Who is Viewed as a High-Risk Vendor

December 12, 2017

Just the usage of the words “high-risk vendor” or “high-risk business” has a tendency to cause many to think the merchant is in the habit of selling problematic or suspicious products.  While some industries may get flagged as a high-risk vendor for the previous mentioned reasons, this is not necessarily the case for the many of the  companies deemed “high-risk.” For most of the companies listed as high-risk, their products or services they sell are legitimate and genuine, and are not all that controversial.
Why companies are labeled as high-risk includes a lot of factors that most people don’t know about. Let’s take a look at who is viewed as a high-risk vendor and how they are labeled this way.

Which Businesses are Considered High-Risk?

The most notable type of merchants in this category are adult bookstores, hemp oil vendors, and online gaming; just to name a few. But that’s not all the businesses that encompass the category of “high-risk”
Other businesses include:

  • Collection Agencies
  • E-Commerce
  • Multi-Level Marketing Companies
  • Telemarketing
  • Nutraceuticals
  • Travel Agencies
  • Fantasy Sports
  • Start Ups

What Makes a Business High-Risk?

Of course there are many more companies that fall under the umbrella high-risk vendors; however, the ones mentioned above are industries that are most well known.
So what do all these companies have in common which has them labeled as “high-risk.” Well, many of them have a tendency to attract customers online who purchase merchandise with stolen credit cards, or the business has a high number of “chargebacks” due to poor customer satisfaction ratings or because of a high potential for fraud. Almost all business that accept credit cards have had chargebacks due to theft or fraud; however, some of the industries already mentioned tend to have a higher rate of chargebacks than most.
Another factor that may make a company be considered “high-risk” is if the company has a history of bad credit or has been late paying their bills. This may make it harder for the business to get payment processor, or a loan from a bank.

The Two Factor Test

Two factors that most financial institutions take into account when determining a vendor as high risk are:

  1. The company operates within a high-risk industry (i.e. adult bookstores, online gaming, etc.)
  2. The risk of economic/monetary loss or failure (i.e. start up companies)

These factors are used by most banks and other financial institutions or payment processors when determining if a company is high-risk.
Yet, these factors are not able to encompass all business and industries, but they provide a solid foundation as how to judge certain companies and merchants as high-risk.

What to Expect if your Business is Considered High-Risk?

Although, many people have false ideas as to what a high-risk merchant is, it isn’t necessarily an end-all if your business is considered one.
When considering a payment processor, high-risk businesses will expect higher fees. Some of these fees include higher processing rates and account fees, a long-term contract, and possibly an early termination fee for ending the contract.

How We Can Help

Here, at T1 Payments, we provide a lot of benefits to our subscribers, unlike other payment processors. Some of these include chargeback management, encrypted and secure payment processing, risk and fraud management tools, accepting payments with lower limitations, and much, much more.