Who are high-risk merchants?
Which businesses and sectors are usually seen as riskier by Merchant Account providers?
Certain sorts of organisations and sectors are typically deemed high-risk by banking institutions when applying for a merchant account. This designation may make it more difficult for small firms to secure the payment processing services they require, as well as result in increased costs and rates.
A Merchant Account enables a business to sell online to customers who use debit and credit cards. Merchant Account providers have to look at the risk of chargebacks and fraud.
As opposed to a traditional merchant account, an Open Banking Payment Solution such as Vendreo OpenPay is industry agnostic. Payments are made securely from a customer’s bank account to a business bank account and do not involve the use of credit or debit cards. Biometric security on the customer’s device hugely reduces the chance of fraud, and chargebacks are minimised.
Merchant Types Typically Associated with High-Risk
Online Gaming
Because of the possibility of fraud and chargebacks, merchant account providers consider online gaming a high risk. Online gaming sites frequently ask gamers to pay using credit or debit cards, and these transactions might be fraudulent. Furthermore, if they are displeased with their gaming experience, some gamers may challenge charges or request chargebacks.
These characteristics can raise the risk of chargebacks, which can be costly for merchant account providers and result in higher costs for online gambling enterprises. Furthermore, specific online gambling platforms may operate in unregulated or grey markets, posing a more significant risk to merchant account providers.
Adult Entertainment
Because of the nature of the material and goods supplied and the possibility for chargebacks and fraud, merchant account providers consider the adult sector to be high risk. Adult websites and companies frequently sell explicit content, which can be contentious and socially undesirable. Because some customers may dispute or request refunds for transactions made on these sites, the risk of chargebacks increases. Furthermore, the adult sector has a high prevalence of theft, with some clients making payments using stolen credit card information. These variables, when combined, can raise the risk of chargebacks and fraud for merchant account providers, resulting in higher fees and rates for firms in the adult market.
Furthermore, because of the nature of the material, the adult sector is frequently seen as contentious. It may be subject to legislative limitations and laws, making it difficult for merchant account providers to provide services to these firms.
In summary, merchant account providers consider the adult sector to be high risk owing to the possibility of chargebacks and fraud and the legal and societal problems surrounding the material and goods sold.
Businesses that sell or provide sexual material or services, such as adult websites and phone sex lines, are sometimes seen as high risk owing to the possibility of chargebacks and disputes from consumers who may have been deceived or are dissatisfied with the product or service.
Travel & Hospitality
Because of the nature of the products and services supplied and the possibility for chargebacks and fraud, merchant account providers consider the travel business to be high risk. Customers may cancel or challenge charges after getting their services or if a service is not provided, making them open to fraud. Customers must make significant upfront payments for services that travel corporations will give later, such as airlines and hotel booking websites. Furthermore, travel services are frequently non-refundable, which can lead to a high proportion of chargebacks if clients cancel their bookings.
Furthermore, travel businesses are usually susceptible to dynamic pricing, which varies regularly based on criteria such as time, location, and availability. This implies that costs may fluctuate significantly and that certain purchases may be refunded or charged back.
These variables may raise the possibility of chargebacks and fraud for merchant account providers, resulting in higher fees and rates for travel firms. Furthermore, the travel business is impacted by unforeseeable variables such as natural catastrophes, pandemics, and political instability, which can result in unexpected cancellations and refunds, raising the risk for merchant account providers.
In summary, merchant account providers consider the travel business to be high risk because of the possibility of chargebacks and fraud, the dynamic pricing structure and unknown factors that can impact the market.
Tobacco & E-Cigarettes
Because of the nature of the products and services supplied and the possibility for chargebacks and fraud, merchant account providers consider the tobacco and e-cigarette sector to be high risk. In many countries, the sale of tobacco products is strictly controlled and limited, while e-cigarettes are still a relatively new product with continuous arguments regarding their safety and regulation. Because of these issues, merchant account providers may need help to provide services to firms in this area.
