The world is becoming riskier because of Covid19 and the Ukraine war, and for many reasons. An increasingly large part of the economy is classified as “high-risk” by the traditional financial industry. There are many reasons a payment processing platform may label a merchant as high-risk. The greater the risk is, the harder it will be to find a bank or payment processing service provider. In general, the most important factors to be labeled high-risk are listed below:
- High transaction volume: If a merchant processes over $20,000 in payments per month or has an average transaction of $500 or more, they may be classified as high-risk.
- Accepting international payments: If a merchant sells to customers internationally in countries listed as high risk of fraud, they may be considered high-risk (any country except the U.S., Canada, Japan, Australia, or the countries in Europe).
- No or poor history: If a merchant has never processed payments before or only has a minimal history of processing transactions, they may be considered high-risk simply because they don’t have a track record. If the merchant has a low credit score, they may be deemed high-risk.
- High-risk industry: merchants in high-risk industries are consequently labeled high-risk because the industry they are working in is considered to be at a higher risk of fraud, returns, or chargebacks.
Below we have listed the most common high-risk industries:
The CBD business is rising, but CBD merchants are considered high-risk by banks and payment processing businesses. Cannabis is divided into two types in order to control its growth: hemp and marijuana. Many jurisdictions legalized CBD derived from hemp. However, CBD derived from marijuana remains illegal, even though they have the same chemical makeup. The sole difference between hemp and marijuana is that hemp has less than 0.3 percent of THC, marijuana’s psychotropic ingredient.
This industry is deemed high-risk since there is a chance that a consumer will cancel a ticket and request a refund. The majority of PSPs and purchasing banks will not accept merchants from this industry or impose limitations such as the service must be delivered within two months, with a maximum of three months. Payment processors may also set aside 10% to 20% as a rolling reserve and may put a hold on the payout for 7 to 14 days to safeguard themselves.
Digital currencies are the new kids on the block. Bitcoin has established itself as a new asset class and attracts more and more institutional investors. However, digital currencies are also the preferred means of payment for illicit businesses. So, no surprise that merchants in this space are considered high-risk.
Gambling and Casinos
It is in the genes of the gambling industry that they are high-risk. Many online casinos have problems finding a payment processor. The main reason for this is that online casinos and gambling is illegal in many regulatory regimes. Moreover, the industry is also prone to money laundering.
Many dating websites deceive users by establishing false profiles. This industry has a very high-risk level. Some offshore suppliers may still be able to help with this.
Money Transfer Services
Finding a solution for this business is difficult since financial institutions are concerned about money laundering.
Precious Metal/Jewellery Stores
This is a well-known high-risk industry because of the high ticket size. Obtaining a merchant account for this industry is nearly impossible. The merchant may be asked to set either a fixed reserve or a rolling reserve if the approval is granted.
Charity is also a high-risk business
Many boiler rooms run charity scams, soliciting donors to make donations for fake projects. Banks dislike this business model and, in most cases, will reject the application.
Medicine sales pose a health danger, so they are classified as high-risk. Echeck solutions may be available to some merchants who offer Non-Controlled drugs. They must have supporting paperwork to demonstrate the company’s legal standing.
It’s difficult to predict what kind of video an adult shop will stream. For banks and payment processors, this poses a significant risk. They do not want to make payment processing easier for any company that promotes child pornography. Pornography is illegal in several countries. In India, it is unlawful to make and sell pornography.