High-risk industries list is constantly changing. Many startups often don’t even realize that they are a high-risk merchant until they start to look for Online payment processing solutions for their business.
For payment processing a company is considered a high-risk business based on two conditions:
1. It operates within a high-risk industry,
2. Exits reasonable risk of financial insufficiency.
One or both of those conditions may apply.
If merchant is labeled as high risk business, there are significantly more regulations to follow. For high risk merchants often it is difficult to obtain approval from credit card processors. Even if they’re capable to find a high risk credit payment processor, they’ll be charged higher rates and other unattractive terms.
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What It Means to Be a High-Risk Merchant
Some businesses are riskier ventures as far as many financial institutions are concerned. When you are looking for payment service provider (PSP) or merchant account provider, you very often come across the term High-risk industries.
High risk is a universal term used by acquiring banks and payment service providers for industries or businesses which present a greater risk of financial loss than standard risk accounts.
There are many reasons for a high risk classification and no single formula used widespread to determine if a business should be designated as high risk.
A bank’s underwriting guidelines determine whether a merchant is a high risk. Therefore, each financial institution or processor calculates risk differently. High-risk payment processing has a lot of gray areas, and the operative term “high-risk” does not always carry the same meaning. It is possible to find a payment processor that labels you “high-risk” and another that does not look at you as such. Typically, high-risk industries are those with a high chargeback rates or those that are tightly regulated, such as gambling, tobacco sales, CBD, firearms, adult entertainment, telemarketing, and travel services among the others.
Entrepreneurs may earn this classification due to their average transaction size, industry type, geographical location, typical chargeback rate, fulfillment timeframes, or if they are framed to accept subscription-style payments.
High-risk merchants are particularly vulnerable to online credit card fraud, and many merchant providers believe that businesses in high-risk industries are too difficult and risky to work with.
Common misconceptions about high-risk merchant label
Many new entrepreneurs think that business owner’s personal credit score defines the risk. The truth is that personal credit score of a business owner does not dictate the risk level of a merchant account. Although payment processors may be interested in the creditworthiness of key people in the organization, they care about the industry’s history of fraud more.
High-risk merchant label is not forever. Agreements and policies regarding an industry’s risk designation change over time.Even if your business is falling into high-risk industries list today, nothing is set in stone. Opinions change, and it is possible to strengthen opinion that your company is more of an asset than a liability to the very entity that processes your credit card transactions.
Agreements with a merchant services provider will always be unfavorable. That is not entirely true! While merchants from high risk industries can generally expect to pay higher fees, they shouldn’t feel like they have to agree to poor terms in their contracts. In fact, these merchants can often negotiate for greater sales allowances, the ability to process greater foreign sales, allowances, the ability to process foreign currencies, and other advantages.
High risk industries list
Some industries fall into the high-risk category indisputably, while others are carefully investigated for revealing risk factors. Below are a few common industry types that are found to always require a high-risk payment gateway. Although these high-risk industries might be just as valid and have the financial records to prove their viability and profitability, they are still very likely to experience rejection from common merchant account providers.
eCommerce with Future Deliverables
Many e-commerce sites operate on the basis of future deliverables. The term deliverables is traditionally used to describe the quantifiable goods or services that must be delivered at a later date post receiving payment. Deliverables can be tangible or intangible in nature.
- Accounting & Tax Prep
- Airlines and Booking
- Background Checks
- Bail Bonds
- Business Consulting
- Business Opportunities
- Continuity & Subscriptions
- Credit Monitoring
- Credit Repair
- Debt Consolidation
- Digital Downloads
- Document Prep
- Extended Warranty (Protection Services)
- Independent financial advisers
- Online dating services
- SaaS Companies
- SEO & SEM Services
- Skin and Hair Care
- Subscription box companies
- Tech Support
- Web Design Services
Industries with Reputational Risk
When a bank could come under fire by its shareholders or the ordinary people for being attached to a merchant that operates in certain business industries that might be seen as unfavorable, this is commonly known as reputational risk. Reputational risks rank among the top 10 global business risks.
