High risk merchants looking for a payment processor need to know the factors that tag them as ‘high-risk’. The next step is to look for the right payment service provider that will easily approve them for a high risk merchant account.
Here are the 15 largest high risk industries that need payment processing. Each industry has valuable tips on how to minimize the risks associated with their online payment process. Helping merchants understand the problems they face so they can be approved for high risk merchant processing.
Businesses tagged as high risk are not just limited to the most common profitable yet negative-reputation industries. This includes such businesses as adult, firearms, and nutraceuticals. Some businesses are considered high risk, but are not classified as one of the industries below. This can be due to the payment processing practices that raise concerns with the financial institutions.
What Are the Most Common Examples of High Risk Merchant Activities?
Any of these examples could violate underwriting guidelines and prevent account approval:
- The business is part of a highly regulated industry
- Processing Card-Not-Present (CNP) transactions
- Most (if not all) products or services are sold using recurring billing
- The bank views your business as a reputational risk
- The industry has a high occurrence of chargebacks and fraud
- Processing large ticket transactions
- The merchant has bad credit
Businesses that fall under the high risk merchant category will need to find a trusted high risk payment processing. A high-risk dedicated processor will integrate you with banks on demand, and provide all the risk management features needed. It can be hard to predict the changes in the regulations for these types of businesses, which is why partnering with a legitimate high risk-accepting processor such as Allied Payments is important. Doing so will help lead a business through all the challenges and associated risks.
How to Find the Right High Risk Payment Processor
Before high risk merchants can be approved for a merchant account and process payments, they have to go through extra scrutiny, restrictions, and regulations. These strict Know-Your-Customer (KYC) requirements can significantly limit their choices for payment service providers. They have to deal with higher processing rates, and comply not just with the processor's rules, but also that of financial institutions (such as PCI DSS for payment networks), wherever they plan to integrate and set up shop.
These strict KYC processes eliminate most of the common problems that affect high risk merchants. Among these problems are chargebacks, regulation changes and crackdowns, which then lead to investigations, frozen accounts, and negative credit scores.
With that said, not knowing the difference can cost your business great losses, especially in cases where accounts are entirely shut down. This will ultimately make it harder for a high risk merchant to apply for a merchant account, given their negative credit history.
Top High Risk Merchant Industries
Here are the top 15 biggest high risk merchants that need payment processing. The list includes solutions and best practices on how to get accepted for a merchant account.
- Adult Entertainment
Adult entertainment is one example of an industry considered by most banks as a reputational risk. Most of the mainstream financial institutions and bank sponsors will not serve the adult entertainment industry. This is due to the guidelines set forth by their underwriters. This is despite the fact that most adult merchants have huge transactions and are operating on such a lucrative business.
Tip: If your business involves adult films distributed through websites and/or DVDs/Pay Per Views/online streaming, adult toys, strip clubs, escort services, sensual massages, it can be hard to find the right payment processor.
Some merchants will opt for an aggregated payment services provider (PSP). These payment services might offer more industry solutions but at a much higher price. Working with a company such as Allied Payments will help merchants reduce costs while accepting most high risk business types.
People buy guns for a variety of reasons. Some do it for safety and protection, others for hunting, recreation, and target shooting. With 32% of families in the U.S. owning a gun, selling firearms is a booming business that brings in an estimated $5.5 billion annually.
However, most banks are wary of the controversial gun laws that regularly go against them. Firearms merchants planning to offer goods online will need a gun-friendly payment processing provider. Some of the biggest challenges are the credit card and shipping restrictions reserved for this business type.
Tip: If you are a startup and own other businesses with a good credit record, you can have a chance with some banks accepting firearms payment processing. If you’re in America, find a pro-second amendment payment processor such as Allied Payments. A gun-friendly merchant service provider will not only secure a merchant account for you, but it will also give you a low price and a stable payment processing platform.
