The banking system divides the merchant into three distinct groups. There are three kinds of risk levels: high, medium and low. In high-risk businesses, all three parties, the buyer, seller, and financial institution, are exposed to significant risk.
A company is classified as a high-risk business if it meets two criteria: it operates in a high-risk industry and there is a chance of financial failure. One or both of the conditions may apply. The first criterion concerns safety and health, while the second condition concerns the viability of your business (continued profitability). Both scenarios, however, may have an impact on your company’s capacity to obtain finance, insurance, and merchant accounts.
Factors of High-Risk
According to High-Risk Expert, banks and merchant account providers consider a firm to be high risk if it has a high rate of chargebacks (when a merchant receives credit card payments but customers cancel purchases); refunds and returns; and credit card fraud. Furthermore, according to FastUpFront.com, banks consider businesses with poor credit histories (late payments) or no collateral for loans to be high risk. Furthermore, businesses in industries with a high frequency of fatal or nonfatal accidents are at a higher risk.
If your firm is high-risk, your insurer may charge you a hefty premium to provide the coverage you need to operate. If you run an online vitamin store, for example, you might have to spend a lot of money for errors and omissions (E&O) coverage. Furthermore, non-compliance with local, state, and federal compliance regulations exposes your company to penalties and lawsuits.
Types of High-Risk Business
According to the Centers for Disease Control and Prevention (CDC), the agriculture, construction, and mining industries have the highest fatality rates in the country as of 2002. As a result, these industries are at high risk. Furthermore, the Centers for Disease Control and Prevention (CDC) stated that health care is a high-risk industry because it has the highest frequency of nonfatal accidents. According to High-Risk Expert, there are several high-risk business types, including pawn shops, seminars, computer stores, Internet vitamins, and gun shops.
Travel agencies or websites
This industry is deemed high-risk since there is a chance that a consumer will cancel a ticket and request a refund. The acquiring banks or PSPs go to great lengths to find the proper merchant for this industry type to onboard. In today’s market, the majority of PSPs and purchasing banks will turn down this industry. If they say yes, they will impose limitations such as the service must be delivered within two months, with a maximum of three months. They’ll also set aside 10% to 20% as a rolling reserve, as well as put a hold on the payout for 7 to 14 days to safeguard themselves.
Cryptocurrency has experienced a meteoric climb and is now plummeting at an alarming rate. People who invested in cryptocurrencies are having a difficult time selling them and are losing money as a result. Apart from the fact that cryptocurrency is volatile, there is another issue: it is widely employed by cybercriminals.
This industry is full of light music and fun, but it still struggles to find a payment processor. The main reason for this is that most governments do not support this business model. Several cases have been reported of criminals spending stolen funds at casinos. The banking institution wants to focus on its core business by onboarding only those merchants who will bring them the most profit while posing the least risk.
Many dating websites deceive users by establishing false profiles. This industry has a very high-risk level. Some offshore suppliers may still be able to help with this.
Money Transfer Services
Finding a solution for this business is difficult since financial institutions are concerned about money laundering.
Precious Metal/Jewellery Stores
This is a well-known high-risk industry because of the high ticket size. Obtaining a merchant account for this industry is nearly impossible. If the approval is granted, the merchant may be asked to set either a fixed reserve or a rolling reserve.
Charity is also a high-risk business
Many call centres throughout the world phone unwitting people and utilise emotional intelligence to elicit donations, which is known as a charity scam. Banks dislike this business model and, in most cases, will reject the application.
Medicine sales pose a health danger, which is why they are classified as high-risk. Echeck solutions may be available to some merchants who offer Non-Controlled drugs. They must have supporting paperwork to demonstrate the company’s legal standing.
It’s difficult to predict what kind of video an adult shop will stream. For banks and payment processors, this poses a significant risk. They do not want to make payment processing easier for any company that promotes child pornography. Pornography is illegal in several countries. In India, it is illegal to make and sell pornography.
Dealers in Aircraft
The possibility of a charge-back is high. The greater the ticket size, the greater the financial institution’s risk. Consider what would happen if a plane trader sold two jets for $1 million apiece. It will be disastrous for the financial institution if one of the sales results in a charge-back request. The payment processor is responsible for ensuring that the vendor issues a refund to the buyer. The only entity that is in danger is the financial institution if the vendor does not return the money to the consumer. Before onboarding this Merchant type, the underwriting team at Financial Institutions does extensive research. Although approval is attainable, it is not for every aircraft dealer. The dealer must have a strong company profile as well as a strong financial position.
It will be quite simple to apply for a merchant account for new business if you understand the industry’s risk level. You will save a lot of time and won’t have to deal with any setbacks. Payment service providers are regularly monitored to verify that risk management rules and procedures are being followed. Consumers, businesses, and governments all stand to lose money as a result of these risk management strategies. Payment providers like PayStudio, on the other hand, are more prepared to collaborate with businesses to make their services available to the general public.