What Are High-Risk Industries? Do I Have A High-Risk Business?

Businesses in high-risk industries often struggle to access business loans, credit card processing solutions, and business insurance; this is especially true for eCommerce entrepreneurs who rely exclusively on credit and debit card transactions to get paid.

Let’s dive into the ways a “high-risk” designation affects your business’s ability to operate, our recommendations for high-risk payment processing, insurance, and financing providers, and review some tips to avoid some not-so-high-quality providers that prey on high-risk businesses like yours.

What Is A High-Risk Business?

A high-risk business is considered likely to fail financially by card processors and banks. Businesses operating in financially risky industries, such as gambling, adult entertainment, cannabis, and international shipping, may be prone to high chargeback rates and labeled as high-risk businesses by card processors and financial institutions.

In general, a business may be deemed high-risk based on its industry, any international operations it performs, monthly processing volume, and/or financial history/current status.

High-Risk Merchants & Credit Card Processors

What Factors Determine Risk Level For Businesses?

Banks, credit card processors, and insurance companies look at a few factors to determine whether a business is high-risk.

Ultimately, a high-risk designation is predicated on your business type as well as the policies of processing providers–while one payment processor may say your business is high-risk, another provider with different high-risk categories may not.

Payment processors typically use the following factors to determine whether your business is high-risk:

Why Does Risk Level Matter?

You now have a solid grasp of the most common reasons why entities like banks and payment processing providers flag businesses as high-risk. But why does risk level matter? What’s the impact on high-risk companies that need payment processing solutions?

• High-Risk Merchant Account Services Are Expensive: Merchant accounts for high-risk businesses are more expensive than those for non-high-risk businesses. You’ll pay more for your account fees and processing charges, and you’ll probably be stuck in long contracts with a hefty early termination fee.
• Compliance Requirements Are Stricter: High-risk businesses and businesses operating in high-risk industries typically need to meet a greater number of compliance requirements. These requirements (OSHA standards are the most common example) may be at the local, state, or even federal level and are often related to high-risk business types.
• Higher Chance Of Landing On The MATCH List: High-risk businesses tend to have higher chargeback rates, which could lead to a business ending up on the MATCH list. That’s not to say that all high-risk businesses will end up on the MATCH list, just those deemed to have excessive chargebacks (even for a high-risk business).
• May Be Required To Maintain Rolling Reserve: High-risk businesses pose a financial risk to banks and processors. To reduce their odds of financial losses, you may be required to pay a portion of your profits into a rolling reserve. While you’ll receive those profits back eventually, most businesses would prefer their payouts as they earn them.

How To Determine Whether Your Business Is High-Risk

Not sure if your business is considered high-risk? We’ve put together an exhaustive list of the most common high-risk industries:

How To Avoid Being A High-Risk Merchant

As credit card processors and financial institutions determine which industries and businesses are considered high-risk, there’s no real way to avoid being labeled as a high-risk merchant if your business has already been labeled one. However, there are a few ways to avoid the high-risk merchant label.

• Switch Processors: While most processors have similar definitions of high-risk businesses and industries, there are some cases in which your business may be defined as a high-risk business by one processor and not another. Shop around for processors to determine whether there is one that doesn’t consider your business high-risk.
• Avoid Certain Business Models: Some business models, such as multi-level marketing models, are considered high-risk regardless of their industry. If at all possible, avoid engaging in this business model when starting a new business.
• Get Off The MATCH List: If you or your business has been placed on the MATCH list, you’ll likely be labeled as a high-risk business regardless of the processor you choose. You can wait the standard five years for your business to be taken off the MATCH list, or you can dispute your MATCH list status if you have been put on there by mistake.
• Prioritize PCI Compliance: If your business fails to adhere to PCI compliance standards, you can easily land yourself on the MATCH list, so it’s essential to prioritize PCI compliance.
• Reduce Chargebacks: Excessive chargebacks can land your business on the MATCH list, so work hard at preventing chargebacks. Clearly displaying a strict return policy can help to reduce chargebacks, as customers may be more wary of buying something they can’t afford.

4 Tips To Avoid Predatory High-Risk Credit Card Processing Providers

If you’re a high-risk merchant, know that while some providers may treat you fairly and charge you reasonable fees, countless others will seek to take advantage of you by charging highly inflated rates and fees. To avoid predatory high-risk credit card processing as a high-risk merchant, consider the following tips.

Navigating Other Aspects of Business When You’re In A High-Risk Industry

As a high-risk business owner, you know your options for payment processing are limited. Unfortunately, so are your options for other services such as business financing and insurance.

I’m On The High-Risk Merchant List, Now What?

Finding business services that suit your particular business is never easy, but it’s far more difficult for high-risk merchants. While you’ll have to pay higher fees and processing rates, you shouldn’t have to settle for subpar customer service and support.

Thankfully, there are some good providers that offer high-quality service and fair pricing to the high-risk community—although your choices are more limited than they are for non-high-risk merchants.

Looking for specific examples of service providers for high-risk businesses? Check out our picks for the best high-risk payment processors, contact some of the providers we chose, and see if they jibe with your business plan.