Starting a business is easier than ever. However, there are several steps and key elements that even an experienced business owner might not think of off the top of their head.
This is especially true if you’re an aspiring business owner in a high-risk industry, which are categorized by determining factors such as higher tickets and valued goods.
As if starting a business wasn’t hard enough already, starting one in a high-risk industry means stricter regulations, higher risks of fraud, and more.
The biggest challenge for establishments in such trades, though? Finding a reliable payment processing provider — a deciding component for success as a high-risk merchant.
We’ve worked with countless high-risk business owners over the years, and here’s exactly what you need to know to succeed.
What is a High-Risk Business?
Generally, a high-risk business is considered so due to the industry it’s in, the value of goods being traded, regulatory environments, region-specific requirements, and the likelihood of chargebacks and fraud, among other niche aspects that vary from one industry to the next.
The following all contribute to the classification of a business’s risk classification (and, unfortunately, all of these factors put you at a disadvantage in the eyes of a payment processing provider — but more on that in a bit).
Business Activities
Some businesses are inherently associated with a higher level of operational risks.
For example, enterprises in the adult and gambling industries are far more scrutinized because of their potential risks and controversial nature.
Additionally, trades like tobacco and travel are also linked to higher chargeback rates due to the value of the products and issues that come with travel bookings, for instance.
Products
Carriers of certain products, like CBD, new-age tobacco goods, adult entertainment, and firearms, often face more issues due to varying regulations, legality of the service or product at hand, age restrictions, and ethical issues.
Despite the progress made over the years, these products and services still carry a notorious reputation for being high-risk since legal complications are frequent and laws are ever-changing.
For example, cannabis and CBD products are very heavily regulated despite (or perhaps due to) them being widely legalized nowadays. The regulations typically affect the sales depending on the region of the carriers and their target markets.
Similarly, sites offering adult content or services are expected to follow strict regulations as well as moral codes.
For business owners, this means ensuring everything is secure, policies are up to date, age restrictions are set, and content monitoring is maintained, all of which affect the risk assessment of a business and, more often than not, make it very high-risk.
List of High-Risk Business Industries
While this isn’t a comprehensive list, here’s a quick list of sectors that are considered high-risk (and why, which is what’s really important to understand if you operate or are thinking of building a business in a high-risk industry):
- Adult: Due to the regulatory environment of the industry, ethical considerations, age restrictions, identity verification, required content monitoring, and high chargeback ratios often caused by recurring billing
- CBD/Cannabis: Due to region-specific regulations and legality, product types (for cannabis-derived products), high value of goods, and age restrictions
- Gambling: Due to region-specific regulations, requisite individual licenses, age restrictions, and ethicality
- Cryptocurrency: Due to varying regulations, individual licenses if the merchant wants to handle actual money, age restrictions, and the reputation of the trade since it’s such a modern concept
- Vape/E-cigarettes/Tobacco: Due to country-specific trading restrictions, product types, age restrictions, and packaging requirements
Why Risk Matters in Payment Processing
Risk assessment in payment processing plays a big role in the way a high-risk business operates and manages its financial operations.
Being able to assess the risks you’re facing can help identify potential financial or operational risks down the road and avoid huge losses.
This comes in handy in preventing, diminishing, and addressing fraudulent activities as well as chargebacks.
An in-depth evaluation of risks can also ensure payment service providers of your ability to handle such challenges and gives you, the business owner, peace of mind.
Any merchant offering recurring payments should have a strong mechanism in place for chargebacks. For example, it's important to ensure you're PCI compliant. Every merchant has to fill out the self questionnaire, and we usually do it for them to expedite that process
Stricter Compliance Requirements
Naturally, all high-risk trades have stricter regulatory environments and compliance standards than lower-risk sectors.
These often vary depending on the specific industries, regions, and goods or services, but they all carry the same overall purpose — adherence to compliance requirements.
Failing to comply with the various terms specific to your high-risk industry can lead to significant forfeitures, loss of clientele, and, ultimately, termination of an account.
Luckily, there are ways a business can ensure optimal compliance and secure operations.
We are building out a team of high-risk industry experts to help with this analysis and review process, because we want to see these businesses succeed. Their success is our success, and we care that they trust our services, and that's why we don't just submit whatever we have and take the feedback from there. Our goal is to submit an application as good as it can be the first time around.
Higher Chance Of Getting MATCHed
MATCH (Member Alert To Control High-risk Merchants) is an exclusive list of merchants that have been terminated by an authorized acquirer.
This list was established by MasterCard to flag potentially problematic establishments. Only licensed entities are able to MATCH list businesses, as it is an internal register accessible to acquirers and banks.
High-risk merchants are at a higher risk of getting matched by simply being more prone to risks. Typical reasons for landing on the register include excessive chargebacks, transaction laundering, a high fraud ratio, and violation of MasterCard’s standards, for example.
High-Risk Financial Services Are More Expensive
As a high-risk business, obtaining and maintaining payment processing services often comes with higher fees and additional costs.
In general, establishments in high-risk industries are faced with an increase in fees for the services they require simply because of the increased potential risks they present.
In addition, acquirers usually require added costs such as rolling reserve, for instance, to prevent their losses and have as a backup to cover any financial forfeitures.
