High-risk businesses often have more trouble finding payment processing options, lenders, and business insurance. Learn if your business is high-risk, and what you can do about it.
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Businesses in high-risk industries often struggle to access business loans, credit card processing solutions, and business insurance; this is especially true for eCommerce entrepreneurs who rely exclusively on credit and debit card transactions to get paid.
Let’s dive into the ways a “high-risk” designation affects your business’s ability to operate, our recommendations for high-risk payment processing, insurance, and financing providers, and review some tips to avoid some not-so-high-quality providers that prey on high-risk businesses like yours.
What Is A High-Risk Business?
A high-risk business is considered likely to fail financially by card processors and banks. Businesses operating in financially risky industries, such as gambling, adult entertainment, cannabis, and international shipping, may be prone to high chargeback rates and labeled as high-risk businesses by card processors and financial institutions.
In general, a business may be deemed high-risk based on its industry, any international operations it performs, monthly processing volume, and/or financial history/current status.
High-Risk Merchants & Credit Card Processors
What Factors Determine Risk Level For Businesses?
Banks, credit card processors, and insurance companies look at a few factors to determine whether a business is high-risk.
Ultimately, a high-risk designation is predicated on your business type as well as the policies of processing providers–while one payment processor may say your business is high-risk, another provider with different high-risk categories may not.
Payment processors typically use the following factors to determine whether your business is high-risk:
High Chargeback & Fraud Rates
A high chargeback or fraud rate is one of the most common reasons banks and payment processors designate a business as high-risk. Merchant accounts, business insurance, and loan providers review your customers’ behavior patterns to say whether you have a high chargeback rate.
International Operations In The United States
Are you headquartered overseas but primarily sell to US customers? Do you accept payment in foreign currency? If so, US financial institutions may consider the relatively lax banking regulations in your home country or other countries as reason enough to flag you as high-risk.
Products Or Services With Legal Risks
Products and services of questionable legality, like pornography and drug paraphernalia, may indicate that you have unstable streams of revenue, and they’re often associated with questionable sales and marketing practices.
Many Large Transactions
If your business routinely processes large transactions via credit card or has a very high monthly processing volume, you may be deemed as high-risk, solely because these situations pose a greater risk of chargebacks. This factor primarily affects businesses that process a high volume of B2B transactions.
Low Personal Credit Score
This factor focuses on you, the business owner: if you have a low personal credit score, banks and payment processors are more likely to place you in their high-risk categories.
Unfavorable Business Model
Processors tend to see businesses with non-traditional business models as financially risky. For example, operating a business under a multi-level marketing model or time-share sales may be enough to be labeled high-risk.
Financially Unreliable Customer Base
Businesses operating in an industry serving customers with unreliable financial situations (think: loan modification or debt collection services) may be deemed high-risk due to the financial unreliability of their customer base.
Why Does Risk Level Matter?
You now have a solid grasp of the most common reasons why entities like banks and payment processing providers flag businesses as high-risk. But why does risk level matter? What’s the impact on high-risk companies that need payment processing solutions?
- High-Risk Merchant Account Services Are Expensive: Merchant accounts for high-risk businesses are more expensive than those for non-high-risk businesses. You’ll pay more for your account fees and processing charges, and you’ll probably be stuck in long contracts with a hefty early termination fee.
- Compliance Requirements Are Stricter: High-risk businesses and businesses operating in high-risk industries typically need to meet a greater number of compliance requirements. These requirements (OSHA standards are the most common example) may be at the local, state, or even federal level and are often related to high-risk business types.
- Higher Chance Of Landing On The MATCH List: High-risk businesses tend to have higher chargeback rates, which could lead to a business ending up on the MATCH list. That’s not to say that all high-risk businesses will end up on the MATCH list, just those deemed to have excessive chargebacks (even for a high-risk business).
- May Be Required To Maintain Rolling Reserve: High-risk businesses pose a financial risk to banks and processors. To reduce their odds of financial losses, you may be required to pay a portion of your profits into a rolling reserve. While you’ll receive those profits back eventually, most businesses would prefer their payouts as they earn them.
