High-risk merchant accounts are specialized accounts designed for businesses that are considered high-risk due to factors like industry type, transaction patterns, and potential for chargebacks or fraud. High-risk merchant accounts offer enhanced security features, flexible transaction processing, and tailored risk management strategies but often come with higher fees and reserves. In this article, we discuss the most common industries in which businesses are deemed high-risk by the banks and thus require such accounts. Interested? Read on!
Who Needs High-Risk Merchant Accounts? Our List of Industries
So, in which industries businesses are almost always labeled as “high risk” by financial institutions? The list is quite long, so let’s take a look at some of them.
The CBD Industry
The first on our list is the cannabidiol industry. High-risk merchant accounts are always a requirement in this sector because of the following:
- Legal Complexity – A complex legal landscape that is constantly changing and imposing new obligations on CBD sellers and their payment processing.
- Transactional Risks – High chargeback rates and fraud risks in the CBD sector necessitate the specialized services of high-risk merchant accounts, which have extra precautions such as higher reserves.
The Nutraceutical Industry
Selling nutrients, medication, and foods also requires high-risk merchant accounts. Let’s take a look at the reasons behind this:
- Regulatory Scrutiny – Nutraceutical products are strictly regulated, and it’s easy to have a product pulled out from the market. In such situations, businesses are often obliged to accept returns, which, on the other hand, means that they need higher reserves – such as those ensured in high-risk merchant accounts.
- High Chargeback Rates – The nature of the products and the industry’s marketing strategies often result in higher chargeback rates, which is a primary reason nutraceutical businesses require high-risk merchant accounts. After all, customers are often dissatisfied with nutraceutical products, thus attempting to return them.
E-Commerce Industry
E-commerce also requires a high-risk merchant account, though here the reason is much simpler – it’s due to them operating solely online.
If most of the card payments processed by a business are without access to a physical credit card (for instance, online), banks deem them high-risk. In the case of e-commerce, almost all credit card transactions are done this way (unless there’s an option to pay by card when the product is delivered), so they naturally fall into the high-risk category.
The Travel Industry
We should also mention the travel industry as they don’t sell traditional, physical, or digital products. Nevertheless, they are also deemed high-risk for a number of reasons:
- Booking and Cancellation Risks – The travel industry is marked by high ticket values and a higher likelihood of cancellations and chargebacks. These factors place travel agencies and related businesses in the high-risk category.
- Seasonal Fluctuations – Seasonal business fluctuations and the impact of external factors like global events or weather conditions further complicate the transactional landscape for travel businesses. Thus, they are deemed high-risk as such merchant accounts secure financial stability, due to imposing higher reserves.
The Takeaway
Businesses in the CBD, nutraceutical, e-commerce, and travel sectors often require high-risk merchant accounts due to their unique operational challenges and risk profiles. Therefore, if you are planning to start a business in one of these industries, you should start by researching the possible payment processing methods – as high-risk, your number of options might be limited.
