Why Memberships businesses are considered High-Risk?

Membership products are a growing segment of the e-commerce industry. While the subscription-based model has many advantages for both the business and the customer, it also poses some risks for the merchant. 

Recurring Billing Model

  • Subscription-based businesses collect payments on a regular basis, which can increase the risk of chargebacks and disputes.
  • If a customer is not satisfied with the product or service offered by the merchant, they can initiate a chargeback and get their money back.
  • This can result in financial losses for the merchant and negatively impact their reputation.

Nature of Business

  • Membership products often involve high-value transactions, which can make them a target for fraudsters.
  • Criminals can use stolen credit cards to purchase membership products, resulting in chargebacks for the merchant.
  • Membership products often involve digital goods, which are intangible and can be easily copied or shared.
  • This can result in piracy and unauthorized use of the product, leading to revenue loss for the merchant.


Other Factors Contributing to High-Risk Status

  • Membership products may have a higher-than-average return rate due to their nature as subscriptions.
  • Chargebacks can be more difficult to dispute for subscription-based businesses because of the recurring billing model.

Mitigation measures for Memberships merchants to reduce risks when selling online

Membership products have become increasingly popular in the e-commerce industry, but they also come with some risks for merchants. Recurring billing models, high-value transactions, and the nature of the business can all contribute to the high-risk status of membership products. To reduce these risks and ensure the success of their business, merchants can take the following mitigation measures:

  • Use a reputable payment processor: Merchants should work with a payment processor that specializes in high-risk industries. These processors have experience dealing with chargebacks and fraud and can offer additional protection against these risks.

  • Implement fraud detection measures: Merchants should use fraud detection tools to identify potential fraudulent transactions. These tools can analyze transactions for suspicious behavior, such as multiple failed attempts to enter correct payment information.

  • Monitor chargeback ratios: Merchants should regularly monitor their chargeback ratios and take steps to reduce them if they are too high. This includes providing clear refund and cancellation policies, improving customer service, and addressing any issues that may lead to chargebacks.

  • Secure digital goods: Merchants should take measures to secure their digital goods to prevent piracy and unauthorized use. This includes using digital rights management (DRM) technologies to protect the product and limiting access to authorized users.

  • Provide excellent customer service: Merchants should provide excellent customer service to their subscribers, including prompt responses to inquiries and addressing any concerns or issues that arise.

Being a high-risk merchant vs. a regular merchant

  • Higher payment processing fees
  • Lengthier application process
  • Higher chargeback fees
  • Cash reserve requirments:
    • Capped reserve
    • Rolling reserve
    • Upfrom reserve
  • Volume caps
  • Additional technical requirements
  • Being on the TMF / MATCH list


Check out our knowledge hub to learn more about what processing fees, application process, chargebacks and cash reserve requirements or TMF / MATCH list mean. 

Other risk factors?

There may be other risk factors as to why you as a Memberships merchant are classified as a high-risk merchant, such as:
  • Accepting subscription-style payments

  • Being on the Member Alert to Control High-Risk Merchants, or MATCH list — a list managed by Mastercard that monitors merchant behavior, like chargeback history

  • High average transaction sizes

  • High sales volumes

  • Highly regulated industries

  • International sales

  • Large number of card-not-present transactions

  • Little to no business experience

  • Long fulfillment time frames

  • New or poor credit scores

  • Past fraud or illegal activity

As high-risk Memberships merchant how to find a payment provider?

It takes effort for businesses to secure a payment processing partner when they are considered high-risk but it is definetly possible to find the right payment solution if you focus on:

  • Maintaining healthy cash levels. Most processors would like to see a healthy cash level in your business bank account. 
  • Try to reduce chargebacks. There could be a number of factors behind the soaring number of chargebacks in your business. Whatever the reasons may be, you can always analyze them and try to reduce your chargebacks.
  • Be transparent. Disclose all materials and relevant information during the application process. Payment processors may ask you for very detailed information about your business and finances. Be open, honest, and transparent.
  • Keep your documents ready. This could mean having six months of bank statements and a few years of tax returns. That said, each processor has its own set of requirements so make sure to check them.
  • Follow the guidelines of your payment processor. When you apply for a high-risk payment solution, besides your business needs, the risk the payment solutions provider takes also matters. So, be flexible and see if there are things you can do to reduce your risk by discussing with them and following their recommendations.

Our Platform will find the right payment solution for your business

Our biggest differentiator? 

We provide payment solutions for merchants with a 90% Success Rate by Algoritmic matching and pre-KYC onboarding in each industry and region globally.