Furthermore, the tobacco and e-cigarette industries are notorious for having a high rate of fraud and chargebacks since customers may use stolen credit card information to make purchases or challenge charges if dissatisfied with their purchase.
Furthermore, anti-tobacco campaigns and social movements frequently target the sector, putting pressure on merchant account providers to refuse applications or terminate existing accounts to prevent affiliation with the industry.
To summarise, merchant account providers consider the tobacco and e-cigarette industries at high risk owing to legal and societal problems surrounding the products and services supplied, as well as the possibility for chargebacks and fraud.
New Businesses
Merchant account providers perceive new businesses and start-ups as high risk since they are unproven and need a demonstrated track record of success. Merchant account providers assess a company’s risk by examining its financial health, creditworthiness, and general industry reputation. New enterprises and start-ups may need more financial resources and a credit history, making obtaining a merchant account challenging. Furthermore, start-ups may engage in new or high-risk industries and need more existing commercial contacts or a reputation to demonstrate their capacity to do business responsibly.
Furthermore, young firms and start-ups may be more vulnerable to chargebacks and fraud because they lack the infrastructure and resources to detect and prevent these issues.
In essence, merchant account providers perceive new businesses and start-ups as high risk since they are untested and need a demonstrated track record of success, making it harder for them to get a merchant account. Furthermore, they may be more vulnerable to chargebacks and fraud, increasing the risk for merchant account providers.
Other businesses that may be deemed high-risk include those in the following sectors:
- Services for online dating and escorts
- Vacation rentals and timeshares
- Pyramid and multi-level marketing systems
- Medical and pharmaceutical supplies
- Cryptocurrency and virtual currency
- Credit repair and debt consolidation
- Firearms and weapons for sale online
- Event planning and ticket sales online
It should be mentioned that this list is incomplete, and organisations in other areas may also be classified as high-risk based on their circumstances and risk profile. Furthermore, banking institutions may have their own standards and guidelines in place when assessing who is a high-risk merchant.
Finally, banking institutions typically consider certain sorts of organisations and sectors to be high-risk when acquiring a merchant account. Examples are online gaming, adult entertainment, tourism, e-cigarettes, and new or start-up enterprises. Companies in online dating, escort services, timeshares and vacation rentals, multi-level marketing, pharmaceutical and medical supplies, virtual currency, ammunition and weapons, and ticket sales may also be deemed high risk.
Business owners should be aware of their industry’s risk profile when registering for a merchant account and be prepared to supply additional information and documents, as well as pay higher rates. These businesses should consider an Open Banking Payment Processing Solution from Vendreo.
List of Business Types Classed as High-Risk Merchants
- Advertising services
- Affiliate marketing
- Airline, lodging, travel
- Alcohol
- Auto sales
- Auto warranties
- Background checks
- Beauty, skin & hair care
- Business opportunities
- Cannabis
- CBD Oil
- Charities
- Coins and collectables (antiques)
- Computer sales
- Credit repair and monitoring
- Cryptocurrencies
- Dating app merchant payments
- Debt collection and debt management
- Domain Registration
- Drugs and drug products (including prescriptions)
- Events and Tickets
- E-wallets
- Fantasy sports
- File sharing
- Firearm sales
- Foreign exchange (Forex)
- Furniture sales
- Gambling
- Government grants
- Health
- High ticket coaching
- Insurance
- ISPs and web hosting
- Jewellery
- Male enhancement
- Marketing
- Merchant Aggregators
- Money Transfer
- Monthly membership
- Moving services
- Nutritional supplements (nutraceuticals)
- Online auctions
- Pawn shops
- Pet sales and accessories
- Payday loans
- Penny auctions
- Phone unlocking services
- Prepaid phone cards
- Pyramid selling, network marketing, direct sales
- Self-storage
- Software and apps
- Software downloads
- Subscription Boxes
- Tech support
- Ticket brokers
- Timeshares and holiday clubs
- Tobacco
- Vape / E-Cig
- VPN services
