Did banks reject your application for a merchant account because you were classified as a high-risk business? Many merchants don’t know their business is high-risk until their request for a merchant account is declined by the acquiring bank. Banks analyze many factors to help them distinguish between high and low-risk businesses. These factors can place many seemingly safe businesses in the high-risk category.
Many businesses ⎼ such as firearms and cannabidiol (CBD) ⎼ are evidently high-risk due to loose regulations of their industry. Besides regulatory issues, industry-specific consumer behavior can also classify safe and legal businesses as high-risk. Many industries suffer from high rates of fraud and chargebacks, making banks and payment processors shun these businesses to mitigate the risk of financial loss.
In this post, SeamlessChex will identify businesses that are unexpectedly high-risk and explain why banks and payment processors perceive them that way.
Travel and Booking
The global travel industry generated $2.9 trillion in 2019. With so much money to be made in this legal, reputable, and lucrative industry, many would think that banks and other financial institutions would welcome partnerships with travel and booking businesses. But banks and payment processors are wary of the travel and booking industry, including them in their list of high-risk businesses.
Travel and booking are categorized as high-risk businesses due to the forward commitment as customers are able to book as long as 1 year before the date of travel. In addition, the industry experiences high rates of friendly fraud and chargebacks. Fraud is indeed rampant in the travel industry, costing businesses more than $25 billion a year. Many people book and take their trips, but deny the occurrence and request a chargeback from their bank to get their money back.
As banks and payment processors are responsible for paying chargebacks to customers, they avoid working with travel and booking businesses to reduce the risk of financial loss.
Nutraceutical and Dietary Supplements
The ever-increasing number of health-conscious consumers are contributing to the exponential growth of the nutraceutical and dietary supplement industry. More than 117 million Americans consume dietary supplements frequently, making the nutraceutical industry a $120 billion market. Despite the popularity of the industry, banks and payment processors categorize nutraceutical merchants as high-risk businesses and many times refuse to work with them.
Lack of legal oversight in the nutraceutical industry is the reason banks add these merchants to their list of high-risk businesses. The nutraceutical industry is not regulated by the Food and Drug Administration (FDA). As a result, supplement manufacturers can make many uncorroborated claims about the health benefits of their ingredients, resulting in potential lawsuits. Banks and payment processors typically shun the nutraceutical industry to avoid getting entangled in legal disputes.
In this modern, digital age, more and more people are turning online to find their significant other. More than 30 percent of Americans have used a dating site or app to find love. Online matchmaking is a multibillion industry, with each customer spending at least $243 on registration and subscription fees to find a romantic partner. Although online dating is becoming the new norm for finding love, most banks and payment processors decline financial services to matchmaking merchants as they’re perceived to be high-risk businesses.
Excessive chargebacks and the risk of illegal activities are the reasons banks include dating merchants in their list of high-risk businesses. The online dating industry is notorious for high rates of chargebacks due to its system of limited-time free trials. More than one in ten daters cancel their subscriptions after three months of signing up for the service, often demanding chargeback from their banks to get their money back. Some online dating sites also offer secret escort and prostitution services, leading to potential legal troubles.
Moving and Transportation
The transportation and moving service business is a multi-billion industry. As the economy recovers and strengthens, demand for transportation and moving services will increase even further. Although transportation and the movement of goods are an integral part of the economy, most banks and payment processors refuse to work with these merchants as they are considered to be high-risk businesses.
High-ticket transactions and potential damage to goods are the main reasons why banks include this industry in their list of high-risk businesses. An average office move or furniture delivery can cost thousands of dollars per transaction. High-ticket sales are more prone to chargebacks as some customers feel buyer’s remorse and use deceptive tactics to get their money back.
Customers can also demand chargebacks if their goods are lost or damaged during service. Cargo and goods can get lost, damaged, or destroyed en route, resulting in exorbitant chargeback costs to the bank or payment processor. As a result, most banks and payment processors regard transportation and moving companies as too risky to work with.
Sign up for High-Risk Payment Processing Today
Many merchants are surprised when banks reject their application for being a high-risk business. Most businesses don’t understand why their travel agency or health and wellness company is perceived to be as risky as the firearms and CBD industries. If banks refuse to provide financial services to your unexpectedly high-risk business, SeamlessChex can help.
SeamlessChex can provide credit card, check and ACH payment processing to businesses in high-risk industries. With over 25 banks to choose from, Seamless Merchant will get you set up with a merchant account you can scale. We use the most advanced fraud mitigation tools to protect your merchant account and keep your chargeback ratio to a minimum. Contact us now to learn more about our payment services for high-risk businesses.