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What is a High-Risk Business?
All businesses are exposed to some degree of risk. While risk is unavoidable in the business world, many factors can make some businesses riskier than others. Financial institutions evaluate many criteria to classify businesses as high or low-risk. Along with your company’s financial health, banks and payment processors also analyze the industry you operate in to determine how much risk the business is exposed to.
Which Industries are Considered High-Risk?
If you operate in an industry that is legally regulated, has reputational issues, or experiences higher than average rates of fraud and chargebacks, then your business is categorized as high-risk. The merchants operating in these industries need a high-risk merchant account to process credit card payments as most traditional financial institutions refuse to work with them. Banks and payment processors regard these five businesses as high-risk industries:
The vaping and e-cigarette industry is projected to grow for years to come. Despite its popularity, the business is considered to be high-risk by banks and credit card processing companies as it’s tightly regulated by the Food and Drug Administration (FDA).
Being a tobacco-related product, the FDA regulates the safety, sale, and use of vapes and e-cigarettes. Federal law prohibits the sale of vapes and e-cigarettes to people under the age of 18. Most banks and payment processors will not work with vape/e-cigarette merchants as many of these eCommerce businesses are unable to verify the age of online shoppers, leading to potentially illegal sales to minors.
Travel and Booking
You might be surprised by this classification, but travel and booking businesses are also considered to be high-risk industries due to the forward commitment. Customers are able to book a flight up to 9 months in advance and this creates risk for the bank and processors. In addition, the travel industry is fraught with very high rates of chargebacks and friendly fraud. It is common for fraudsters to book holidays, take and enjoy their trips, then request a chargeback to get their money back after using the services.
Fraud costs the travel industry billions of dollars every year in direct and indirect costs. Banks and traditional payment processors won’t work with businesses in the travel and booking industries to minimize their exposure to financial risk. Travel and booking merchants need a high-risk merchant account to reduce chargeback ratios to a minimum and improve business profits.
Nutraceuticals and Supplements
The nutraceutical and dietary supplement industries are very popular and profitable. More than 76 percent of American adults take dietary supplements regularly, generating over $120 billion in revenue for the nutraceutical industry. Despite widespread consumption, banks and other traditional financial institutions consider these businesses to be in high-risk industries.
Inadequate legal oversight and safety concerns with the nutraceutical industry cause banks to shun these businesses. The nutraceutical industry is not regulated by the FDA. Manufacturers can make unsubstantiated claims about the benefits of their products, which can result in disputes and lawsuits. Banks typically avoid working with these businesses to minimize entanglement in legal disputes and prevent financial loss.
The adult entertainment industry is a lucrative business. The American porn industry alone generates $97 billion annually. Although adult merchants comply with strict laws and regulations, they are still classified among high-risk industries. Many factors ⎼ such as those strict regulations, reputational risks, and above-average rates of fraud and chargebacks ⎼ contribute to its designation as a high-risk business.
Strict regulations govern the production and sale of adult-oriented products. The potential for child pornography and selling items that have age restrictions makes banks and other financial institutions shun adult businesses to minimize legal trouble and reputational damage. High rates of friendly fraud in the industry are another reason why banks avoid working with adult businesses. Adult merchants need a high-risk merchant account to reduce fraud and chargebacks in their industry.
While an increasing number of people are participating in fantasy sports, the association of fantasy sports with gambling and the high rates of chargebacks in the industry make these merchants high-risk businesses.
Fantasy sports’ similarities with gambling have made the game illegal in some states. Along with legal issues, higher than average rates of chargebacks in the industry make banks and traditional payment processors shun these businesses altogether. It is common for players to file chargebacks after losing a bet, leading to significant profit losses for fantasy sports businesses.
Sign up for High-Risk Payment Processing
Many legal and legitimate businesses operate in high-risk industries. Banks and traditional payment processors won’t work with these businesses to reduce their risk of financial loss. If your merchant application was rejected or you were placed in the TMF/MATCH list, Seamless Chex can still help you process credit card, check, and ACH payments with ease.
Our Seamless Merchant solution for high-risk businesses provides credit card, check, and ACH payment processing with chargeback reduction tools to maximize your company’s profits. With over 25 banks to choose from, Seamless Merchant can get you set up with a merchant account you can scale. Contact us now and speak with our payment experts to learn how we can help your high-risk business thrive.