A high risk business is one that carries more financial or reputational risks to payment intermediaries than a low-risk business. If the definition doesn't make it clear, keep on reading.
The term “high-risk business” is often used in the payments industry to identify merchants with whom PSPs, acquirers, and card processors are willing or unwilling to partner. Before signing a contract with a particular provider, you will inevitably face a risk assessment. Your type of activity, reputation, credit history, business model, and other factors will significantly affect the provider's willingness to provide payment services to you. For instance, you'll probably be classified as a high-risk business if you have a large chargeback volume or a bad credit history.
Engaging in a high-risk business is not necessarily illegal or dangerous. It may well be profitable, promising and, most importantly, legal. Moreover, this doesn't mean that financial institutions will refuse to cooperate with you. High-risk businesses are usually bailed out by high-risk payment providers or are just charged higher payment processing fees.
How do financial institutions determine the risk level of a particular business? Well, they are guided by two main criteria: your industry and exposure to financial failure. For example, some industries, such as online casinos or betting, may not satisfy customers by their content or nature. Plus, these industries are more prone to chargebacks, money laundering, and fraud than, for instance, a regular online store. Banks and financial institutions evaluate how many risks you may potentially bring to them when working with you and decide whether to label you as a high-risk business.
When assessing risks, payment companies are guided not only by the above two factors. You may also be considered a high-risk business if:
Since acquirers and PSPs are responsible for processing all your card transactions, it’s crucial for them to understand that you won’t bring them financial damage, and your cooperation will be mutually beneficial. Not all providers are ready to take risks, complicating the search for a processing solution for a high-risk business.
High-risk businesses include but aren’t limited to the following industries:
It’s worth noting that any startup can also be flagged as a high-risk business. This is because they usually have no processing background, and it’s difficult for the provider to predict if their company will become profitable and successful.
Any business needs to accept online payments to run smoothly and make a profit, which is only possible through a merchant account. But many financial institutions aren’t ready to take a high-risk business under their wing. Thus, if acquirers or payment service providers consider your company risky, getting a merchant account will be pretty challenging.
The good news is that thousands of high-risk businesses are now successfully growing and accepting any payments. And yes, they have merchant accounts. Since demand creates supply, there are now many companies on the market that willingly provide high risk merchant processing services to you. Of course, the application and approval process won’t be as easy as in the case of a low-risk business, but after passing all the checks, you can obtain a high-risk merchant account.
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What should payment gateways for high-risk business be like? Here are the three pillars of a good one.
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