- Adult Entertainment
- Auction Websites
- Bad Credit
- Cannabis and related products
- CBD oil retailers
- Cigarettes & Tobacco
- Counterfeit goods/replicas
- Cyber Lockers, Cloud Storage and File Sharing services
- Debt Collections
- Escort agencies / massage parlors / sexual services
- Fantasy Sports
- Gentleman’s Clubs
- Guns & Firearms
- Hight-Ticket Coaching
- Hunting & Outdoor Equipment
- IPTV and streaming services
- Jammers or devices that are designed to block, jam or interfere with cellular and personal communication devise/signals
- Liquor & Hard Alcohol
- Male Enhancement
- Multi-Level Marketing (MLM)
- Nutraceuticals and Supplements
- Online Gaming
- Pawn Shops
- Pharmacies (Retail)
- Products designed to circumvent copyright protection techniques (e.g. ‘mod-chips’)
- Pseudo pharmaceuticals & Nutraceuticals
- Seeds for cannabis plants, ‘Grow shop’ products etc.
- Services associated with pseudo-science (e.g., clairvoyance, horoscopes, fortune telling, etc.)
- Social media “click farms”
- Tasers & Stun Guns
- Ticket Brokers
- Timeshare and timeshare maintenance
- Vape & E-Cigarettes
Businesses Dealing with High Priced Products or Services
The higher the costs that are paid to any specific industry, the greater the possibility of chargebacks there are. Basically, if you are a dealership or airline who falls on some harsh times, the absence of sales will signal poor financial performance to common payment processors.
- Airline and travel booking industries
- Automobile warranties
- Coins and Collectibles
- Government Grants
- High Volume
- Jet Charter
- Property Management
Other factors that rank a business in High Risk industries list
Industry is only one determining factor of the high-risk label; another is how a merchant conducts business. Merchants can also be designated high risk if they engage in risky behaviors such as:
- Accepting recurring payments
- Conducting transactions in multiple currencies or countries with traditionally elevated levels of fraud
- Having high monthly sales volumes or individual transactions
- Having cyclical sales
- Being in an industry with historically high chargeback ratios
- Offering subscription-based products or services
- Having not yet established a payment processing history
- Processing Card-Not-Present (CNP) transactions
- Most (if not all) products or services are sold using recurring billing
Businesses located in high risk countries
The global fight against money laundering has led many countries to develop strong anti-money laundering / anti-terrorist financing (anti-terrorist financing) measures. These measures are designed to establish programs that identify, track and prevent financial support to criminals, terrorists or fraudulent traffickers. As a result, countries that do not have a fully developed regime are considered to be at increased risk and may pose a potential threat to international efforts to combat AML / CTF.
- Bosnia and Herzegovina (BA),
- Burundi (BI)
- Central African Republic (CF)
- Côte d´Ivoire (CI)
- Cuba (CU)
- Democratic Republic of the Congo (CD)
- Eritrea (ER)
- Haiti (HT)
- Iran (IR)
- Lebanon (LB), Libya (LY)
- Liberia (LR)
- Myanmar (MM)
- Nigeria (NG)
- North Korea (KP)
- Rwanda (RW)
- Sierra Leone (SL)
- Somalia (SO)
- South Sudan (SS)
- Sudan (SD)
- Syria (SY)
- Zimbabwe (ZW)
- All other countries and jurisdictions under international sanctions.
What to do if your occupation is considered to be a high risk business?
In some cases, almost nothing can be done to avoid the high-risk label. For example, businesses that operate in the CBD industry are automatically considered high risk due to the potential legal unstableness associated with the industry.
However, as you just discovered from the list above, a massive number of totally legitimate and otherwise modest businesses may be declined by regular online payment service providers.
In case if your business are considered high risk by other reasons, there are some mitigating factors that put credit card processors at ease.
Keep free cash reserves
If you are labeled as high-risk business by credit card processors, you can improve the situation by taking measures to reduce the perceived risks. First, you should maintain a significant amount of free capital on hand.
