Weapons, adult entertainment, gambling—it's no surprise that these industries pose a reputational risk to banks. But not every industry classified as "high-risk" is associated with such readily apparent risks.
High-risk industries include any sector in which businesses face any of the following:
Financial risk due to fraud, chargebacks, or poor financial history
Reputational risk due to the distribution of adult entertainment or weapons
Legal risk due to the distribution of substances like CBD
Operational risk due to multi-level marketing structures
Unfortunately, businesses with these elevated risk profiles encounter serious challenges in securing financial services. Risks such as high chargeback rates, legal and regulatory scrutiny, and susceptibility to fraud often make businesses less attractive to traditional banks and payment processors.
Understanding which industries are classified as high-risk is crucial for business owners. With this knowledge, owners can anticipate potential challenges, like difficulties in obtaining high risk merchant accounts or higher processing fees. This awareness enables business owners to seek specialized financial services that cater to high-risk industries, ensuring their operations can continue smoothly and securely.
Determine Factors of High-Risk Industries
The risk level of an industry is determined by evaluating several factors, including the frequency and volume of chargebacks, the potential for fraud, and the regulatory environment. High-risk industries often face higher scrutiny due to these factors because they increase the likelihood of financial loss for payment processors and banks.
High-risk factors include high chargeback rates, stringent legal requirements, and a history of financial instability. Industries such as online gambling, adult entertainment, and CBD often face these challenges. For example, the CBD industry is subject to several legal regulations, while online gambling sites must adhere to state and country laws around gambling.
Financial History
Both personal and business financial histories play a significant role in determining the risk level of an industry. Businesses or business owners with poor credit scores or a history of financial instability are more likely to be classified as high-risk. This can affect their ability to secure loans, attract investors, and obtain favorable terms from payment processors.
Sales Volume
Believe it or not, the sales volume of a business can impact its risk level. High-volume businesses often face greater scrutiny due to the potential for larger financial losses in case of fraud or chargebacks. However, consistent and predictable sales volumes can also demonstrate stability, which might mitigate some perceived risks.
There is a nuanced relationship between sales volume and risk assessment. While high sales volumes can indicate a successful business, they also increase the potential for fraudulent activities and chargebacks. Payment processors consider both the volume and consistency of sales when assessing risk.
Chargeback Rates
High chargeback rates are a significant factor in classifying an industry as high-risk. Chargebacks not only result in financial losses but also reputational damage. Additionally, they can lead to higher processing fees or account termination by payment processors.
A business should implement robust fraud prevention measures to manage chargeback rates, maintain clear communication with customers, and ensure accurate transaction documentation. High-risk businesses can also work with high-risk merchant service providers like Zen Payments, which offer advanced chargeback management tools to mitigate these risks.
High-Risk Business Types
While you might not think of some industries as "risky industries," high-risk business types can range anywhere from adult entertainment to software subscriptions. Let's go over a few industries that fall into the high-risk category:
Travel
The travel industry is considered high-risk due to high chargeback rates and the potential for fraud. Customers often dispute travel-related charges if they are dissatisfied with services or experience issues like canceled trips. Additionally, the global nature of travel exposes businesses to various legal and regulatory challenges.
CBD
The CBD industry faces significant regulatory scrutiny due to varying laws across states and countries. This legal uncertainty and a high rate of chargebacks make it challenging for CBD businesses to secure reliable payment processing services.
Tech Support and Subscription Services
Tech support and subscription services often have high chargeback rates due to customer disputes over recurring charges. Fraud is also a concern in these industries, as scammers frequently target merchant account for tech support services to exploit vulnerable customers.
Firearms
The firearms industry is heavily regulated because of strict laws governing the sale and distribution of firearms. This intense regulatory environment, coupled with the potential for chargebacks and fraud, classifies the firearm industry as high-risk.
Coaching
Life, fitness, and diet coaching services, particularly online ones, face high chargeback rates due to customer dissatisfaction or disputes over service quality. The intangible nature of these services makes it challenging to resolve such disputes.
Nutraceuticals
The nutraceutical industry includes dietary supplements and health products often subject to regulatory scrutiny. High chargeback rates and potential fraud due to unverified health claims contribute to its high-risk classification.
Multi-Level Marketing
Multi-level marketing (MLM) businesses face high scrutiny due to their business model, which can be perceived as a pyramid scheme. High chargeback rates and regulatory challenges further classify MLMs as high-risk.
Credit Repair
The credit repair industry deals with high chargeback rates and regulatory scrutiny. Customers may dispute charges if they feel the services did not meet their expectations, and the industry’s association with potential scams increases its risk level.
Merchant Services for High-Risk Businesses
High-risk merchant services are essential for businesses operating in high-risk industries. These services provide the tools to manage transactions securely, prevent fraud, and effectively handle chargebacks. Some businesses may also face unique payment processing requirements based on their merchant category code (MCC), such as medical businesses classified under MCC 8099.
High-risk merchant services include high-risk merchant accounts, payment gateways, payment processing solutions, and chargeback management tools. These services are tailored to meet the unique needs of high-risk businesses, such as those requiring a subscription merchant account, ensuring they can operate smoothly and securely.
Zen Payments: Your Friend in High-Risk Merchant Services
Zen Payments is a leading provider of high-risk merchant services dedicated to supporting businesses that face challenges securing traditional financial services. Our extensive experience with high-risk industries allows us to offer customized solutions that help high-risk businesses thrive.
Zen Payments provides a comprehensive suite of services designed to address the specific needs of high-risk businesses. These include high-risk merchant accounts, secure payment gateways, payment processing integration, advanced fraud prevention tools, and chargeback management solutions. By partnering with Zen Payments, high-risk business owners can ensure their transactions are processed securely and efficiently.
At Zen Payments, we understand the unique challenges high-risk businesses face and are committed to providing the support they need to succeed. Our team is dedicated to building long-term client relationships by offering reliable and compassionate service. Contact us today to learn how Zen Payments can help your high-risk business thrive.
Taylor Stika is the CEO and Founder of Zen Payments. With a background in the payment processing industry starting in 2015, Taylor has extensive experience in managing and optimizing payment systems. Under his leadership, Zen Payments has grown and developed into a reputable provider of high and low-risk payment.
