Why High-Risk Businesses Struggle to Obtain Merchant Services

In today's world of cashless payments, merchant services (or acquiring) play a crucial role in enabling businesses to accept payments from customers. However, not all enterprises can easily obtain this service. High-risk businesses, in particular, face significant challenges. In this article, we will explore why it is difficult for these businesses to secure merchant services and the factors that influence this process.

What is a High-Risk Business?

High-risk businesses are enterprises that, due to the nature of their activities or other factors, are considered more risky for banks and merchant service providers. Such businesses may include:

Online gambling
Tobacco and e-cigarette sales
Adult entertainment industry
Cryptocurrency-related businesses
Travel agencies
Over-the-counter drug sales
Telemarketing and subscription-based companies

Reasons for Difficulty in Obtaining Merchant Services

1. High Levels of Returns and Chargebacks

One of the main reasons why merchant service providers are reluctant to work with high-risk businesses is the high level of returns and chargebacks. Industries such as online gambling and tobacco sales often experience frequent transaction disputes. This creates additional costs and risks for merchant service providers.

2. Legal and Regulatory Risks

Many high-risk businesses operate in heavily regulated sectors. For example, selling tobacco products and over-the-counter drugs may be illegal in certain jurisdictions. This increases the risk for the merchant service provider, as they may become involved in legal disputes.

3. Fraud

High-risk businesses often face elevated levels of fraud. For instance, the travel industry may encounter cases of ticket or booking fraud. For a merchant service provider, this means additional costs in fraud prevention and potential losses.

4. Income Instability

Many high-risk businesses, such as cryptocurrency companies, have unstable incomes due to market volatility. This creates uncertainty and increases financial risks for the merchant service provider.

What High-Risk Businesses Can Do

Although obtaining merchant services for a high-risk business is challenging, it is not impossible. There are steps these enterprises can take to improve their chances:

1. Work with Specialized Merchant Service Providers

There are merchant service providers on the market that specialize in working with high-risk businesses. They have the experience and tools to manage the specific risks of these enterprises.

2. Improve Risk Management Systems

High-risk businesses can enhance their risk management systems to reduce the likelihood of returns and chargebacks. This may include improving product or service quality, offering clearer return policies, and strengthening security measures.

3. Reduce Fraud Levels

Implementing modern technologies for detecting and preventing fraud can significantly lower risks for the merchant service provider. This may involve using artificial intelligence and machine learning systems to monitor transactions.

4. Collaborate with Legal Experts

Working with lawyers who specialize in the relevant industry can help high-risk businesses comply with all necessary legal requirements and minimize legal risks.

Conclusion

Obtaining merchant services for a high-risk business is a challenging but vital step for its development. High levels of returns and chargebacks, legal and regulatory risks, fraud, and income instability make this process difficult. However, with the right approach and risk management measures, high-risk businesses can successfully overcome these challenges and provide their customers with convenient and secure payment methods.