A Common Question is – What is a High Risk Business?
Well, a “high risk business” is a term utilized by the payment-card processor industry. It’s generally based on two pieces of criteria: firstly, your industry (some verticals aren’t deem as secure as others) and your individual situation (factors like your credit history, past viability, etc.). What is a High Risk Business? One refers to more non-specific criteria and slightly shallow characteristics that are based on the type of business you have. Traits from the second are more directly associate with your history and business practices.
The reality is a high risk business encounters challenges in accepting credit or debit cards where other standard businesses do not have to contend. If you are in a high risk vertical market, you will in turn can use a high risk merchant account. This normally means more restrictions and potentially higher processing fees (in some situations). Here is the deal, if you’re in a high risk industry or ultimately selling high risk products, there’s minimal you probably can do about not using a high risk card processor.
Unfortunately, high risk businesses are merely merchants who has a greater risk of financial failure. What is a High Risk Business? Truthfully, there is a particular amount of risk connecting all payment processing, and eCommerce in particular; there’s usually little wiggle room around that. Merchants carry a lot of that risk directly, but acquirers and payment processors can be affected as well.
Of course, all involved desire the best possible return on their investment. So, it makes perfect sense that financial institutions would either try to avoid perilous situations or charge more for accepting greater risk. Naturally, merchants who fall under the high risk umbrella are obliged to operate from a high risk merchant account. This means you may have fewer options for card processing.
Processing providers are liable for all credit card transactions you send through. They desire things to go smoothly, so traditional processors may be timid about doing business with a business with high risk elements. What is a High Risk Business? Unfortunately, things like excessive chargebacks or fraud could hypothetically cause trouble between the source and the issuing bank.
To avoid that, the provider may conclude such a company isn’t worth taking a chance on. Many providers don’t agree with having high risk clients at all. This forces you to choose from a shortlist of providers who do offer high risk merchant accounts, like 5 Star Processing.
What Makes a Business High Risk?
So, what is the distinction between a high risk business and a low-risk one? As we mentioned above, there are numerous reasons your business could be considered risky. “Low-risk,” on the other hand, is consider to be normal and of course offers minimal risk.
Also, determining a business’s risk level is centered on multiple compounding factors. So what is a High Risk Business? Every payment processor has its individual set of guidelines. One processor may deem you high risk while another may not – which is why it is good to shop around. Once a processor assesses your business, they’ll make an “either/or” conclusion as to whether you qualify as high risk.
Some of the high risk products and industries usually identified by processors include (but are not limiting to):
- Financial counseling/credit repair/debt consolidation
- Recurring billing/subscriptions
- Casinos or online gaming
- Prepaid debit cards
- Telemarketing sales
- Pharmaceuticals and online drug providers
- Tobacco/E-cigarettes/cannabis products
- Adult entertainment and dating services
- Airlines, accommodations, and ticketing agents
- Subscription services (magazines, collectibles, etc.)
Conclusion: What is a High Risk Business?
These verticals tend to be more susceptible to returns, chargebacks, and fraud. The good news is – that regardless of the rather gloomy-sounding name, operating a high risk business isn’t intrinsically a bad thing. Some verticals do present a higher financial risk, but big risks can sometimes offer big payoffs. Merchants who opt to function in high risk categories do so with the belief that the reward will offset the additional hassle and expense of a high risk merchant account.