What is High Risk Banking?

In the context of merchant services, the term "high risk" refers to businesses that are more likely to experience chargebacks, fraud, or other issues that may result in financial losses to the payment processor. Being classified as high risk is not a reflection of the quality or integrity of the business itself, but rather the inherent risk associated with certain industries or business models.

Industries that are commonly considered high risk include:

  • Adult entertainment
  • Gambling and online gaming
  • Nutraceuticals and dietary supplements
  • Pharmaceuticals and medical equipment
  • Travel and tourism
  • Firearms and ammunition
  • Debt collection agencies
  • Cryptocurrency exchanges
  • E-cigarettes and vaping
  • Online dating

When a company is classified as high risk, payment processors may require higher fees or additional security measures to mitigate the potential risks. They may also require reserves, where a percentage of each transaction is held in a separate account, to cover potential chargebacks or refunds.

If a high-risk business goes out of business after taking payments for goods or services upfront, the acquirer may be liable for refunding those payments to customers. This can result in significant financial losses for the acquirer, which is why it is important for them to carefully vet and monitor high-risk merchants to reduce the likelihood of such occurrences.

Despite the added risks and requirements, there are still benefits to accepting payments as a high-risk merchant. These industries often have higher profit margins, and some payment processors specialise in working with high-risk businesses, providing tailored solutions and support to help them navigate the challenges of payment processing.

As for the future of high-risk payment processing, advancements in technology and regulations may help reduce some of the risks associated with these industries. For example, blockchain technology could provide increased security and transparency in industries such as cryptocurrency exchanges. Additionally, as regulations evolve, it may become easier for high-risk businesses to access payment processing services and receive fair treatment.

For now, there are high risk specialists such as Trust Payments.

Categories


Merchant Services

What is High Risk Banking?

Related knowledge posts

... Merchant Services

What is Merchant Cash Advance?

Merchant cash advance (MCA) is a form of alternative lending that provides businesses with quick access to capital by selling a portion of their future sales revenue to a financing company.

... Merchant Services

Merchant Services

The merchant services industry provides businesses with the ability to accept various forms of electronic payment, including credit and debit cards.