What Is High-Risk Payment Processing?

October 5, 2023

Payment processing is something that almost all businesses have to deal with. It allows merchants to accept money for goods and customers to pay for purchases quickly and easily. The rise of e-commerce has led to more and more businesses looking to accept payments online, so choosing a secure payment service provider is a top-of-mind concern.

There are various companies and industries where sellers get paid large sums, often above an average transaction amount, or they incur more frequent chargebacks or a high volume of returns. These are the reasons why some payment processing methods are labelled as high-risk. This doesn’t mean that the payment is risky at all — on the contrary, these payment channels offer an extra layer of protection to all users. 

In this article, we’ll tell you which industries need high-risk payment processing and what features and advantages these transactions have.

Reasons a Merchant May Be Considered High Risk

The emergence of specialised services to deal with high-risk merchants is justified by the fact that not every service provider agrees (or is able) to provide high levels of security, fraud protection, and fast processing of large transactions. Meanwhile, this is necessary for companies that have specific business needs related to protecting information resources or expensive materials and products.

There are many rational motives for a payment processing platform to categorise a merchant as high risk. The criteria may vary, but here, we’ve gathered reasons why you may be considered a high-risk client.

You Have a High Transaction Volume

Merchants may be labelled as high risk if they have a high volume of transactions or a high average transaction amount. If a business needs to process over $20,000 in payments a month or has an average transaction of $500 and above, it may be considered high risk.

You Accept International Payments

If a company sells its products to customers internationally in countries that are listed as high risk of fraud, they may be considered high risk. The countries with the highest number of scammers include Nigeria, India, China, Brazil, Pakistan, and Indonesia. In a broader sense, this could be any country except the US, UK, Canada, Australia, Japan, and the countries in the EU.

You Are in a High-Risk Industry

While you may have an impeccable reputation, you may still be categorised as high risk because the industry in which you operate is considered to be at a higher risk of fraud, chargebacks or refunds. For example, subscription companies are believed to be like that because many people sign up for a trial period and forget to cancel their payment. When they review their statements and see the forgotten charges, they often request a refund.

You Are a New Merchant

You don’t even have to be special to become a high-risk customer for a payment service provider. It’s simple like this: you just need to be new to the business. If a merchant has never processed payments before or has only a minimal history of processing transactions, they may be categorised as high risk simply because they have no track record. Additionally, if you have a low credit score, you may be deemed high risk.

Types of Businesses Commonly Considered High Risk

It is useful to know in advance if your industry is in a high-risk category so that you can plan accordingly. Businesses that typically fall into it include:

  • Holiday businesses
  • Ticket and booking services
  • Vape shops
  • Electronics
  • E-books
  • Agency services 
  • Consultancy services
  • Health and wellness products
  • Pharmaceuticals
  • Brokers
  • Money transfer companies
  • Cryptocurrency
  • Gambling
  • Music and software downloads 
  • Nightclubs
  • Adult entertainment, products, and services
  • Firearms
  • Guns and ammunition
  • Antiques dealerships
  • Car dealerships
  • Jewellery, etc.

What Are the Pros and Cons of High-Risk Payment Processing?

The disadvantages of a high-risk merchant account are the following:

  • You will face higher fees. Generally, the processing fees for transactions will be higher, sometimes twice as much as those of a low-risk account.
  • You’ll go through a more complex approval process and have a longer processing time.
  • You need to have larger cash reserves to cover potential losses from chargebacks or fraud.
  • You may be forced to enter into longer-term contracts and face early termination fees.
  • You may incur a rolling reserve where a service provider withholds a percentage of your income until it receives confirmation that your transactions are not fraudulent.

However, there are real benefits of a merchant account for high-risk clients that outweigh the cons. Plus, in some situations, you just can’t do without it, as not all financial organisations will be willing to take responsibility for your money because of the industry you’re in, or the transaction amounts you deal with. And if you have a bad credit history, a high-risk merchant account may be the only way. 

Let’s move on to the advantages you need to know about:

  • You can sell goods around the world, accept different currencies, and sell to customers in high-risk countries.
  • You can do business in high-risk industries. Some of them are also quite profitable, for example, gambling and ticketing services.
  • Your money is protected. Many providers offer security features, allow for quick and immediate payouts, and implement increased chargeback protection.
  • Making and receiving payments is simple, as a high-risk merchant account usually offers customer information management, automatic recurring billing, and other useful features.

High-Risk vs. Low-Risk Accounts

There are several common characteristics that make a merchant low risk to a payment processor. Let’s take a look at what such merchants generally have:

  • Low transaction volume — less than $20,000 per month
  • Average transaction value — less than $500
  • Transactions in one low-risk country 
  • The use of only one currency
  • Very low or no chargebacks 
  • Low refund/returns rates
  • Industries categorised as low-risk

Risk status can change as your business evolves. For example, if you are going through a period of rapid growth, a service provider may start to consider your business high risk. This may also hold true if you expand your business by operating in different countries or if you change industries. If the payment service provider then drops you as a customer, you’ll have to find a new one to process your payments.

How to Choose a High-Risk Service Provider

Read the contract carefully before choosing a payment processor, as each platform has different terms and conditions for high-risk merchants. If you are looking for the best service provider, the following points should be considered:

  1. Customers of a payment service provider. The first question to ask is, who does the provider accept? Even service providers that specialise in working with high-risk merchants do not accept all businesses. This is especially true if you are an offshore company with very poor credit, so look at the terms of service.
  2. Commission rate. To keep money inside your company, it is important to choose a provider with commissions that are not too high. This is harder for risky businesses to do, but it’s still realistic. 
  3. Importance of credit history. Typically, your credit history matters. A poor credit history can negatively affect the likelihood of you being approved for a merchant account. If you are denied one, you may need to work on your credit score to have a better chance in future. 

Note that you will be required to provide business and tax documents. Once your application has been processed, the payment provider will determine whether you are categorised as a high or low-risk merchant and will issue its terms and conditions.

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