In Europe, the most commonly used payment methods for e-commerce transactions are credit and debit cards, bank transfers, e-wallets, and direct debit. Credit and debit cards are the most popular payment method, accounting for over 50% of all online transactions in Europe. Bank transfers are also widely used, particularly in countries like Germany and Austria, where they account for up to 40% of all online payments.
E-wallets are becoming increasingly popular, particularly among younger consumers. PayPal, Skrill, and Neteller are the most widely used e-wallets in Europe. Direct debit is also commonly used, particularly for recurring payments like subscriptions and utility bills.
A Payment Service Provider (PSP) is a third-party payment gateway that enables businesses to accept digital payments from customers. In Europe, there are many PSPs, including Adyen, Stripe, Worldpay, and Payoneer. These PSPs offer a range of services, including payment processing, fraud detection, and currency conversion. However these PSPs are for high-risk merchants often difficult to get a MID with. There are many PSPs in Europe specialized in certain types of businesses, such as high-risk merchants.
High-risk merchants face many challenges when it comes to finding a payment solution in Europe. A high-risk merchant is a business that operates in an industry that is considered high-risk by payment providers. Examples of high-risk industries include online gambling, adult entertainment, and nutraceuticals.
The size of the high-risk merchant industry in Europe is significant. According to a report by MarketsandMarkets, the global high-risk merchant market size is expected to grow from $1.5 billion in 2020 to $2.6 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 11.6% during the forecast period.
One of the main challenges for high-risk merchants is higher payment processing fees. PSPs charge higher fees to high-risk merchants to cover the additional risk involved. According to a report by The Strawhecker Group, high-risk merchants pay an average of 4.5% per transaction, compared to an average of 2.9% for low-risk merchants. This can make it difficult for high-risk merchants to remain competitive in their industry.
High-risk merchants also face higher chargeback fees. Chargebacks occur when a customer disputes a transaction, and the PSP reverses the payment. PSPs charge high-risk merchants higher fees to cover the additional risk of chargebacks. According to a report by Chargebacks911, high-risk merchants pay an average of $69 per chargeback, compared to an average of $22 for low-risk merchants.
High-risk merchants may be required to maintain a cash reserve, which can take the form of a capped reserve, rolling reserve, or upfront reserve. These reserves help PSPs mitigate the risk of chargebacks and fraud. A capped reserve is a fixed amount that the PSP
High-risk merchants face additional requirements when seeking a Merchant Identification Number (MID) with a Payment Service Provider (PSP) or Acquiring Bank. These requirements are in place to mitigate the additional risks associated with high-risk industries. Some of the specific requirements that high-risk merchants must fulfill are:
Detailed Business Information: High-risk merchants must provide detailed information about their business, including their business model, industry, and target audience. PSPs and Acquiring Banks want to know as much as possible about the business to assess the level of risk involved.
Financial Statements: High-risk merchants must provide financial statements, including balance sheets, income statements, and cash flow statements. This information is used to assess the financial stability of the business and its ability to manage chargebacks and refunds.
Compliance with Industry Regulations: High-risk merchants must comply with all relevant industry regulations and standards. For example, online gambling merchants must comply with the regulations set forth by the Gambling Commission, while adult entertainment merchants must comply with age verification requirements.
Chargeback and Fraud History: High-risk merchants must provide information about their chargeback and fraud history, including the number of chargebacks and the reasons for them. PSPs and Acquiring Banks want to know how the merchant manages chargebacks and fraud and how likely they are to occur in the future.
Technical Requirements: High-risk merchants may be required to use specific software or hardware to process payments. For example, online gambling merchants may be required to use a specific type of gaming software that is certified by the regulator.
Reserves: High-risk merchants may be required to maintain a cash reserve, which can take the form of a capped reserve, rolling reserve, or upfront reserve. These reserves help PSPs and Acquiring Banks mitigate the risk of chargebacks and fraud.
Volume Caps: High-risk merchants may be subject to volume caps, which limit the amount of transactions they can process in a given period. This is done to manage the risk of chargebacks and fraud.
Being on the TMF/MATCH List: High-risk merchants must not be on the Terminated Merchant File (TMF) or the Member Alert to Control High-Risk (MATCH) list. These lists contain merchants who have been terminated by a PSP or Acquiring Bank due to chargebacks, fraud, or other reasons.
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