In the credit card processing industry not all businesses are considered equal. Some industries and business models are normally considered safe by banks and payment processors. On the other hand, there are certain industry types that carry greater financial risk. A high-risk business is simply one that puts a payment processor and acquiring bank at a risky position. Such businesses have higher chances of chargebacks, fraud, regulatory scrutiny, and financial instability. Because of these elevated risk parameters, such businesses generally face stricter approval requirements, higher fees, rolling reserve, and are generally left with limited access to merchant account and payment processing solutions.
The simplest way to determine if your company falls into the high-risk category is by looking at your industry type. Most businesses that operate in sectors such as travel, adult entertainment, CBD, nutraceuticals, coaching, gaming, debt collection, and subscription-based services are normally labeled high-risk by acquiring banks. These industries deal with complex regulations, have higher customer disputes, and also carry unpredictable revenue models. All of this makes them a risky option in the eyes of financial institutions.
Another reason is your company’s chargeback history and the credit profile. If your business has got a history of more than normal chargebacks, late payments, poor credit score, most of the times bank will flag you as high risk. Even if your industry itself is not considered problematic. High chargeback percentage that is above card network threshold, which is usually 1% of the total transaction, can automatically get your business categorized as high risk.
Geography also plays a role if your business is international or you operate outside of traditional banking regions such as US, Canada, UK, European Union, Australia, New Zealand, then you may be considered high risk simply because cross-border transactions come with their own compliance-related risks and challenges. Businesses in regions with limited financial regulation or those businesses that cater to international customers are normally the ones that need specialized high-risk payment processes to operate smoothly.
If you are just starting up or a business with little or no processing history can also fall in the category of high-risk business. Banks and payment processors generally prefer to work with companies that have proven their processing capabilities. If you are new to the industry and you don’t have any financial data to prove your creditworthiness, then payment processors normally will try to avoid you until you build a solid track record. Sometimes even legitimate fast-growing businesses from low-risk industries are considered hard to place just because such businesses are starting their journey.
In simple terms, we can say that whether your company is high risk or not, totally depends upon your industry, chargeback percentage, risk of fraud, location of operations, target location, financial history, and business model. If you think that your business falls in such category, then the best move or the smartest move would be to work with a high risk merchant account provider. Such providers specialize in underwriting high risk businesses and they help such businesses with credit and debit card processing. Along with that, they also offer alternative payment methods including ACH and E-check. All of these payment instruments can help startup as well as other high risk businesses to operate and grow.