How To Determine Whether Your Business Is High-Risk
Not sure if your business is considered high-risk? We’ve put together an exhaustive list of the most common high-risk industries:
- 1-800-type chat sites
- Airlines or airplane charters
- All sexually oriented or pornographic merchants
- Amazon, Yahoo, Google, and eBay Stores
- Annual contracts
- Antiques
- Attorney referral services
- Auctions
- Automotive brokers
- Bankruptcy attorneys
- Brokering
- Casinos, gambling, or gaming, including fantasy sports websites
- Check cashing services
- Cigarettes, e-cigarettes, or vape shops
- Coins, collectible currency, or autographed collectibles
- Collection agencies and debt collection services
- Coupons or rewards-points programs
- Credit protection, counseling, or credit repair services
- Discount health or medical care programs
- Debt consolidation services
- Drug paraphernalia, cannabis, or CBD products
- eBooks (copyrighted material)
- Electronics
- Event ticket brokers (unlicensed/non-registered (i.e., Stub Hub-type merchants))
- Exporting services (non-US based)
- Extended warranty companies
- Federal Firearms License (FFL) dealers
- Finance brokers, financial consulting, or loan modification services
- Financial planning, strategy, or advising
- Furniture sellers
- High average ticket sales
- “How-To”-type websites (i.e., “Learn How to Make Money on The Internet”)
- Horoscopes and psychic services
- Hypnotists or self-hypnosis services
- International merchants (non-US based) operating in the United States
- International shipping, cargo, or import/export
- Investment firms, strategy, or books
- Life coaching
- Lingerie sales
- Lotteries or sweepstakes
- Magazine sales and subscriptions
- Mail or telephone order sales
- Membership organizations (contracts over 12 months)
- Merchants on the Terminated Merchant File (TMF) or MATCH List
- Merchants with poor credit
- Modeling or talent agencies
- Multi-currency sales
- Multi-level marketing (MLM) sales tactics
- Music, movie, or software downloads or uploads (i.e., copyrighted digital products)
- Non-US citizens doing business in the US, and offshore corporation establishment services
- Pawnshops
- Prepaid cards, including debit cards and calling cards
- Real estate
- Replica handbags, watches, wallets, sunglasses, etc.
- Self-defense, pepper spray, mace, etc.
- SEO services
- Social networking sites
- Sports forecasting or odds-making/betting
- Telecommunications, including telemarketing services and telephone companies
- Third-party processing, factoring merchants (i.e., payment processors, vacation rental brokers)
- Time-shares or time-share advertising
- Tour operators
- Travel clubs, services, or agencies
- Vacation planners
- Vacation rentals (unless the property is owned by the merchant)
- Vape and eCigarette sales
- Vitamin and supplement sales (i.e., diet pills, prescription pills, health supplements, pharmacy products)
- VoIP services
- Weapons of any kind, including guns, knives, stun guns, or ammo. Also includes any weapon components
How To Avoid Being A High-Risk Merchant
As credit card processors and financial institutions determine which industries and businesses are considered high-risk, there’s no real way to avoid being labeled as a high-risk merchant if your business has already been labeled one. However, there are a few ways to avoid the high-risk merchant label.
- Switch Processors: While most processors have similar definitions of high-risk businesses and industries, there are some cases in which your business may be defined as a high-risk business by one processor and not another. Shop around for processors to determine whether there is one that doesn’t consider your business high-risk.
- Avoid Certain Business Models: Some business models, such as multi-level marketing models, are considered high-risk regardless of their industry. If at all possible, avoid engaging in this business model when starting a new business.
- Get Off The MATCH List: If you or your business has been placed on the MATCH list, you’ll likely be labeled as a high-risk business regardless of the processor you choose. You can wait the standard five years for your business to be taken off the MATCH list, or you can dispute your MATCH list status if you have been put on there by mistake.
- Prioritize PCI Compliance: If your business fails to adhere to PCI compliance standards, you can easily land yourself on the MATCH list, so it’s essential to prioritize PCI compliance.
