudulent activity. 71% of respondents expect an increase in fraudulent activity over the next year. 81% of businesses responding to the study have already taken anti-fraud measures to prepare for this rapidly fluid environment.

The biggest fraud risk companies believe they face from Cyber-fraud. As a result, 38% of businesses have increased investment in technology to protect against these threats. That is the most likely outcome as businesses worldwide increase their spending on the latest technology to protect against frauds, especially cyber-attacks and data breaches. This is even more pressing as the US government warns businesses to be aware of heightened cyber-attack risk. Some of the most novel ways of combating these threats are already in the works, AI, ML, and quantum computing, requiring a hefty investment now, which their investors will look to recoup.

The Customer Experience will be critical

Not being able to speak to a company representative when you really need to, you know, in the event of a fund hold the equivalent of a merchant’s monthly cash flow, can be a perfect reason why businesses lose customers. 

A few things are standard practice in the high-risk payment processing industry, for example, fund holds or even being enrolled into a VDMP. However, problems arise when you can’t get anyone on the phone to explain why something happened and when it will be fixed. Even worse, you get someone on the phone, and the representative has no clue. 

Locally based support available 24/7/365, staffed with well-trained, knowledgeable team members, will be what sets a merchant account provider apart. The customer experience will increasingly be the differentiator. 

eCommerce, mCommerce, and cashless transactions are here to stay

Changes in consumer behavior are here to stay. Over the past couple of years, how people changed their ways around shopping and paying for things wasn’t so much a change that was forced upon the masses but rather an accelerant of what was to transpire over the next decade. Tech companies had insight into this for well over a decade. NFC, digital wallets, and POS equipment to process cashless payments are inventions of the past two years. They’ve just been adopted at a much fast pace during that time.

So as we have more and more customers ordering online and experiencing that convenience, not many are going back to pulling out their wallets. Instead, businesses must adapt to this changing environment and be able to facilitate transactions via a growing number of payment options. Many of those options may start becoming more mainstream as some of the risks that get them classified as high-risk are managed and mitigated away by awareness, training, and technology.

Hybrid AI

In his book, Zero to One, Peter Thiel writes that when he started PayPal, he was losing $10 million per month to credit card fraud. To combat this, some of their brightest mathematicians studied data on actual fraudulent transactions to mine for patterns they write code for to automate the detection and prevention of. That code worked for about a few hours before the hackers found a workaround. Eventually, PayPal decided to adopt a hybrid model in which the software identified the red flags, and humans decided on their legitimacy. That was over two decades ago.

Today, influential third-party vendors are designing AI specifically for the fintech industry. However, it too is expected to work best in tandem with humans skillfully trained on actual risks associated with high-risk merchants. AI and well-trained teams will be the future of detecting and combating threats, decreasing the cost of fraud detection, limiting their occurrences, and allowing companies to focus on their core competencies.

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