How to avoid high-risk transactions?

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How to avoid high-risk transactions?

As an online merchant, you surely know you cannot avoid high-risk transactions in their entirety. However, you can exercise caution and minimize their damaging effect on your business. As end-to-end high-risk management and anti-fraud solution, Covery knows it all about how to avoid high-risk transactions and can help prevent you from becoming high-risk merchants. Read on to find out how to identify a high-risk customer, how to reduce the risks related to them, why becoming high-risk merchants is bad, and how you can prevent this issue.

What are high-risk transactions?

As the name implies, these are transactions that carry high risks of loss for online merchants. Some examples are as follows:

  • Transactions from unverified customers, who might be criminals doing money laundering. Should the authorities trace such a transaction to you, you will be held accomplice
  • Transactions from known fraudsters who might later initiate chargebacks, which will affect your chargeback ratio and turn you into a high-risk merchant
  • Transactions from high-risk merchants who might try to defraud you with affiliate fraud or any other types of fraud

The result is that some transactions can result in more trouble than they are worth in money. 

How to identify and avoid high-risk transactions then? You need to implement and use high-risk management best practices through some anti-fraud system like Covery. This will help you derail fraudulent schemes, ensure KYC/AML compliance and reduce your chargeback ratio with payment service providers.

Who are high-risk merchants?

All online merchants have chargeback ratios with payment service providers like Visa and Mastercard. If the total number of chargebacks exceeds certain thresholds, merchants are placed into a high-risk category. This means they have to participate in a redemption program and pay a hefty fine ($25,000 — $50,000). They should also pay increased payment processing fees until they prove their commitment to reducing the number of chargebacks and implementing high-risk management best practices and controls in place.

Some industries are considered high-risk inherently but can provide high yields. These include agriculture, insurance, alcohol, construction, financial and other services. Thus, while some merchants can fall into a high-risk category temporarily and should strive to leave it at once — some should accept this situation as a given and adjust accordingly. 

But mostly, merchant statuses depend on their interactions with customers, meaning that you can enter a high-risk category due to working with risky customers. How to identify them and how to avoid high-risk transactions from them?

Who is a high-risk customer?

Not all customers are risky by nature, but there are certain conditions that make dealing with them riskier:

  • countries under sanctions
  • email address, IP address, IBAN or other details used in fraudulent schemes
  • certain professions with high possibility of money laundering, etc.

Online merchants should deploy Enhanced Due Diligence procedures and ensure ongoing transaction monitoring for such customers. Being an anti-fraud system, Covery provides such capabilities by default.

By using automated KYC, behavioral analysis, device fingerprinting, supervised Machine Learning, synthetic identity theft protection and Trustchain — a global reputational knowledge base, Covery can identify high-risk customers at once, alert you about them and help you make informed decisions whether to avoid high-risk transactions from them.   

Should you avoid high-risk transactions?

While every business must try to maximize their revenues, most high-risk transactions can result in losses on the body of payment, payment processing fees, chargebacks, chargeback redemption fees, etc. Thus said, you should try to strike a balance between making additional revenue and minimizing potential losses — because, obviously, earning $5,000 can’t justify paying $25,000 to get out of the Visa redemption program. 

However, should you have a chance to earn $150,000+ to surely cover all the possible fees and expenses — you might decide to go for it, just ensure you have a reliable anti-fraud tool at hand.


Online merchants in the US, the UK, Europe, and worldwide should try to avoid high-risk transactions to minimize their potential losses. Should you decide to go for it, just ensure you have a reliable anti-fraud platform in place to automatically validate your customers, monitor transactions in real-time, and decline potentially risky ones to protect your bottom line.

Covery can help you with it, so contact us to order a free demo and learn how Covery provides value for your business!