Which accounts are considered High-Risk by payment gateways?

In a world heavily dependent on digital services, some high-risk businesses struggle with getting an established payment gateway. This concern stems from the fact that payment gateways deem some merchants as “high risk” due to the nature of the businesses and the market behavior. This factor is an additional hurdle for those businesses trying to make a profitable online company! Globally, there are up to 4.66 billion active internet users! But, the sheer lack of a reputable payment gateway may inhibit users from making transactions on the given site! The market opportunity is unlike ever before.

So, what businesses are marked high-risk by payment gateways? Read ahead to find out the industries that payment gateways regularly consider high-risk! If your business lies in the following high-risk categories, we will guide you through high-risk payment gateway options you can turn to while establishing your business! You can make sure it does not have difficulty accepting payments and flourish in the global market regardless.

What are high-risk businesses? 

Online businesses thrive because every industry can attain the highest number of transactions to bring about the highest revenue possible, as it is proportional to sales count. If only the equation is this simple! A shared trust mediates the unison of a customer, company, and bank. That they receive the value, they make payments.

Every customer wants to get the most of the product he has ordered or the money he has spent on it, which makes them mindful of product quality, delivery, and service. Similarly, merchants who wish to generate a high sales volume want to make a profitable revenue instantaneously. Any financial institution is not exempt from this either. They ensure that both the customer and seller retain the value of their agreement without any misuse, hindrance, or disturbances. This factor is of primary importance as the institution can cover maximum risk resulting from the payment process.

With online payment processing, financial institutions have to assume similar risks as each risk costs them money. Due to these rising risk factors, they ensure that these risks are kept to a minimum. It is impossible to contain these in all probability. But by restricting businesses into three categories, Low, Medium, and High Risk to streamline various businesses. This categorization also allows businesses to plan accordingly. Read on to gauge if your business falls under these high-risk groups.

What makes any business high-risk?

To arrive at finality on understanding this high-risk business classification, you would require an in-depth understanding of factors that guide payment gateways. High-risk businesses generally get sorted into two categories, namely red and grey zones. It is a simple sorting once you understand the basis on which the two are demarcated.

A red zone high-risk business includes entire industries that are considered high-risk. This risk is independent of your business history. Factors that play a vital role in this category are –

  • If the sector or industry is named in the High-Risk Industries List
  • If your business does not comply with all the industry security regulations
  • If your business is in a sector that has high chargeback ratios
  • If your business is in a segment with a high employee turnover rate
  • If you conduct your business in countries with high chargeback risks (for example, Russia, Mexico, Brazil, etc.)

On the other hand, grey zone businesses are those where the business history/performance is a deciding factor. Factors that come into play here are –

  • Suppose you were labeled Terminated Merchant (TMF) previously. A TMF label means that you have lost a merchant processor already because of the high number of chargebacks.
  • If your business is very new or if it has a negligible credit card processing history.
  • If you happen to have a substandard credit card history (which includes elements like not providing collateral for loans or not paying required bills on time)
  • If you have an excessive number of chargebacks that exceed 1%
  • If you happen to be an international merchant and run a multi-currency business
  • If you experience a large volume of returns and refunds

The above facets render businesses unreliable, be it based on the concerns that mark an entire industry high-risk or personal business-based factors like history that may put businesses at risk. Still unsure if your business falls under these categories? Below is a list of merchants that commonly get flagged by payment gateways.

Common High-Risk Business Sectors

Regardless of the individual deciding factors, beginners wishing to make their business a successful one may be unaware of the nuances. We are here for you! We have curated a list of merchants commonly rendered at high risk. Please note that there may be many more and that high-risk businesses are not limited to the below comprehensive list.

  • Smoke Head Shops / Cannabis Stores
  • Tobacco and E-cigarette Shops
  • Pharmaceuticals
  • Online Gaming, Online Gambling, and Casinos
  • Online Dating or other Adult Services
  • Forex trading or Bitcoin Mining
  • Subscription-based Services
  • Telemarketing Facilities
  • Travel and Advanced Booking Services
  • Sports Booking

You may be wondering why sectors like Travel or booking are flagged in the above list. These industries usually have an excessive amount of chargebacks and frauds. For example, a friendly fraud associated with the booking industry is when users book or purchase a trip, make use of the booking but claim that they never did so in the first place.

To reduce such risks from causing damage, payment gateways steer clear from these industries and high-risk businesses. This attempt helps them stay aware and reduce any risk responsibility on their part. Here’s how you can contain that! Do your businesses happen to fall under these sectors, or may they potentially be at risk?

Way forward

If your company falls under the red or grey zone, as mentioned above, finding a high-risk payment gateway could help decide your way forward. With about 1.92 billion online buyers, there is no reason why your business must suffer if it falls under these categories. With high-risk payment gateways, you may have the assurance that they are aware of inhibiting factors, have the know-how in cases of risk, and may even be accommodating of them. This factor increases the probability of attaining profits without being swayed by hurdles like getting a reliable payment gateway.

Once you have found a trustworthy high-risk payment gateway, you may be free from transaction concerns. You can stay assured that users visiting your business online will be able to make transactions seamlessly.

Interesting Related Article: “How to Make Payments Easy with a Payment Gateway