Well-capitalized companies, whether they are considered high-risk merchants or not, are better positioned to deal with losses or shortfalls in revenue. Payment processing service providers can see substantial cash reserves as a mitigating factor. They want to be sure you have enough capital to cover any potential losses related to chargebacks and refunds.
Look for high risk payment service provider
There are an increasing number of payment processors and merchant account providers who specialize to work with high risk business.
However, there are not universal payment service provider for all high risk business list. It is neither good or bad. It is what it is.
Different payment service providers get to thoroughly understand a selected list of industries. Some are They appreciate the hazards of that these businesses face and are happy to deal with them. Some are more suitable high risk companies from one industry, others are ready accept high risk business from other. Let’s say, one works with adult entertainment but not with CBD merchants. Other do it vice versa.
For high risk businesses the key is to use the services of experts in the field where are they operate.
Also, if you finally got one payment service provider, it might be smart to open a back up merchant account elsewhere. By doing so, in the event your first account is shut down by one payment service provider, you have another one ready to go and can continue accepting your customers’ credit card payments uninterrupted.
Choosing a high-risk credit card processing company
Once you have been categorized as high risk, You may find it challenging to open traditional merchant accounts. Some processors choose to prohibit some, all, or none of the high-risk industries. Many merchant account providers and payment service provider (PSP) have lists of prohibited businesses on their website.
Though a variety of companies in the high-risk category may struggle to find a conventional payment processor, alternative solutions do exist.
Merchant accounts for high risk industries
High risk merchants don’t qualify for traditional processing agreements but You will find payment processors (known as a high-risk merchant account providers) with experience working alongside businesses in this category and are willing to accept liability for the increased risk associated with these businesses.
As you might imagine, “high risk” service comes with a higher price tag, caps on transactions (rolling reserve) and Increased oversight and scrutiny.
Payment service providers for high risk industries
Although, usually full merchant account gives you more security against the risks to be suddenly shut down, sometimes it could be too expensive (if your business is small, or if you just started) or nobody accepts you, because lack of processing history.
Conduct your own research on payment service providers. Look for a company that specializes in your industry. Study their conditions and compare. You might check out this article about Best High Risk Payment Processors For Startups. It is a shortlist with trusted payment processors which are suitable for high-risk industries.
Crypto payment getaways
Another option is to choose Crypto payment service provider and accept digital currencies. Crypto payment service providers will provide you with lower costs and they accept all businesses from high risk industries list. Companies such as CoinPayments might be immediate solution for your problems.
How Payment Processors Approve High Risk Merchant Account Applications
The Approval process might vary from service to service, but usually Payment Processors first examine the high risk merchant account application form to verify all the information is complete & correct. Corporate documents are verified. Then they review current processing statements and chargeback ratios. Often also bank statements are examined.
For High risk merchants selling online fully-functioning, secure website with shopping cart is must. All pages need to be fully operational. Customer service contacts has to visible. Along with privacy, refund & other polices.
Once your application is approved you will get an MID (merchant identification number) From this point you can start processing.
What to expect from Credit card processing in high-risk industries
Although majority of credit card processors maintain approximately the same high-risk industries list, the terms and conditions add to a high-risk label can alter significantly from service provider to service provider. Usually, a high-risk label means that a business confronts higher credit card processing rates, as well as different rolling reserve limits, tiered pricing plans and a liquidated damages clause.
If your business is from high risk business list, you probably already know that payment processing for high-risk businesses inescapably cost more than those for non-high-risk ones in reality, they usually cost a lot more. You’ll have to pay more in both, account fees and processing charges. And, probably, you will have to stick with longer contracts as well.
Higher fees are an inevitable reality for high-risk merchants. While the actual rates will vary widely from processor to processor, you can generally expect to pay double as much as what regular business with the same sales volume would pay.
Additional expense high-risk industries must deal with is a rolling reserve. This is a part of your daily transactions that the credit card processor holds and releases later. It serves as a guarantee to the processor in case your goes bankrupt, or some major event negatively impacts your industry. Often, credit card processors hold 10% – 15% of your transactions for 90 – 180 days before releasing it back to you.
