If you’re a business owner in a high-risk industry, you may have already encountered the challenges of finding payment processing services. Many payment processors and banks avoid working with high-risk businesses due to the increased risk of fraud and chargebacks. However, options are available in the form of high risk merchant services.
In this article, we’ll explore what high risk merchant services are, how they work, and what benefits they offer to high-risk businesses. We’ll also provide insights into the high risk credit card processing industry and discuss the factors determining whether your business is considered high-risk.
What are High Risk Merchant Services?
High risk merchant services are payment processing services designed specifically for businesses that operate in high-risk industries. These industries typically have a higher likelihood of chargebacks, fraud, and other payment disputes. As a result, traditional payment processors and banks often need extra reassurance to work with them.
High risk merchant services offer an alternative for these businesses, providing various payment processing solutions tailored to their needs. These services often have higher fees and stricter terms than traditional payment processing services. However, they offer a lifeline for high-risk businesses that would otherwise need help finding payment processing solutions.
How do High Risk Merchant Services Work?
High risk merchant services work in much the same way as traditional payment processing services. They allow businesses to accept customer credit and debit card payments, process transactions, and transfer funds to their bank accounts.
However, high risk merchant services take additional measures to manage risk. They may use advanced fraud detection and prevention tools, impose higher transaction fees, and place stricter terms and conditions on their services. This helps to mitigate the increased risk of chargebacks and fraud associated with high-risk industries.
What are the Benefits of High Risk Merchant Services?
The primary benefit of high risk merchant services is that they allow businesses in high-risk industries to accept credit and debit card payments. This can be a significant advantage, as many customers prefer to pay with cards rather than cash or checks.
Other benefits of high risk merchant services include:
- Customized solutions: High risk merchant services are designed to meet the specific needs of high-risk businesses. This means that they can provide customized solutions that are tailored to the unique requirements of each business.
- Improved cash flow: By accepting credit and debit card payments, high-risk businesses can improve their cash flow and reduce their reliance on cash and checks.
- Reduced risk of fraud and chargebacks: High risk merchant services use advanced fraud detection and prevention tools to reduce the risk of fraudulent transactions and chargebacks.
- Reduce the inherent risk for theft that comes with running a cash only business.
What is High Risk Credit Card Processing?
High risk credit card processing is a type of payment processing designed specifically for high-risk businesses that accept credit card payments. This includes industries such as online gambling, adult entertainment, and e-commerce.
High risk credit card processing providers use advanced fraud detection and prevention tools to manage the increased risk of fraud and chargebacks associated with these industries. They may also impose stricter terms and conditions on their services, such as higher transaction fees and rolling reserves.
Factors that Determine Whether a Business is Considered High-Risk
There are several factors that determine whether a business is considered high-risk. These include:
- Industry: Certain industries are inherently high-risk, such as online gambling, adult entertainment, and e-commerce.
- Chargeback history: Businesses with a history of high chargeback rates are often considered high-risk.
- Credit history: A poor credit history can also contribute to a business being classified as high-risk.
- Transaction volume: High transaction volumes can also increase the risk of chargebacks and fraud, making a business more likely to be classified as high-risk.
Why would payment processing for E-Commerce be considered just as high risk as adult entertainment and gambling?
E-commerce businesses are often considered high risk because they operate in a digital environment, where fraud and chargebacks are more prevalent. Due to the nature of online transactions, it can be more difficult to verify the identity of the customer or the authenticity of the transaction, which increases the risk of fraudulent activity. Additionally, some e-commerce businesses may sell high-value goods, which can attract fraudulent activity and chargebacks if the goods are not delivered or if the customer claims they did not receive what they paid for.
High risk merchant services for casinos and online gambling
Gambling businesses are also considered high risk due to the nature of the industry. Gambling transactions are often large in value, and there is a higher likelihood of chargebacks and fraudulent activity. Additionally, the industry is heavily regulated, which can create compliance challenges for payment processors and banks. Furthermore, in some jurisdictions, gambling is illegal or heavily restricted, which can create additional legal and regulatory challenges for payment processors and banks.
Overall, e-commerce and gambling businesses face unique challenges that make them more susceptible to chargebacks, fraud, and other payment disputes, leading to their classification as high risk industries.
Here is a breakdown of typical high risk clients Payment Pluss has worked with in the past.
E-commerce businesses: As mentioned earlier, e-commerce businesses are often considered high risk due to the increased likelihood of fraudulent transactions and chargebacks.
Example: Online marketplaces, online retailers, and subscription-based services.
Adult entertainment: Adult entertainment businesses may be considered high risk due to legal restrictions, age verification challenges, and potential chargeback disputes.
Example: Adult websites, strip clubs, and adult novelty shops.
