High-Risk Business Categories: Understanding Payment Processor Criteria

Key Takeaways

• High-risk businesses include eCommerce, online retail, and travel services. They face higher fees because there is a higher chance of fraud and chargebacks.
• Particular payment processors help high-risk companies by offering fraud prevention tools and chargeback management. They check a business’s credit score and history before working with them.
• To avoid being seen as high-risk, businesses should reduce their chargeback rates, follow all rules closely, and use fraud detection tools.
• It’s important for these businesses to pick the right high-risk payment processor. They should look for one that understands their industry challenges and offers clear costs.

What is high-risk payment processing?

A high-risk business faces more challenges in payment processing due to its nature or industry. These businesses often deal with things like high chargeback rates, selling products or services considered risky, and operating in countries prone to fraud.

Because of these risks, they need special merchant accounts set up for their complex needs. This requires the assistance of high-risk payment processing — a service that lets these businesses accept payments safely by tightening fraud protections and data monitoring.

Payment processors look at many things before agreeing to work with a high-risk business. They check if the company has had financial problems, low credit scores, sells mainly online or over the phone (card-not-present sales), gets irregular big sales volumes, or operates globally—especially from high-fraud areas.

Likewise, businesses must scrutinize the high-risk processing company they will commit to. Your payment processor criteria should include the following:

• Up-to-date fraud prevention tools
• Extensive chargeback management plan
• Secure payment processes
• Dedicated customer support
• Proven track record
• Has underwriting experience
• Strictly complies with laws

For any high-risk business, evaluating a high-risk payment processor’s services against these factors directly impacts their ability to manage financial transactions effectively and maintain stability despite potential threats.

What Makes a Business High-Risk?

Some businesses face more challenges than others because of their type or how they operate.  Knowing if your business falls into the high-risk category is important to determine how you can effectively handle payments and interact with processors. Here’s a look at some industries often tagged as high-risk:

• Travel: Travel agencies face uncertainties like trip cancellations and changes, resulting in more refunds and disputes.
• E-commerce: Online stores, especially those selling internationally, are prone to credit card fraud and high return rates.
• Neutraceuticals: This industry is susceptible to complex claims and billing fraud.
• Online Retail: Might incur high-value transactions coupled with the potential for theft or fraud.
• Online Gaming: Software return policies can make digital goods sellers particularly vulnerable to chargebacks, especially given concerns about piracy.

These industries each have unique challenges that affect how they are viewed by payment processors regarding fraud risks, chargeback probabilities, financial stability issues, or regulatory compliance matters—key factors that contribute to their classification as “high-risk” businesses.

The Role of Payment Processors

High-risk businesses face unique challenges, like high chargeback rates and strict compliance demands. Specialized payment processors tackle these issues head-on by offering services specifically designed for the high-stakes environment of high-risk merchant accounts.

Think fraud prevention tools, chargeback management strategies, and help meet law requirements. This support is crucial for keeping cash flow steady and minimizing losses from chargebacks. These specialized processors also understand the details that go into working with high-risk industries. For example, they usually ask for six months of bank statements and tax returns from a few years back during the application process.

This thorough examination helps them assess risk properly and provide the right level of service. With their expertise, businesses can focus on growing while leaving payment processing challenges to those who know best how to handle them.

Payment Processors’ Criteria for Evaluating High-Risk Merchant Categories​

Payment processors examine a business’s risk management, financial health, regulatory compliance, and customer satisfaction. Here are the criteria high-risk payment processors use to assess high-risk businesses:

• On Risk Management and Fraud Prevention: AI algorithms are optimized to spot trouble quickly. The right payment processor will have plans that make sure a business meets PCI DSS standards to protect transaction information adequately.
• On Financial Stability and Creditworthiness: If a merchant shows bad credit or signs of financial trouble, they might be seen as high-risk. This means payment processors could hold back money to deal with chargebacks. To stay in good standing, businesses need to keep a healthy credit score and manage their debt smartly.
• On Industry Regulations and Compliance: Following laws like PCI DSS helps keep customers’ card information safe. Making sure every transaction meets all these rules can help your business avoid problems and keep customer trust strong.
• On Chargeback Rates and Customer Disputes: If your business receives many chargebacks, it means more work and possible loss of money. Efficient fraud protection strategies, such as reviewing reports and analyzing data, can help prevent chargebacks before they happen.

