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High Risk Business Solutions

HIGH RISK MERCHANT ACCOUNT

Receiving the label of a "high-risk business" may seem daunting, but it is not a definitive judgment on your business's potential for success. Instead, it is determined by the level of risk you pose to credit card processors.

You may be astonished to discover the wide range of businesses that can fall into this category, as it is not solely reserved for those dealing in questionable products.

Continue reading to grasp the significance of being deemed high-risk and how it impacts payment processing and how Rogue Strategic Consulting can help your company.

WHAT IS A HIGH-RISK BUSINESS?

A high-risk business is one characterized by a greater likelihood of chargebacks, fraud, or financial instability.

Credit card processors determine your risk level as a client, typically considering factors such as the industry you operate in (with certain industries, like gambling, adult entertainment, CBD, and tobacco/vaping, being more prone to fraud) and your personal/business circumstances (including low personal credit, a negative financial history, past termination of a merchant account, or previous business failures).

Being designated as a high-risk merchant can complicate credit card processing, as financial institutions prefer clients that generate profit and pose minimal risk. Consequently, high-risk businesses often face rejections from standard merchant account providers.

However, there are reputable processing providers that specialize in catering to high-risk businesses, ensuring viable alternatives are available.

WHAT MAKES A BUSINESS HIGH RISK?

Common misconceptions often lead to the belief that high-risk businesses primarily encompass those dealing in unscrupulous products or services, which is not entirely accurate.

Credit card processing companies categorize businesses as high risk due to various factors, including:

  • Products of questionable nature: This category involves businesses selling items such as adult entertainment, drug paraphernalia, or weapons.
  • Increased chargeback rates: Certain industries, like travel services and electronics, experience higher instances of chargebacks.
  • Stringent legal regulations: Businesses operating in heavily regulated sectors like tobacco and nutraceuticals must adhere to strict legal compliance standards.
  • Sales practices: Businesses utilizing questionable sales tactics, such as MLMs, may be viewed with caution, irrespective of their legitimacy.
  • Client vulnerability: Businesses serving a riskier clientele, such as debt consolidation services, are deemed high risk.
  • Subscription-based models: Customers' tendency to forget cancelling subscriptions, leading to chargebacks, poses a risk for businesses.
  • Online service-oriented businesses: Entities providing online services, like SEO/SEM companies, operate in a risky environment due to intangible products and high-value transactions.
  • Personal credit history: Poor personal credit may influence providers' perception of financial responsibility in relation to business operations.
  • High-value transactions: Businesses with an average transaction value exceeding $500, like furniture stores, face an increased chargeback risk.
  • High transaction volumes: Businesses processing over $20,000 monthly are at heightened risk of chargebacks.
  • International sales: Selling in foreign currencies, especially in countries with higher fraud rates, escalates the risk for businesses, excluding those in the U.S., Canada, Western Europe, Australia, and Japan.

COMMON HIGH-RISK INDUSTRIES

Here are several examples of common industries that may be classified as high-risk businesses, necessitating specific requirements for their operation.

HIGH RISK CATEGORIES

  • Airlines and Booking
  • Amazon Stores
  • Attorney Referral Services
  • Auto Warranties
  • Auctions
  • Background Checks
  • Bad Credit
  • Bankruptcy Attorneys
  • Business Consulting
  • Business Opportunities
  • CBD & Cannabis Products
  • Casinos and Gambling
  • Coins and Collectibles
  • Continuity Billing
  • Credit Monitoring
  • Crypto or Forex Trading
  • Dating
  • Debt Collections
  • Dropshipping
  • Electronics
  • Event Ticket Brokers
  • Fantasy Sports
  • Financial Planning & Advisory
  • Firearms
  • Furniture Stores

HIGH RISK CATEGORIES

  • Government Grants
  • Health and Beauty
  • High-Ticket Coaching
  • Import/Export Businesses
  • Magazine Sales & Subscriptions
  • Membership Organizations
  • Merchants on the MATCH list
  • Multi-Level Marketing (MLM)
  • Nutraceuticals
  • Offshore Businesses
  • Online Gaming
  • Pawn Shops
  • Pay-Day Lenders
  • Prepaid Debit Cards
  • Psychic Services
  • SEO/SEM Services
  • Skin and Hair Care
  • Subscription Boxes
  • Tour Operators
  • Travel & Vacation Services
  • Vape & Cigarettes
  • Vitamins and Supplements
  • VoIP Services
  • Web Design and SEO
  • Weapons (of any kind)

THE OUTCOMES OF BEING DESIGNATED AS HIGH RISK.

One common inquiry that our team frequently receives from companies is:

What should one anticipate following the classification as a high-risk business?

Although you can still establish a merchant account if you are labeled a high-risk company, be ready to navigate additional hurdles. Here are some common tasks that you can encounter.

  • SOME PROVIDERS MAY NOT BE WILLING TO COLLABORATE WITH YOU

    Many merchant account providers do not cater to high-risk merchants, so it is important to avoid wasting time applying with the wrong provider. Instead, focus on finding a provider that specializes in high-risk merchant accounts.

  • MORE STRINGENT APPLICATION PROCESS

    You may need to provide additional business information and supporting documents. Your financials and credit card processing history will undergo more thorough scrutiny. The underwriting process may be extended.

  • INCREASED PROCESSING FEES

    Your processing rates will be heightened to reflect the level of risk you present. This adjustment is necessary to mitigate the risk of chargebacks not being paid or your business facing potential failure.

    Businesses categorized as high-risk may anticipate processing rates ranging from 3.5% to 5%. Industries considered ultra-high risk, such as adult entertainment, firearms, and e-cigarette sales, may even incur higher rates.

    However, our trusted vendor, PaymentCloud, can assist in securing competitive processing rates for your business.

  • MORE STRINGENT TERMS & CONDITIONS

    While many standard merchant accounts, they do not require a contract, most high-risk merchants do not have the same luxury. It is probable that you will be required to enter into a long-term contract, typically lasting 2-3 years, with a penalty for early termination.

  • REQUIREMENTS FOR KEEPING FUNDING RESERVES

    A reserve is a designated amount of funds that are kept to safeguard the merchant bank. If chargebacks are not paid, the reserve funds may be utilized to cover them, restricting access to a portion of your funds.

Pro Tip

If your business operates in a high-risk industry, it's advisable to avoid payment processors such as Square or Stripe. While the lack of an approval process may be enticing, they have the authority to abruptly terminate your account upon discovering prohibited products being sold. This could potentially result in your business being added to the MATCH list, making it significantly more challenging to secure alternative payment processing solutions.

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