Merchants need stability to avoid interruptions, such as payout freezing. This is a common problem of PayPal that makes releasing account funds extremely difficult. Let Allied Payments seamlessly connect you to Federal Firearms License (FFL) friendly banks, and the best firearm Point-of-Sales (POS), and all other payment services you need.
- Liquor/Hard Alcohol
The hard part about being an alcohol merchant is juggling sales and customer satisfaction, all while maintaining full compliance of laws and regulations. After all, the legal age for buying alcohol varies around the world. If you’re an alcohol merchant operating online and in countries like the US, the risk of underage sales cannot be simply ignored.
This very nature of the business means that bank sponsors are less likely to process credit card payments for you. As such, you need a payment service provider who can handle all the legal prerequisites and provide you with the right payment platforms unique to the industry.
Tip: Make sure you have enough money for the minimum security deposit requirement. This is to establish trust with the bank that will give you a merchant account. This requirement usually runs from three (3) to six (6) months, depending on your transaction flow and chargebacks. Fewer chargebacks will lower your high-risk tag over time. This is why it’s important to partner with payment processors like Allied Payments that know the details and undertakings each service and industry needs to meet. This will allow you to process online payments with ease and stability.
- Tobacco/ eCig/ Vape
Tobacco merchants are regarded as one of the highest risk industries. In addition to their heavy regulation with taxes and age restrictions, but their history of fraud. Many tobacco merchants have had a history of higher-than-average rate of credit card reversals.
People have been smoking tobacco products for centuries, making the tobacco industry a long-standing and time tested business. Despite its history, banks and financial institutions are hesitant about accepting this industry. Even after the release of its alternative, the e-Cigarette, the financial industry has still remained unreceptive to online tobacco merchants.
Tip: If you’re a tobacco merchant wanting to sell your goods online, look for the following factors found in reliable high risk payment processors:
- Helping to find the right bank with a tolerance for high chargeback rates. This can be solved with higher minimum deposits on the first few months. Over time these deposits can go lower depending on sales and improving chargeback record.
- Knowledge of the right payment services to integrate you for tobacco online payments.
- Understanding not to overcharge you with the payment services they offer.
- Knowledge of each state’s rules and regulations for tobacco sales; and
- Duly assists in finding the right merchant services and has the foresight to avoid possible issues in your business.
Talk to Allied Payments on how they handle payment services for their tobacco merchants.
Nutraceutical sellers often have trouble finding a credit card payment processor because of the following factors, most of which result in huge chargebacks.
- Nutraceutical companies use recurring billing, a payment cycle that consumers may not fully understand. This confusion - and probably the lack of information distribution on the nutraceutical company’s part - usually leads to a high number of chargebacks.
- Startup nutraceutical companies typically do not make their free trial promos clear. They then end up charging customer accounts even after the trial period has ended, making this one of the common reasons for its high chargeback rate.
- The way nutraceutical marketers advertise products can make consumers have high expectations. Usually, when the product doesn’t work the way it was marketed, consumers become disappointed. These result in chargeback reported under ‘Not as Described’. This is a huge disadvantage to nutraceutical merchants because these reports can be seen as an intentional merchant fraud.
Tip: The above factors would require nutraceutical companies to have a higher minimum security deposit for their merchant accounts. This is where Allied Payments comes in to help you with the entire application process, down to the integration of the right payment services. Disclaimers for your products should always follow the State and Federal laws. Make all the information clear for consumers, to avoid huge chargebacks and possible lawsuits.
- Auction Websites
Scammers running illegal operations ruined the reputation of the ones with reputable online auction businesses. This resulted in honest businesses struggling to find a credit card payment processor. Certain auction types, such as penny auctions, have also been criticized as a form of online gambling.
Tip: Gambling or not, trusted auction businesses will still find merchant account approval easier with good credit scores and steady income. Let Allied Payments set you up fast with lower rates, and all the choices for payment options and risk management features.
