With more than 35 industries on the High-Risk List for April 2023, it seems like the majority of companies are jumping through hoops.
The Government Accountability Office helps oversee industries and corporations that pose financial risks. If you're starting a business, even an online store, you need to understand how your company will be affected while working with merchants.
Continue reading to discover the effects that merchants pose in high-risk business industries!
Understanding High-Risk Labels
Before you dive into investing in a company, you need to know if it is high-risk or not.
High-risk companies don't mean they are unsuccessful. High-risk means that there is a greater chance of fraud, financial problems, or chargeback at the company. Credit card processors can help you find out if your investment is worth the risks.
Certain products and services have increased chargeback’s for businesses that you'll want to avoid. As long as you use caution and learn about your industry, you can determine what obstacles you’ll meet. Regardless of your industry, implementing one of many chargeback management solutions will offer essential safeguards.
What Industries Are Considered High-Risk?
One of the most obvious ways to identify a high-risk industry is by looking at the types of products and services they offer.
Adult entertainment, male enhancement, and clubs are high-risk because of their questionable services. There is a thin line between legal and illegal actions at these businesses and they can be difficult to regulate.
The firearms and weapons industries are risky because of their products, legal compliance, and customer base. If you need help processing firearm purchases, you can work with Zenti.
CBD, marijuana, and tobacco products also make the list of high-risks. Even in states where these products are legal, they cause issues because of national and state regulations. Some people also view these products as questionable and unsafe.
Casinos and gambling companies could also lead to delays in finding credit card processing merchants. Another thing to consider is personal companies. If you have a low credit score or poor financial history with the banks you'll see the impact on your interest rates.
Many industries mentioned above create high-risk environments, but some may surprise you.
Electronics, subscriptions, and airline companies also pose a risk to merchants. The health and beauty industry can also lead to consequences. Nearly all retail and furniture stores are labeled as high-risk industries as well.
Amazon stores, subscriptions, and internet-based companies are difficult to find merchants for.
While you're developing your business plan, don't get discouraged if you learn that you fall into the high-risk category. It's important to understand why and the consequences so you can prepare your small business for success.
Consequences of High-Risk Business Industries
You don't have to scrap your business plans if you're entering a high-risk industry, but you will have to adapt.
Owners who focus on managing business risks put plans in place to protect themselves and their customers. You may have to jump through a few hoops, but you can find support that abides by your industry's standards no matter what your finances look like.
Below are a few obstacles that you may face in high-risk environments.
If you get rejected by payment processing merchants, keep pushing until you find the right solution.
There are plenty of high-risk payment processing companies that will work with you, but you'll have to research each one. Networking within your industry can help you find the most suitable processing systems.
You can look at merchant sites and reviews to find out which merchants will accept your application. Fortunately, there are merchant accounts that specialize in high-risk industries.
Many people recommend staying away from Stripe and Square merchants. These payment processing companies can shut off your account with no warning if they feel you aren't abiding by their policies.
Lengthy Application Process
If you're hoping to breeze past compliance and installation, you'll be disappointed with a risky business.
The application process takes significantly longer to complete if you're high-risk. You'll be responsible for submitting additional documents and info that standard businesses need. Another reason this process takes longer is to give the merchants a chance to review your credit and processing history.
Once all the info on your application is completed, it will then go to the underwriting team. Underwriting can take up to several weeks or a few months if there are discrepancies.
Owning a high-risk business industry may feel as if you've been put on probation.
No matter what makes your industry riskier than others, you'll experience more policies and regulations. High-risk merchants develop tight contracts that don't provide much flexibility. The average contract lasts less than 3 years, and most include early termination fees.
Although you won't have as much control over processing, you can still pursue your industry and prepare for your next contract. Read your contract carefully and if you have any concerns, make sure they are noted before going to the underwriting team.
The Federal Trade Commission helps ensure that customers and businesses are getting the right charges. They check state and US rules to prevent illegal services or products from getting sold.
When it comes to processing payments, each one matters.
If you're a high-risk company, you'll have higher processing rates than non-risk industries. The reason there is an increase is to cover the costs in case you are not paying chargebacks. This money is also used when businesses are failing.
If reserve money is used to cover your chargebacks, you won't be allowed to use a part of your funds.
For example, a risky industry can get charged an additional 3 to 5% more for each payment. When it comes to adult entertainment, weapons, and tobacco products, the processing rates will be even higher.
Comparing merchants, especially ones in your industry, can help you find the most reasonable rates.
Need Help Finding the Best Merchant?
With more than 35 industries falling into the high-risk category, you may feel overwhelmed with merchant options.
Even though you'll be limited, you need to find which merchants will meet your needs and budget. There are a few ways you can learn more about each merchant involved in your industry, but you must take time to explore them. Take a look at the list below so you find the best merchant possible!
Ask for a Quote
Before you sign a contract or commit to services, you should always ask for a quote.
Payment processing merchants can use basic info from your company and industry to determine what your charges will look like. Although quotes aren't final, they are typically accurate if you provide answers to all the application questions. If you don't want to answer any questions, you can ask about how it will impact your quote.
Luckily, there isn't a standard rate or fee that high-risk processors apply to quotes. Go online and view their website or set up a call to discuss getting quoted. You can compare several quotes before having to make a final decision.
Skim Through Reviews
Online reviews can show you the good, bad, and ugly sides of payment processing companies.
Take the time to check online reviews for the processing merchants you are considering. Not only will you get to see the other side of the company's marketing tactics, but you can discover more about their prices and services.
While looking at reviews, take note of the date they were posted. If you're basing your decision on outdated info, you might miss out on a good deal.
Compare Customer Service
There's nothing worse than getting put on hold in the middle of a workday.
If you want to keep things moving while processing payments, you need a strong team by your side. Make sure you learn about the payment processing company's customer service so you don't regret your decision.
Look for a team that is reliable and easy to connect with. You can ask your account managers and see who will be handling your payments. The more conversations you get with each company, the more obvious it'll become when deciding who to select.
Turn High-Risk into High-Reward
Although high-risk business industries require more work, they can be some of the most fulfilling careers.
Whether you want to start a cannabis business or an online beauty store, you will encounter issues with processing merchants. Before you lose motivation, take the steps above to find a company that'll process your transactions for an affordable price.
Be sure to read our blog for more content about managing a business and finding the best merchants in your industry!