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What Is A High Risk Business? And – Is My Business High Risk?

by | May 4, 2022 | Uncategorized | 0 comments

What is a High Risk Business

If you’re an entrepreneur needing a payment processing service is important for you. You’re probably very much aware that a few banks and payment processors will generally avoid organizations in high-risk businesses. In any case, which enterprises are high-risk businesses?

Businesses where there are in many cases countless chargebacks have a poor credit history, and high ticket volume, and industries that see a lot of fraud are much of the time thinking about high risk. For organizations classified as high-risk, securing payment processing with traditional financial institutions can be troublesome or almost inconceivable.

What Is A High Risk Business

What is a High-Risk Business?

High-risk businesses are just merchants who are seen to have a more serious risk of monetary failure. There is a certain amount of risk related to all payment processing, and Web-based business specifically; it’s impossible to get around that. Merchants expect a great deal of that risk directly, yet acquirers and payment processors can get hurt, as well.

Everybody in question needs the most ideal profit from their investment. In this way, it’s a good idea that monetary foundations would either try to avoid risky circumstances or charge something else for expecting a more serious risk. Merchants who fall under the high-risk umbrella are expected to work from a high-risk merchant account with the help of High-risk Merchant Services. This implies you’ll have fewer (and pricier) choices for card processing.

Processing providers are eventually answerable for all credit card transactions you send through. They believe that things should go as flawlessly as could be expected, so they might avoid a business with high-risk elements. Things like excessive chargebacks or fraud might create problems between the provider and the issuing bank.

What Makes a Business High Risk?

So what is the distinction between a high-risk business and a low-risk one? As we noted above, there are different reasons your business could be viewed as risky. “Low-risk,” then again, is pretty much viewed as ordinary.

Deciding on a business’ risk level depends on different intensifying factors.
Every payment processor has its own set of rules. One processor could mark you high-risk while the other doesn’t. When a processor assesses your business, they’ll make an “either/or” choice concerning whether you qualify as high risk.

High-Risk Industries

Processors might be worried about high-risk item categories. This depends on patterns inside the business overall. They work out factors like fraud instances, returns, debit card chargebacks, credit card chargebacks, and sales volume. This data is utilized while classifying business types.

The category your business falls under is distinguished by a Merchant Category Code or MCC.

Some of the high-risk items and businesses typically flagged by processors include (yet are not restricted to):

Casinos or online gaming
• Prepaid debit cards
• Calling cards and VoIP providers
• Pharmaceuticals and online drug providers
• Tobacco/E-cigarettes/pot items
• Telemarketing sales
• Adult entertainment and dating administrations
• Aircraft, facilities, and ticketing agents
• Membership administrations (magazines, collectibles, and so forth.)
• Monetary counseling/credit repair/debt reduction
• Recurring billing/subscriptions
• Timeshares
• Cryptocurrency

Some Risk Factors You Can Control

Imagine a scenario in which your industry isn’t viewed as high-risk. Is it true that you are free? No, You can in any case be named a high-risk business, regardless of what MCC you fall under.

Processors and monetary foundations take a look at how normal organizations in your vertical perform, yet they likewise look at your business specifically.

They need to realize that working with you is a sensibly protected investment.

Different factors that could add to your business are viewed as high risk:

  • Your business has been placed on the MATCH (terminated merchant) list within the most recent 5 years.
  • You are another business with very little credit card processing history.
  • You have a terrible credit card history (late payments, inadequate insurance for credits, and so on).
  • You sell items or administrations that generally bring about high-dollar transactions.
  • You experience a higher-than-average amount of returns/refunds.
  • Your chargeback ratio is excessively high.

There are steps you can take to hold your low-risk business back from transforming into a high-risk headache. The keys are to follow business best practices and provide superior customer support.

One of the most impressive ways of holding back from earning a high-risk label is to avoid chargebacks whenever the situation allows. A chargeback is a forced credit card payment reversal, worked with by the cardholder’s issuing bank. When a chargeback happens, your business loses:

  • Benefits from the sale
  • Any product which has previously been transported to the purchaser
  • Transporting or restocking expenses
  • Interchange charges
  • Chargeback organization expenses collected by the bank

Merchants who gather a high volume of chargebacks are at risk of losing their ongoing processing agreement. If your processing agreement has been terminated as a result of extreme chargebacks, you will naturally be set in the “high-risk business” classification.

This seriously endangers you from losing the ability to acknowledge credit cards by any means.

High-risk Merchant Services

Is Your Business At Risk?

Stressed over being labeled a “high-risk business” because of the number of chargebacks you support? Contact 5 Star Processing today. Our chargeback management professionals can assist you with evaluating your risk and figuring out how you might monitor post-transaction threats.

FAQs

Q1. What is a high-risk business?

A high-risk business is any business that credit card processors feel represents a higher-than-average risk of monetary failure.

Q2. What compels a business to be high-risk?

Certain industries are consequently assigned high risk given the historical performance of the whole vertical. Individual merchants can likewise be put in this category based on various factors, for example, a formerly terminated merchant account, a terrible or negligible credit card processing history, or a high chargeback rate.

Q3. Is there such an incredible thing as a “low-risk” business?

Kind of. A “low-risk” status is the default setting; this refers to any business that isn’t viewed as high-risk.

Q4. Which industry has the highest risk?

It’s hard to decide. In any case, some MCCs (merchant category codes) that pose elevated risks include gaming, prepaid debit cards, drugs, tobacco/E-cigarettes/weed items, and ticketing and occasions.