Strategies for Managing High-Risk Payment Processing

Running a business brings challenges, especially if it falls into the high-risk category. Understanding how to lower risks and avoid chargebacks is key to maintaining a healthy operation. Here are some proactive steps:

• Use Advanced Fraud Detection Tools: Software can automatically spot unusual patterns and flag potential fraud before it affects your business.
• Set up Real-Time Analytics: This helps in monitoring transactions as they happen, letting you keep an eye on things to catch issues quickly.
• Review Every Chargeback Incident: Knowing why customers dispute charges allows you to fix underlying issues.
• Implement Chargeback Alerts: A quick crisis notice gives you a better chance to respond and resolve the issue.
• Offer Clear, Easy-To-Find Contact Information: Your website and receipts should have information that customers can use to reach you easily instead of filing a chargeback.
• Keep Detailed Records of Customer Interactions and Transactions: If there’s a dispute, this documentation can help prove your side of the story.
• Follow Industry Regulations: This helps avoid compliance issues that could lead to chargebacks or other penalties.
• Train Your Team Regularly: This lets them handle high-risk transactions on their own, including recognizing warning signs of fraud or disputes.
• Maintain Transparent Practices: You should clearly explain product or service features, delivery timelines, and return policies to customers upfront.
• Stay in Good Communication with Your Payment Processor: Any changes in your business model or transaction volumes could affect risk levels that your processor can mitigate.

Following these steps helps reduce the chances of facing chargebacks and keeps your relationship with payment processors strong, ensuring smoother operations for high-risk businesses.

Tips for Choosing the Right Payment Processor

Finding the right payment processor for your business ensures your financial operations run smoothly and securely. Here are key factors for high-risk businesses to consider when choosing which payment processing company to partner with:

• Check if the payment processor follows local and international rules to protect your business from legal troubles.
• Make sure they have strong risk management and fraud prevention systems in place to protect against fraud and other complications.
• Inquire about their pricing model to avoid being surprised by hidden fees.
• Check if they easily integrate with your platform.
• Choose a processor with a solid financial background to ensure reliability in handling transactions.
• Ensure that they have reliable customer support that can quickly help you whenever you need it, keeping your business running smoothly.
• Choose a payment processor that has a global reach, especially if you serve international customers.
• Investigating their track record to assess their familiarity with high-risk businesses will better understand your challenges.

These steps help you find a payment processor that is suitable for your high-risk business and offers stability, security, and growth support.

Vellis as Your High-risk Payment Processor

Vellis steps up as a hero for businesses that seem too risky for others. They offer innovative solutions like chargeback management, data monitoring, and fraud protection, making life easier for high-risk companies.

With a keen focus on these challenging markets, Vellis offers customized solutions that address the unique needs of companies grappling with the hazards of operating within high-risk frameworks. Through specialized offerings, Vellis expertly supports businesses facing high-risk business challenges.

Conclusion

Knowing what payment processors look for in high-risk businesses is important. Each bank and payment processor sets its own rules to figure out the risk of working with your business. They will check if your company is new, has bad credit, has high chargeback fees, sells controversial products, depends on international sales, or works in a field with many government rules.

Investing in Vellis can protect your business’s financial interests. We specialize in dealing with high-risk clients, offering features like chargeback mediation and protection against friendly fraud. For any business operating within these risky sectors, choosing Vellis not only secures your transactions but also strengthens your ability to operate successfully amidst challenges.

Process with Vellis today to ensure your success in a high-risk industry!

FAQs

1. Can high-risk businesses still get a payment processor?

Yes, but high-risk businesses often pay higher fees and adhere to stricter rules when working with a payment processor.

2. Why do high-risk businesses pay higher fees?

High-risk businesses face more risks, so dealing with them also increases the risks the payment processing company has to deal with. They also have more chances of losing money and getting involved in fraud, so the extra fees cover that risk.

3. If my business is labeled as high-risk, can I change that status later on?

Changing once your business has been tagged as high-risk will be challenging, but improving your chargeback rate and financial stability might help over time.

References

Paycron I. Navigating high risk — Essential tips for choosing a payment processor! https://www.linkedin.com/pulse/navigating-high-risk-essential-tips-choosing-payment-processor-waj3c. Published February 27, 2024.

Origin S. High Risk payment Processing — A complete guide – Global Legal Law firm. Global Legal Law Firm. https://www.globallegallawfirm.com/high-risk-payment-processing-a-complete-guide/. Published October 17, 2022.

Woodward C. What is a high risk merchant? How to tell if a payment processor will see your business as high risk and what you can do about it. National Processing. https://nationalprocessing.com/blog/what-is-a-high-risk-merchant-how-to-tell-if-a-payment-processor-will-see-your-business-as-high-risk-and-what-you-can-do-about-it/. Published March 22, 2024.