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Acquiring is a service provided by banks and financial institutions that allows businesses to accept payments via bank cards. For many businesses, this is a critically important service, as most consumers prefer to pay for goods and services with a card. However, the cost of acquiring can vary significantly depending on the business category. One of the most expensive categories is high-risk business. In this article, we will examine why acquiring for high-risk businesses is much more expensive.
High-risk businesses are those characterized by elevated risks for financial institutions. These businesses include:
These industries are considered high-risk for several reasons, including a high level of chargebacks, high fraud risk, and legal complications.
A chargeback is a process where a customer disputes a transaction, and the bank returns the money to the customer, debiting it from the merchant's account. In high-risk businesses, the level of chargebacks is significantly higher, leading to additional costs for acquirers. The higher the frequency of chargebacks, the greater the risk for the bank, and consequently, the higher the cost of acquiring.
The level of fraud in high-risk businesses is also higher than average. This is because fraudsters are more likely to use such platforms for money laundering or illegal operations. Banks are forced to invest significant resources in fraud prevention systems, which increases the cost of acquiring.
Many high-risk businesses operate in gray areas of the law or their activities may be illegal in certain jurisdictions. This creates additional legal risks for banks and requires extra checks and monitoring, which also increases costs and, consequently, the cost of acquiring.
High-risk businesses often face stricter regulatory requirements. Banks working with such businesses are obliged to comply with additional rules and norms, which increases their operational costs. For example, in the case of online casinos, banks must ensure compliance with anti-money laundering (AML) laws and know your customer (KYC) regulations.
High-risk businesses are more susceptible to revenue instability. For example, changes in legislation can suddenly make their activities illegal. Banks take this factor into account when calculating the cost of acquiring, which leads to higher rates.
Despite the high costs, there are strategies that can help high-risk businesses reduce the cost of acquiring:
Developing effective methods to minimize the number of chargebacks can significantly reduce risks and, consequently, the cost of acquiring.
Modern technologies such as artificial intelligence and machine learning can significantly improve the efficiency of detecting and preventing fraud.
Some acquirers specialize in working with high-risk businesses and can offer more favorable conditions than traditional banks.
Strict adherence to all norms and legal requirements can help reduce legal risks and related costs.
Expanding the range of offered services or products can reduce risks and increase revenue stability, which can positively affect the cost of acquiring.
Acquiring for high-risk businesses is more expensive for a number of objective reasons related to increased risks, fraud prevention costs, legal and regulatory requirements. However, by using strategic approaches to risk reduction and process optimization, high-risk businesses can achieve a reduction in acquiring costs and improve their financial performance.
DAO LeviPartners News © 05.08.2024