Gambling: Gambling businesses are often considered high risk due to the high transaction volume, high chargeback rates, and heavy regulatory requirements.
Example: Online casinos, sports betting platforms, and lottery services.
Financial services: Some financial services, particularly those that deal with high-risk customers or industries, may be considered high risk due to potential fraud and chargeback disputes.
Example: Debt collection agencies, credit repair services, and payday lenders.
Travel and tourism: Travel and tourism businesses may be considered high risk due to the potential for fraud and chargebacks, particularly with non-refundable bookings and cancellations.
Example: Travel agencies, vacation rentals, and online booking platforms.
Firearms and ammunition: Businesses dealing in firearms and ammunition may be considered high risk due to the potential for fraudulent activity and the sensitive nature of the products.
Example: Gun stores, firearm accessory retailers, and shooting ranges.
Tech support and software: Some tech support and software companies may be considered high risk due to the potential for fraudulent activity and chargeback disputes.
Example: Remote tech support services, software download websites, and subscription-based software services.
It’s important to note that these are just a few examples of high-risk business categories. Multi- Level Marketing (MLM) and Cannabis Dispensaries are more challenging and require specialized processing support.
Multi Level Marketing
Multi-level marketing (MLM) businesses are often considered high risk due to their business model and the potential for fraud and chargebacks. MLMs rely on a network of distributors who recruit new members and earn commissions on their sales, creating a complex web of transactions that can be difficult to monitor and regulate.
Here are some specific reasons why MLMs may be considered high risk:
- High chargeback rates: MLMs often sell products through a network of distributors, which can result in a higher likelihood of chargebacks if a customer is dissatisfied with a product or service. Additionally, MLMs may be more susceptible to fraud if distributors make false claims about the products or services being sold.
- Compliance issues: MLMs are often subject to complex legal and regulatory requirements, which can be difficult to navigate. This can create compliance challenges for payment processors and banks, who may be hesitant to work with MLMs due to the potential for legal and regulatory risks.
- Reputation risks: MLMs have a reputation for being controversial and polarizing, with some critics labeling them as pyramid schemes. This can make it more difficult for MLMs to find payment processing partners and banks that are willing to work with them.
- Unpredictable revenue streams: MLMs often rely on a network of distributors to generate sales, which can make revenue streams unpredictable and difficult to forecast. This can create challenges for payment processors and banks, who may be hesitant to work with MLMs due to the potential for revenue instability.
Merchant services for Cannabis Dispensaries
Credit card processing for cannabis dispensaries is considered high risk due to the conflicting laws surrounding the industry. While some states have legalized the use and sale of cannabis, it is still illegal at the federal level, which creates uncertainty and potential legal liability for payment processors.
Credit card companies are heavily regulated by federal laws, such as the Bank Secrecy Act (BSA), which requires financial institutions to implement anti-money laundering (AML) policies and procedures.
Since cannabis is still illegal at the federal level, credit card companies may be hesitant to work with dispensaries due to the risk of violating these laws.
Furthermore, the lack of a consistent regulatory framework for the cannabis industry makes it difficult for payment processors to assess the risks involved in working with dispensaries. This uncertainty and the potential for legal liability make credit card processing for cannabis dispensaries a high-risk proposition for payment processors.
What are alternative payment options or merchant services are available to cannabis dispensaries?
To conduct transactions and mitigate the risk of getting their processing turned off by credit card processors, some cannabis dispensaries have turned to alternative payment methods. These include:
- Cash Payments: Many cannabis dispensaries still operate as cash-only businesses due to the difficulty of obtaining credit card processing services. However, this can present security risks and can be inconvenient for customers.
- Debit Cards: Some payment processors offer debit card solutions that allow dispensaries to accept electronic payments. These solutions typically involve a prepaid card that customers can load with funds and use to make purchases.
- Cryptocurrencies: Some dispensaries have started accepting cryptocurrencies as a form of payment, which allows for anonymous transactions and reduces the risk of chargebacks.
- Payment Aggregators: Some payment aggregators specialize in high-risk industries and may be more willing to work with cannabis dispensaries.
To mitigate the risk of getting their processing turned off by credit card processors, cannabis dispensaries should ensure they fully comply with all state and local laws governing the industry. They should also implement robust AML policies and procedures to reduce the risk of money laundering and other illicit activities.
Alternative payment methods pros and cons
Cash Payments
Pros:
- Cash payments are the most straightforward and widely accepted form of payment in the cannabis industry.
- Dispensaries can avoid the fees associated with credit card processing and chargebacks.
- Dispensaries can avoid the risks associated with having their payment processing accounts shut down due to high risk.
- In most states, ATM’s (Automated Teller Machines) can be installed directly in the retail environment. Making cash easily accessible to customers.
