WHAT ARE HIGH RISK INDUSTRIES – AN EXPLANATION
The global economy is growing at very high pace because all the industries together are performing for a common goal. The idea is to achieve maximum profit and a maximum number of transactions. Profits are directly proportional to the number of sales. All the industries are dependent on the banking system for various financial services including loans, Bonds and Merchant Accounts. The banking system classifies the merchant in three different segmentation. The Levels are Low, Mid and High Risk. High-Risk industries involve massive risk for all the three parties which are the buyer, seller, and the financial institution.
The customer wants that the price which is paying for the product or services is worth the quality of the product or service. In other words, he is interested in getting the right kind of product or services as promised by the seller. The merchants prime objective is to get paid the full amount at the right time as promised or committed by the buyer.
The financial institution wants that the buyers and the seller keep the value of the agreement and never dispute the transaction or never try to misuse the structure or the instrument of payment processing provided by the financial institution. It’s a financial institution which is covering the maximum risk when it comes to payment processing. Financial Institutions always try to stay away for high-risk industries.
Definition, Government and financial institutions term industries that attract a high number of commercial disputes and legal restrictions as High-Risk. We are going to talk about few of the industries that are considered high risk. We cannot discuss all of them primarily because the list is massive and is growing every day. Please be aware that the high-risk industries for banks can be different as per the jurisdiction in which it is operating. For example, an industry that is considered high risk in one country may be regarded as intermediate in a different nation. It may be because that jurisdiction or the nation has a different set of laws. To explain it further I would say that selling electronic cigarettes is not legal in some states of India, but it is legal to sell in other most of the states.
High Risk Industries List
Advocates/law firms/Attorneys Or Any Company Or Individual Connected In Providing Legal Services: Financial Institutions refrain from working with this industry primarily because they know that the merchants will always have rebuttals for charge-back and refunds. It would be difficult to have a communication with the merchant in case of chargebacks refunds or any penalties as the merchant from this industry will have a better knowledge of local laws and business laws. People from this industry also ask many questions before signing the Merchant Application form, and most of the times the financial institutions do not want to change the service terms listed in the agreement.
ATM Service Providers: The credit card companies are not very comfortable working with this industry because the ATM carries much cash. There have been instances when robbers have tried to rob ATM this is the primary reason why the Financial Institutions try not to work with this industry type.
Vehicle Sales: The auto dealership is another industry which is considered high risk. The reason why it is considered high risk is primarily because of the ticket size. The Cars are costly. The banking institutions always prefer working with merchants that offer the product and services at lower ticket size.
Call Centres: Call center agents persuade the customer to make purchases. They also make false promises and commitments to the customers to generate sales. This kind of behavior invites high returns. Returns are Taboo in the Payment Processing Industry.
Auction Services And Websites: The potential risk of onboarding a Merchant in this category is that someone after the auction may claim the product. Also, this business model may be used by anti-social elements as the cost price of the product can never be identified. People can set any price for the product and sell it. This business model can be used for money laundering as well.
Construction Companies: After the subprime crisis, even the construction industry has become high risk. Banks are reluctant to offer merchant account solution to construction companies because the construction companies are dependent on the payments from the builders. The real estate market is very volatile. Banks prefer to stay out of any volatile market.
Agricultural Companies/Farming Companies: This industry is extensively dependent on the climatic conditions. This industry suffers massive losses because of torrential rains, drought, and low yield. A farmer can get significant profit in a year, and the next year he might not make any money that is the reason Financial Institutions try to stay away from this industry.
Financial Firms/Accountants/Chartered Accountants: Many merchant account providers for payment service providers do not like offering payment processing solution to this industry because of the higher ticket size involved. In this business type, most of the accounting firms do very high-value transactions. Financial Institutions want merchants who offer smaller services at smaller ticket size and have low return/ charge-back ratio.
Churches Or Any Religious Organization: Banks refrain working with this industry because there is a very high possibility that people may use these accounts for money laundering and donation scams. We all know that most of us want to keep our donations private and because of that, it becomes tough to identify the source of the money. These religious organizations also enjoy tax benefits at many Locations, and that is why it is tough to determine where the money is going.
