A Comprehensive Guide To High-Risk Merchant Account Processing

It doesn’t matter much the type of business you operate, the line of operations you are in, or the products you sell. There will always be a risk associated with operating any business, be it small, medium, or large. However, some products and businesses are considered to be high-risk by merchant processors, banks, white-label payment processing providers, and others.

Typically, a business may get labeled as a high-risk entity if it satisfies two criteria:

1. It operates within a high-risk industry.
2. It demonstrates a significant financial risk with potential failure.

Most high-risk merchants could meet just one or even both conditions.

Points To Note

• Being in a high-risk industry with high potential for failure increases the likelihood of being labeled a high-risk business
• High-risk businesses are businesses that are seen as financially volatile/unstable by investors
• There are five primary risk types: operational, compliance, financial, legal, or reputational

What Are High-Risk Businesses?

There is no denying the fact that every investor expects to make some profits out of his or her investments. They prefer businesses that can generate revenue and stay profitable over time. This is the primary reason why investors often hesitate to put their money in high-risk businesses.

Let us understand this concept with an example.

• Business A: This business sells things like books, clothing, and office supplies and earns an average of less than US$20,000 monthly in sales volume and US$500 monthly in credit card transactions. It doesn’t provide recurring payment options, accepts only one currency, and is not in a high-risk country. It is considered a low risk by investors.
• Business B: This business deals in digital technologies and other software. It earns over US$20,000 monthly in sales volume and US$500 monthly in credit card transactions. It offers recurring payment options and accepts multiple currencies. It is considered a high risk by investors.

The above classification (low risk or high risk) depends on certain factors, including but not limited to:

• Financial Risk: It includes a broad spectrum of concerns. For instance, the risk of excessive chargeback increases if a business has high-dollar sales or sells a high monthly volume. This, in no way, suggests that the business is financially unstable, but it is perceived as a high-risk business by investors.
• Reputational Risk: Industries that sell products or services that might be considered questionable by the general public can pose a great risk to the reputations of investors. This may include adult entertainment, gentlemen’s clubs, topless bars, Nightclubs, cabaret bars, and strip clubs.
• Legal Risk: Businesses with a history of legal disputes or those involved in industries with a high volume of legal cases may be considered high-risk businesses as investors don’t want to suffer due to expensive and never-ending legal battles.
• Compliance Risk: Businesses that are subjected to high legal compliance such as tobacco, alcohol, and nutraceuticals may be considered as a risk by investors.
• Operational Risk: Businesses with a track record or higher potential for operational concerns or workplace safety may be considered high-risk businesses as investors.

A business may be considered high-risk when:

1. It has been on the MATCH [Member Alert to Control High-Risk] (terminated merchant) list within the last 5 years.
2. It deals in the sale of products and/or services that typically result in high-dollar transactions.
3. The chargeback ratio of the business is too high.
4. It operates in a sector with a high employee turnover rate.
5. It does business in countries with a high risk of chargebacks (such as Brazil, Mexico, Russia, Germany, the Netherlands, etc.).
6. It experiences a higher-than-average amount of returns/refunds.
7. The business owner(s) have a poor personal or business credit card history (late payments, insufficient collateral for loans, etc.).
8. It is a new business with very little history of credit card processing.

List of High-Risk Industries

The following is a list of some common industries that are deemed a high risk:

• 1-800 chat sites, dating services, adult entertainment, Gentleman’s clubs, topless bars, Nightclubs, cabaret bars, and strip clubs
• Guns, gunpowder, ammunition, weapons, fireworks, and other explosives
• Peptides, research chemicals, and other toxic, flammable, and radioactive materials
• Production, trade, storage, or transport of hazardous chemicals, or commercial scale usage of hazardous chemicals
• Quarries, mining, or processing of metal ores or coal
• Gambling / Fantasy Sports / Sweepstakes / Betting / Casino / Horse Racing / Bingo / Sports Betting / etc.
• Multi-level marketing (MLM) structures, financial pyramid or Ponzi schemes, matrix programs, or other schemes
• Debt restructuring, debt factoring, credit repair, debt settlement, or debt collection
• Payday lenders, pawn shops, and high-ticket coaching
• Bitcoin mining, forex trading, and cryptocurrency-related activities (crypto ATM services, cryptocurrency exchange services, cryptocurrency custody services, cryptocurrency trading, crypto-mixers, etc.)
• Dealing in commodities or futures, or shares, securities, or other financial instruments
• Trade-in wildlife or wildlife products regulated under CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora)
• Timeshares or timeshare advertising
• Commercial logging operations; production or trade in wood or other forestry products from unmanaged forests
• Production or trade in pharmaceuticals, e-cigarettes, nutraceuticals, tobacco, cannabis, and male enhancement products
• Drift net fishing in the marine environment
• High-ticket items such as luxury goods
• Airlines, accommodations, and ticketing agents
• Recurring billing/Subscription services (magazines, collectibles, etc.)

Conclusion

The future of high-risk businesses may appear bleak in the first place, but there are many reliable high-risk payment processors and merchant account providers that provide white-label payment processing to them.

To know more about the best merchant services associated with white-label payment processing solutions offered by top high-risk payment processors, merchant account providers, and high-risk payment gateways, please feel free to explore TheFinRate Directory.