Cons:
- While Payment Pluss offers cash management solutions, handling large amounts of cash can be a security risk for dispensaries and their employees.
- Cash payments can be inconvenient for customers, who may prefer to pay with a credit or debit card.
- Cash transactions can be more difficult to track and report for tax purposes, which can create accounting challenges for dispensaries.
Debit Cards
Pros:
- Debit card solutions can offer a more convenient and secure payment option for customers than cash payments.
- Prepaid debit cards can be an effective way to manage transactions and reduce the risk of chargebacks.
- Debit card solutions can be more cost-effective than credit card processing.
Cons:
- Debit card solutions may be more limited in their availability than credit card processing.
- Dispensaries may need to partner with a specific payment processor to offer debit card solutions, which can limit their options.
- Prepaid debit cards may have limitations on the amount of funds that can be loaded, which could be inconvenient for some customers.
Cryptocurrencies
Pros:
- Cryptocurrencies offer an anonymous and decentralized payment option that can help protect the privacy of customers and dispensaries.
- Cryptocurrencies can be more resistant to fraud and chargebacks than traditional payment methods.
- Some customers may prefer to use cryptocurrencies, which could be a competitive advantage for dispensaries.
Cons:
- Cryptocurrencies are still relatively new and may not be widely accepted or understood by all customers.
- Cryptocurrencies can be volatile in value, which could create uncertainty for dispensaries in terms of pricing and accounting.
- Dispensaries may need to partner with a specific payment processor to offer cryptocurrency payments, which can limit their options.
Payment Aggregators
Pros:
- Payment aggregators can offer a range of payment options that may be more flexible than traditional credit card processing.
- Payment aggregators may have more experience working with high-risk industries like cannabis, which could make them more effective partners for dispensaries.
- Payment aggregators may offer more competitive pricing than traditional credit card processors.
Cons:
- Payment aggregators may have more stringent requirements for accepting merchants, which could make it difficult for some dispensaries to qualify.
- Dispensaries may need to pay additional fees for payment aggregator services, which could impact their bottom line.
- Payment aggregators may need to be more established and more reliable than traditional credit card processors, which could create risk for dispensaries.
What is a Payment Aggregator?
A payment aggregator is a third-party service provider that allows merchants to accept payments from customers through various payment methods, such as credit and debit cards, e-wallets, and other digital payment methods. Payment aggregators act as intermediaries between the merchant and the payment processors, and they typically offer a range of payment options that can help merchants expand their customer base and increase sales.
Payment aggregators work by pooling together merchants into a single merchant account, which allows them to offer more competitive pricing and faster application approval times than traditional payment processors. Payment aggregators also typically offer a range of value-added services, such as fraud prevention, chargeback management, and transaction reporting, which can help merchants manage their payment processing operations more effectively.
Payment aggregators are particularly popular among high-risk industries, such as cannabis dispensaries, as they may be more willing to work with merchants in these industries than traditional payment processors. Payment aggregators may also offer more flexible payment options than traditional payment processors, which can help merchants better serve their customers.
Examples of payment aggregators include PayPal, Square, Stripe, and Adyen, among others.
Did you know that credit card processing for Health insurance companies could be considered high risk?
Credit card processing for insurance may or may not be considered high risk, depending on the specifics of the business. In general, insurance businesses are not typically classified as high risk, but there are some factors that could increase the risk level.
For example, if the insurance business deals with high-risk policies, such as high-value assets or high-risk individuals, then it may be considered high risk. Additionally, if the insurance business has a history of chargebacks or fraud, or if it operates in a high-risk industry such as healthcare, then it may also be considered high risk.
However, if the insurance business has a good track record of low chargebacks and fraud, and operates in a relatively low-risk area of insurance such as auto insurance, then it may not be considered high risk.
Ultimately, the risk level of a credit card processing account for an insurance business will depend on a variety of factors, and should be assessed on a case-by-case basis by payment processors and banks.
Insurance businesses are typically not considered high risk by default, as they are not part of industries that are commonly associated with high risk. However, as with any business, the risk level of an insurance business can be impacted by a variety of factors such as chargeback rates, fraud rates, industry reputation, and regulatory compliance.
According to a report by Chargebacks911, an industry-leading chargeback management company, the chargeback rates for insurance businesses are generally low. However, this can vary depending on the type of insurance policy being sold and the specific business practices of the insurance company. For example, a high-risk insurance policy, such as one that covers high-value assets, may have a higher chargeback rate than a standard auto insurance policy.
Similarly, the risk level of an insurance business may be impacted by its industry reputation and regulatory compliance. Insurance businesses that operate in highly regulated industries such as healthcare or financial services may be subject to stricter compliance requirements, which can increase the risk of chargebacks or fraud if not appropriately managed.