Then there is minimum reserve. This is sum from your transactions, which credit card processor requires you to keep in your balance in all time. A minimum reserve must always be maintained.
If you are unfamiliar with terms and definitions used by banks and payment processors, read this Payments 101 – Common online payment industry terms and definitions.
How to get a best deal with High risk payment processors?
If possible, look for online payment processor only when your business account standings are good, and you have significant free capital reserve.
Don’t lock yourself in long term contracts. Negotiate every 3 months. This especially applies if you don’t have any previous processing history. That means that you’re account is automatically considered riskier than others, which means that the contract conditions will be pricey and restrictive. However, you can re-negotiate your rates, reserves, and any other contract terms with your card processor as soon as they have 3 months of history to analyze and review.
Is it possible to fool payment processors?
If you think that you can mislead credit card processors by not fully revealing the products or services that you sell, think twice.
I am not telling you that it is impossible, but you really must know what you’re doing. Otherwise they’ll sooner or later find out that you’re a high risk business. It is possible by manually monitoring and audit your account. Outcome can be frustrating and costly for you.
So, the best thing is – be honest. If one payment processor denies you, search for another. Eventually you will find one.
How To Avoid Rapacious and Dubious High-Risk Payment Processing Service Providers?
There are many payment services providers who claim to serve the high-risk businesses, but in reality, only are charging overpriced fees to inexperienced business owners who are desperate to get approved for a merchant account or at least payment service provider.
If your business falls into high-risk industries list, you should know in advance that the cards are stacked against you. While some honest and ethical providers will treat you adequately with reasonable fees, myriad providers seek to take advantage of your condition.
Sometimes It’s not easy to determine the reputable high-risk providers from the scammers, but I have a few tips to help you.
Check The Payment Processing Service Website
Pay attention to the address bar. The first thing you should look for on a website is the https:// at the beginning of the address. https:// indicates that the website uses encryption to transfer data, protecting it from hackers. Secondly you should look up the domain age. The Whois Lookup domain tracker gives you information about how long the website has been active and who a domain name is registered to.
If the processor’s website looks not professional or outdated, that’s a bad sign. A website with a 90s look should be your first clue that something is wrong with the company. Also check for poor grammar and spelling.
Finally, you should look for reliable contact information (phone, email, live chat, physical address) and try them out. Does anyone ever answer the phone? Do you get a generic prerecorded voicemail or email form?
If the only method of contact is an online email form, it rises a red flag.
Check The Payment Processing Service Online Reputation
Check out what others are saying about the company on the internet. Review sites such as TrustPilot should be your first stop. You can also look in several online forums for entrepreneurs. Stay away, if the reviews are bad.
Also, if you can’t find any reviews, that’s a stronger indication that you should avoid such company.
Don’t forget to check out consumer protection sites such as the Better Business Bureau (BBB).
Other signs to look before signing a contract
Although the industry is trending towards month to month contracts, there are still plenty of unethical credit card processing companies that exploit the desperation of inexperienced high risk entrepreneurs and try to lock them into long term contracts. Usually these long term contracts comes with a hefty early termination penalty or liquidated damages clause (read the small print).
Before you sign any contract, I strongly suggest that you read it in full, especially small print. Exactly the contract will show you what that processor is all about.
Before you sign even a month to month agreement with a payment processor, you should precisely understand the fee structure that you’re signing on to.
Ask questions about any part of the contract that is confusing or unclear to you and make sure you get clear answers. Remember, any negotiations should be before you sign the contract and not after it.
If you’re reading the contract and find it impossible to understand, I recommend you consider another payment processor.
Once you’ve selected a processor, be sure to work with the company on chargeback management and communication. You see, high-risk businesses often deal with a larger volume of disputes than businesses in other industries, and it’s important to have procedures in place to address chargebacks.
Being a merchant with business from high risk industries list can make processing online transactions and conducting business more difficult, but with the right solutions in place, merchants can keep doing business as usual and protect themselves from credit card fraud.
P.S If you want to know more about other therms and definitions commonly used in payment industry, check out my Payments 101 list.