Convenience Store: They are also considered a high-risk profile. It is a bit difficult to understand because almost everywhere we say convenience stores using point of sales machine. The reason Financial Institutions stay away from convenience stores is that of the possibility of robbery and also the possibility of the collapse of the business. Internationally people have started to shop online and from shopping malls that are much bigger and also provide different kind of products under one roof. This new trend has created massive challenges for convenience stores to retain stability in the market. It is easy for a convenience store owner to lease the POS machine to another high-risk business. Banks do not like Transaction Laundering and refrain from working with merchants that can potentially do that.
Alcohol Stores Or Liquor Liquor Stores: The Financial Institutions need to make sure that do they do not facilitate payment processing to any organization that may be involved in selling control substances. The Financial Institutions also refrain from offering merchant accounts to liquor store or alcohol store because they do not want their name to be associated with an industry like this.
Aircraft Dealers: Any individual who is new to the payment processing industry will have this question. Why are the aircraft sales considered high risk? There is a single reason for that which is the risk of a charge-back. The higher the ticket size, the bigger is the risk for the financial institution. Imagine if an aircraft dealer has sold two jets for 1 million each. In case if one of the sales goes on a charge-back request then it will be catastrophic for the financial institution. The payment processor has to make sure that the seller refunds the buyer. In case if the seller is not returning that money to the customer then the only organization which is at risk is the financial institution. The underwriting team at Financial Institutions do much analysis before they on board this Merchant type. Approval is feasible but is not possible for every aircraft dealer. The dealer must have an excellent business profile and must have very sound financial Standing.
Casinos: This industry is full of light music and enjoyment, but still, it struggles to find a payment processor the primary reason is that the government in most of the countries are not compatible with this business model. There have been instances where several criminals have spent stolen money at casinos. The financial institution wants to focus on the core competency by onboarding only those merchants which attract maximum profit for the financial institution and the least risk for them.
Travel Agencies For Travel Websites: This industry is considered high risk because there are possibilities that the customer will cancel the ticket and ask for a refund. The acquiring banks or the PSP take great measures to identify the right merchant to be on-boarded from this industry type. Gone are the days when people used to create travel website and use to get merchant accounts. In today’s scenario, most of the PSP or acquiring banks will say no to this industry. In case if they say yes they would put conditions like the service must be delivered within a span of 2 months or a maximum of 3 months. They will also put a rolling Reserve of 10% to 20% and will also protect themselves by putting a hold on the payout for 7 to 14 days.
Money Transfer Services: It is challenging to get a solution for this industry type because the financial institutions fear the risk of money laundering.
Precious Metal/Jewelry Stores: Because of the high ticket size, this industry is a well-known high-risk industry. It is almost impossible to get a merchant account for this industry type. If by any chance the approval is received then the merchant might be asked for a fix reserve/rolling reserve.
Charity business is also considered high risk: Many Call Centres located in different parts of the world call innocent people and use emotional intelligence to get donations this is also known as a charity scam. The banks do not like this business model and most of the times will decline the application.
Online Pharmacy: Medicine sales carry health risk and that is why they are in the high-risk category. Some merchants that sell Non-Controlled medicines may get echeck solutions. They must have supporting documents to represent the legal status of the company.
Adult Entertainment: It is challenging to track the type of content that will be streamed by any adult merchant. This creates a massive risk for the banks and payment processors. They do not want to facilitate payment processing to any business that is promoting child pornography. Many nations prohibit pornography. It is illegal to produce and sell porn in India.
Crypto Currency: Cryptocurrency has seen its rise, and now it is going down very fast. People who invested in cryptocurrency are having a terrible time because they cannot sell it and they are losing their money. Apart from the volatile nature of cryptocurrency, there is one more problem which is that it is used a lot by cybercriminals.
Dating Websites: Many dating sites cheat people by creating fake profiles. The risk level is very high in this industry. Some offshore providers may still offer a solution for the same.
If you understand the risk level of the industry then it will be very easy to apply for a merchant account for new business. You will save a lot of time and will not face declines.
PAYMENT OPTIONS FOR HIGH RISK INDUSTRIES
Merchants from the industries mentioned above can still do business using alternative payment processing solutions like electronic checks and prepaid vouchers. Electronic check is a great solution when it comes to accepting payments from customers based in the United States. Echecks or substitute checks are also actively used in Canada.
Feel free to contact us so that we can evaluate the possibility of providing some payment processing solution for your high-risk business.