Merchant Account Reserve
A merchant account reserve is a safety fund that a high-risk payment service provider sets aside. Think of it like a safety deposit or your own savings account that gives you peace of mind.
An acquiring bank can set out different types of reserves, including rolling reserves, capped reserves, and upfront reserves.
Rolling reserves, as mentioned before, are collected over time, and the standard for high-risk merchants is 10%.
Capped reserves are typically a percentage of sales being collected until they reach the set limit.
An upfront reserve is usually a predetermined fee required from the merchant before they start processing payments.
A merchant account reserve refers to what are basically involuntarily savings that merchant processors keep as a safeguard against certain risks. This usually amounts to 10% in high-risk industries. If you don't have any chargebacks or fraud and operate within a low-risk industry, it's easy to negotiate it down to a lower percent. However, in high-risk industries, it's usually set at 10%, and it's hard to lower that. I wouldn't trust a merchant services provider who says they can negotiate extremely lower percentages for a high-risk business, as they're not trustworthy.
Tips for Reducing Your Business’s Risk Factors
Having set strategies to minimize the risk factors associated with your high-risk business is key to getting on an acquirer’s good side.
Some of the measures worth considering to do that include:
Fraud prevention: Implementing modern fraud prevention and detection tools can give you a head start here. Using 3DS, 2-factor authentication, and AI-driven monitoring, among other tools, can help lower the risks, catch fraud, and prevent financial losses.
SSL: Implementing secure payment protocols protects you from data leaks and cyber threats. This can ensure your customers a safe and secure experience, build trust, and potentially widen your reach.
Good customer service: Having an experienced support team by your side can help you tackle problems quickly. This might (hopefully) result in fewer chargebacks as they can be addressed and prevented in a timely manner.
Clear refund policies: By ensuring your customer understands the terms and policies of your service or goods, you’ll be able to minimize disputes and chargebacks before they even happen.
Payment Processing Solutions for High-Risk Business Industries
There are many different payment processing providers for high-risk merchants available on the market today.
In high-risk industries, though, it’s important to find a processor who’s competent and experienced in the high-risk industry you’ll be operating in. That’s why looking at pricing alone won’t give you any real insight.
Opting for a provider who can tailor the solution to your needs is key here, as businesses, even within a specific industry, are ultimately different and require individual approaches.
Quality high-risk merchant service providers should always be up-to-date and knowledgeable about the current and ever-changing regulations and accommodating to those in question.
Aside from those tips, we’ve highlighted a few key factors to keep in mind when assessing providers to make the process a little easier.
Clear, Honest Fees
The pricing proposed should always be clear and understandable (i.e., it shouldn’t come with shady additional fees or clauses that are hard to understand).
A processor should never have a problem breaking down the costs for a potential new client. If they can’t explain a fee to you in simple language, you’ll likely be facing additional hidden costs down the road.
However, it’s important to remember that the costs for such services will be a little higher due to the risks associated with high-risk trades. So, if something sounds too good to be true, it probably is.
Multiple Supported Currencies
Seeing as, more often than not, high-risk businesses operate beyond borders, multi-currency processing has become essential.
Being able to cater to a wide range of regions with different currencies will not only make you and your clients’ lives easier, it will also widen your reach and aid your business’s growth.
At the end of the day, what everyone is looking for is convenience, and processing more than just one currency will allow you to offer that.
Risk Assessment & Individual Approach
As mentioned above, every single business, no matter how risky, requires an individual approach to succeed. However, the unfortunate reality when starting a business is that it can only be achieved through experience and trial and error.
That’s why you’ll want to partner with a processor who’s been in the game for a while and knows what they’re doing.
Also, an expert opinion on risk assessment is key to preventing and minimizing risks and challenges that arise as you scale your high-risk business.
You really need to make sure your website is compliant, as we've seen businesses have their accounts get suspended or terminated because they didn't follow the thread of compliance throughout the whole website. We go through CBD websites, for example, really thoroughly, to ensure they have their product ingredients and lab analysis clear on every required page.
FastoPayments’s High-Risk Merchant Services
Partnering with the right payment service provider can make or break a business, but it’s particularly important for businesses in high-risk industries.
It means being able to facilitate secure transaction processing and is also important when it comes to aiding your business’s growth, maintaining regulatory compliance, navigating the challenges, minimizing losses, and assisting operational efficiency.
At FastoPayments, we take pride in going the extra mile to actually help the high-risk merchants we work with. We offer tailored solutions to every high-risk industry and all the tools you could ever need in one place.
Our payment services range from high-risk merchant accounts and API integrations to fraud prevention tools and much more.
Ultimately, even for merchants we can't help, we try to provide a deeper analysis about where they should go or what they should do to get approval. For companies we do work with, we try to analyze their business and website as thoroughly as possible, asking questions like, "Is everything secure? Are their policies up to date? Is their company name in the footer?" etc. We look at everything very thoroughly to ensure they have the highest chances of approval, and that's all based on the hundreds of applications we've submitted.
Whether you’re starting a business or already have a business in any high-risk industry, it’s important to work with the right merchant services provider.
To understand what’s included in those services and to get a free, no-obligation quote for a high-risk merchant account, click here. We’ll review your business information and get back to you ASAP.