- Pharmacies (Retail)
Online pharmacies are considered high risk merchants because of the strict drug regulations concerning safety, authenticity, and category. Because of this, payment processors that cater to pharmaceutical companies have clear rules on which types of drugs are allowed. This includes over-the-counter medicines, and decline businesses that sell controlled and/or prescription drugs, such as antibiotics. You also need to adhere to the given conditions, such as electronic prescriptions for controlled substances (EPCS), and the prohibition of the sale of certain drugs, such as narcotics and psychotropic substances.
Another reason is the frequent occurrence of friendly fraud. The instances of chargebacks are not just on the side of pharmaceutical companies. In fact, friendly fraud is very common in the pharmaceutical industry. Instead of contacting the pharma company to request a refund. many customers contact their bank and file a chargeback.
Tip: If you are an e-Pharmacy looking for a payment processor, you need to know the law of the land first. Regulations vary across countries, so find one that has more relaxed rules. If you are operating in India, for example, sales can only be made through a cash or credit memo, according to the draft rules. With that said, payment processors like Allied Payments can help you diagnose and treat the issues of online pharmacy credit card payment processing by providing suitable payment options and risk management for your e-Pharmacy.
- Large Average Ticket Size ($2500+)
People often look for the best prices when they are shopping online, no matter what they are buying. This means fierce competition for any retail business. And if you’re an online store selling luxury items, it can even be more difficult because any transaction can potentially make or break your business. The expensive prices of your goods also mean excessive chargebacks in the part of credit card companies, making your business a high-risk merchant account.
If you’re unsure whether your business is part of this high risk category or not, here are some examples:
- Fine jewelry
- Travel agencies or booking services
- Real estate/Property Management
Tip: When regular banks find your business too risky, Allied Payments can help your business find the payment processor you need. We can provide customized payment solutions for your high average size ticket business. By connecting you with banks who are willing to accept the risks that naturally come with your industry.
- Direct Marketing/Continuity Services
Businesses that sell products or services on a continuity model bring a lot of credit card reversals. This is because clients can be billed without their consent, or they don’t even recall signing up. What’s worse, there are also scammers using continuity billing to peddle bogus offers, resulting in massive chargebacks and tarnishing the reputation of the direct marketing industry as a whole.
When too many chargebacks pile up, regardless of the reason, your account can be shut down. Having a specialized account will help reduce the risk of merchant account termination. Account closure can lead to a negative track record, meaning fewer banks will accept future merchant account applications.
Tip: If your business runs on a continuity model, it’s best to sign up for a high-risk merchant account for seamless credit card transactions. Allied Payments specializes in high-risk merchant accounts. Our team can help find banks and payment services offering risk management features to protect your business from problems.
- Membership/Subscriptions Services
Financial and reputational risks are always the primary concerns of bank sponsors before they accept credit card payment processing for merchants. Understandably so, as any kind of wrong practice can result in damaging the brand’s image.
Bank sponsors are wary of “harmful decision enrollment,” especially in cases of “free trials” that are not entirely free. The client makes a single payment but has unknowingly signed up for a paid monthly subscription that they have to opt-out to avoid being charged. Thus, for businesses that offer services through membership or subscriptions, it can be difficult to acquire payment processing providers.
Tip: Although recurring billing is a safe, effective, and convenient way for customers to automatically pay with their debit or credit cards on a pre-arranged schedule, it can be seen as deceptive or fraudulent by credit card companies. If you are a membership site owner looking for a payment processor, Allied Payments can help. By protecting you from data breaches, mitigate processing risks, and increase card approval rates.
- Multi-Level Marketing (MLM)
Unique businesses need specialized payment processing providers. Multi-level marketing companies, also known as network or referral businesses, are part of a booming industry. In fact, in the United States alone, 20.5 million people have joined an MLM, creating revenues worth $35.54 billion in direct retail sales.
Despite this, banks classify MLMs as high risk merchants. It’s no secret that MLMs are known for their legal risks, high chargeback potential, and often inconsistent or unpredictable growth patterns.
