When a bank or card payment processor gives a “high risk” designation to a business, it is because the business may require more risk monitoring and due diligence than other businesses, as it may be prone to more chargebacks or fraud than other types of businesses, or be more prone to financial failure.
If you want to accept card payments either instore or online, your business will be given a risk rating of either “high risk” or “low risk” by the acquiring bank and/or the payment processing provider. The payment industry is responsible for protecting the ecosystem from bad actors and for protecting the consumer, and risk assessment is one of the tools used to achieve this.
A high risk identifier is usually applied around two general criteria – the industry business is in, and the personal circumstances of the directors/owners of the business. In addition, even if a business is in a traditional “low risk” category, but the business practices are shoddy and lax, resulting in a high chargeback ratio, that business can be considered high risk by the payments industry. Even successful businesses in low risk industries can be considered high risk simply by the size of the monthly transaction volume.
If the business is very new, and the directors/owners have no financial track record, the business may be considered high risk. And if the directors/owners have a bad credit history, or a record of bad business practices, that too can be a contributing factor to being considered high risk.
Depending on where you are in the world, you may also be subject to local legislation that may result in a high risk classification by your acquiring bank.
The industry in which the business operates plays a big role in high risk designation. There are numerous verticals, or niches, that are considered high risk. The term “high risk” may sound scary or seedy to some, but in truth there are plenty of innocuous industries that have this designation, including travel agents and event ticket sellers. Even something as wholesome sounding as a monthly subscription box of treats for your dog can fall into a high risk category.
The list of industries considered high risk is quite long and often surprising, here are some examples:
- Online gaming
- VOIP providers
- Adult entertainment
- Subscription services – magazines, collectables etc
- Financial counseling
- Life coaching
- Event ticket sales
- Dating services
- Health and wellness products
- Horoscopes/fortune telling/psychic services
- Debt collection
- Tour operators
- Web development
- Membership based companies
- Money transfer
- Sports betting
- Chat lines
- Telesales orders
- Fantasy sports websites
- Weapons such as knives, firearms and stun guns – including parts and ammunition
- Forex trading
This is by no means an inclusive list, and may vary somewhat between jurisdictions, banks and payment networks. There are also specific products that payment providers simply will not entertain at all, such as counterfeit goods.
There are other factors that come into play as well, such as monthly transaction volume, average credit card transaction amount, the amount of currencies accepted, and where you are based or where you sell to. Some regions are considered a high risk for fraud, for example. And your chargeback history plays a huge role in your risk classification.
The payment industry, card networks and banks keep databases of businesses that have had one or more merchant accounts terminated by their acquiring bank, or had their payment services terminated by a provider. Businesses who are on these lists are likely to be considered high risk, even if they do not operate in an industry vertical considered high risk. These databases are quite comprehensive and accessible to players in the payments and banking industries, making it all but impossible to hide canceled accounts.
So what does it mean if your business is considered high risk? Does that mean that you cannot accept payments online?
There are two possible scenarios, the first is that you cannot get merchant services at all from traditional providers. However, all is not lost in that case – there are alternatives available, and you can talk to us at Baer’s Crest about innovative payment solutions for your business.
The second scenario is that you qualify for a high risk merchant account. These accounts allow you to operate either instore or online, and accept electronic payments for your goods and services. Of course there is a price for this. Your options in choosing providers is dramatically reduced if you are considered high risk. And as your provider has to do a lot more work, the fees across the board will be higher, including setup, processing and chargeback fees. You may also be locked into a longer contract period, subject to early termination fees, or require a rolling reserve, where a percentage of your funds are held in a non-interest bearing account for a predetermined period of time before being released to you.
If you have a high risk merchant account with your acquiring bank, engage with us at Baer’s Crest about options on payment solutions for your e-commerce website. We have helped multitudes of high risk merchants transact safely and securely online, with reasonable fees and innovative technology. Talk to us today.