- Reduce Chargebacks: Excessive chargebacks can land your business on the MATCH list, so work hard at preventing chargebacks. Clearly displaying a strict return policy can help to reduce chargebacks, as customers may be more wary of buying something they can’t afford.
4 Tips To Avoid Predatory High-Risk Credit Card Processing Providers
If you’re a high-risk merchant, know that while some providers may treat you fairly and charge you reasonable fees, countless others will seek to take advantage of you by charging highly inflated rates and fees. To avoid predatory high-risk credit card processing as a high-risk merchant, consider the following tips.
Avoid Too-Good-To-Be-True Offers
Be wary of high-risk merchant account providers with instant approval that offer you enticing incentives to apply—just to overcharge you later with exorbitant fees and processing rates.
Normally, it takes many days or even weeks to get approved for a high-risk merchant account; if a provider offers same-day or next-day approval, this is a big red flag.
Review The Company's Features
While high-risk processors don’t list their pricing online, their website should at least make it easy to determine whether they offer the products and services high-risk businesses need—including eCommerce payment options such as payment gateways and virtual terminals. If a company doesn’t mention much about what features they offer, they may not meet your needs, or they just not be very transparent in general.
Keep your eyes open for processor websites with clear, actionable information indicating a business model that’s focused on high-risk businesses.
Check The Company's Online Reputation
Research what others are saying about the company online. If the reviews are generally bad, it’s a good bet that your experience with that company won’t be much different from the experiences of others. If you can’t find any reviews, that’s another strong indication that you should avoid the company in question.
Remember to check out consumer protection sites such as the Better Business Bureau (BBB) and Ripoff Report for feedback from merchants who’ve done business with the company you’re considering.
Also consider how the company responds to disgruntled users. A lack of meaningful responses to such complaints is a definite red flag!
Look For The Company's Terms & Conditions or Merchant Application
Relatively few providers offer sample contracts online, but if you can obtain a copy of the company’s standard Terms & Conditions or Merchant Application, review it thoroughly.
It’s usually in the fine print of these documents that you’ll uncover the many ways the company can rip you off. The less information of this sort you can find, the more reason to be concerned about the company’s potential practices.
Navigating Other Aspects of Business When You’re In A High-Risk Industry
As a high-risk business owner, you know your options for payment processing are limited. Unfortunately, so are your options for other services such as business financing and insurance.
Business Loans
If you’re running a startup, have low revenue or bad personal credit, or operate in an unstable industry, loan vendors may be loath to strike an arrangement with you.
We recommend you contact online lenders that offer high-risk business loans like short-term loans, invoice financing, asset-backed loans, personal loans, and business credit cards.
Business Insurance
Your high-risk business classification also impacts options for business insurance. It’s a good idea to contact business insurance agencies that specialize in the high-risk sector since certain providers may hesitate to offer you a fair deal.
Factors like chargeback-related fraud and unstable streams of revenue also make it much riskier for high-risk businesses to pay for a general liability out-of-pocket, so choosing a high-risk specialist that offers general liability insurance without overcharging you is a must.
Online Sales
As a high-risk merchant, there’s a good chance that you will maintain your business via eCommerce sales. If you need advanced eCommerce features, check out our top choices for eCommerce merchant accounts to find a payment provider that offers all the eCommerce tools you need.
Not all eCommerce merchant accounts accept high-risk businesses, so make sure you verify the company accepts high-risk businesses before applying. Host Merchant Services is an example of a merchant account provider that specializes in both high-risk businesses and eCommerce.
I’m On The High-Risk Merchant List, Now What?
Finding business services that suit your particular business is never easy, but it’s far more difficult for high-risk merchants. While you’ll have to pay higher fees and processing rates, you shouldn’t have to settle for subpar customer service and support.
Thankfully, there are some good providers that offer high-quality service and fair pricing to the high-risk community—although your choices are more limited than they are for non-high-risk merchants.
Looking for specific examples of service providers for high-risk businesses? Check out our picks for the best high-risk payment processors, contact some of the providers we chose, and see if they jibe with your business plan.
Whether you're looking to save money on processing or to get approved for a merchant account, PaymentCloud can help.
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