A High-Risk Merchant is typically identified for which of the following reasons?

A High-Risk Merchant is typically identified because they operate in sectors prone to fraud and risk. Many businesses are classified as high-risk based on inherent traits of their industry, such as high transaction volumes, the nature of the goods or services provided, or a history of chargebacks and fraud. Common examples include online gaming, adult entertainment, travel bookings, and subscription services, all of which can be more susceptible to abuse and fraudulent activities.

Factors like having a low number of transactions or providing exclusively local services do not inherently indicate a higher risk profile. In fact, merchants with lower transaction volumes could be seen as less risky, as fewer transactions often correlate with fewer potential issues. A loyalty program, while beneficial for customer retention, does not impact the risk classification since it does not address the type of transactions or services offered that could lead to fraud. Thus, the correct focus on sectors known for high levels of risk and fraud aptly explains why certain merchants are classified as high-risk.