Tip: The risks don’t mean you can’t process online credit card payments. If you're a multilevel marketer looking for a reliable payment processor that specializes in MLM merchant accounts, contact Allied Payments. Merchant accounts set up to ensure safe, secure, and suitable payment solutions with chargeback prevention that can compensate for the drawbacks of the business.
- Business Opportunities (Biz Ops)
Business opportunity companies offer a program or course to help other people make an income, generally online, in the comforts of their own home. Some of them charge a membership fee to fund backend costs and tools.
However, in an industry that uses recurring billing, a few merchants gave biz ops a bad reputation with excessive chargebacks. There are also people who only join to earn fast money, making biz ops a high risk merchant needing a specialized credit card payment processing provider.
Tip: This can be solved by slowly building a good reputation and, most importantly, a good credit record for you and your business. Avoid making outrageous claims that can cause buyer’s remorse and credit card reversals. You also need to get good support channels, clear and justified fees, and a high risk merchant account provider. Allied Payments understands the risks of the biz ops industry and will give your business the chargeback management system that you need.
- Loans (Consumer Auto/Student/Medical/Dental)
Getting a loan is often how families pay for their lifestyles. In the United States, overall household debt increased by 11% in the last 10 years, according to a 2016 credit card debt study. As long as people need loans, lending companies will remain a lucrative business. Despite this, businesses providing loan solutions are categorized as high risk merchants.
Traditional banks usually turn lenders away because of the nature of the business, along with the industry’s history of chargebacks. There will always be people who will fail to pay their loan on or before the due dates, and this issue is even more common with businesses who offer short-term loans and process debt collection. Bank sponsors simply don’t want the risks associated with the lending industry.
Tip: Lowering interest rates can help your lending organization achieve a better reputation for credit card companies. However, it is only part of the solution. Talk to Allied Payments and apply for a high risk merchant account to get reliable, secure, and industry-specific payment systems you need for your business.
- Extended Warranty (Protection Services)
If you’re a merchant offering extended warranties, especially in the field of automotive insurance, you need to know that your business is considered a high risk operation. The high level of customer disputes contributes to an increased chargeback ratio. Furthermore, instances of fraud are also common in the industry.
Consider this scenario: a client calls you to dispute a credit card charge. However, you find out that your extended warranty doesn’t cover his problem. The client, likely annoyed or frustrated at this point, files for a chargeback. Your business may have the financial capability to pay the refund, but others may not, and it will fall to the credit card processor. Ultimately, this financial risk makes traditional banks shy away from extended warranty providers.
Tip: As an extended warranty merchant, you need to give your clients a convenient way to pay, especially without cash. To make online payments, you need a high risk merchant account provider like Allied Payments, who understands your business. Specialized processors have the right tools to prevent fraud and manage many of the risks.
- Ticket Brokers
Grabbing tickets to a live performance is now easier than ever. Event-goers don’t need to stand in line anymore; they can simply opt for digitized mobile ticketing. This convenience led to the growth of the ticket sales industry. Traditional financial institutions, however, see ticket brokers as high-risk merchants.
Whether you’re selling tickets for sporting events, concerts, or theaters, the method is always the same for your customers. Purchasing tickets first before attending the event on the scheduled date. When there are new bookings, last-minute adjustments, or cancellations, confusion and errors occur, resulting in disputes and credit card reversals. In this industry, the bigger the event, the higher the risk of chargebacks.
Tip: If you’re a ticket broker looking for a payment processor, Allied Payments can help you set up a high risk merchant account. This account can help accommodate your business needs, including fraud filters and chargeback management tools.
Apply for a Merchant Account today!
Ultimately, your willingness to mitigate the risks in your business will make it easy for you to find the right service provider. Working with a specialized payment processor will help steer your company in the right direction when applying for merchant services.
If your business is considered to be in a high risk category, working with a specialized payment services company is recommended. Allied Payments works with various high-risk friendly banks and specialized payment processors. Providing fast and easy merchant account applications to help businesses start accepting credit cards quickly. Talk to us to learn more about our payment products and services.