What Is The Red And Grey Zone In High-Risk Businesses?

0
107

Being a high-risk business is not a cakewalk in the present fast-paced digital world. Thus, if you thought that establishing a profitable company online was not easy, some merchants could also be labeled as high risk by payment processors. Therefore, accepting online payment gets a little difficult. Thus, knowing the best high-risk processing methods is not easy if you are a high-risk business.

High-Risk Businesses

Many industries/businesses are categorized in high-risk zones. The common high-risk businesses include:

  • Telemarketing services
  • Online dating
  • Forex trading and bitcoin mining
  • Sports Booking
  • Subscription-based services
  • Travel and advanced booking services
  • Cannabis shops
  • E-cigarettes and Tobacco

These businesses are linked with high risk because many chargebacks and frauds are associated with these services. Among the number of frauds, friendly fraud is common in these businesses. For example, the customer may book a trip, consume the services, and claim that he never did to claim money back in the travel business.

What Is The Red And Grey Zone In High-Risk Businesses?

Several factors can make a business or industry risky. These factors are sorted into two categories- red zone and grey zone. Thus, the high-risk businesses are classified into red zone and grey zone.

Red Zone

  • The red zone refers to businesses considered risky independent of their business history. The factors that can put a business in the red zone are as below, but the best high-risk processing aspects are the same:
  • The high industry average of employee turnover
  • Higher risks of chargebacks
  • High volume sales
  • Service only or intangible products
  • Adult-oriented services like tobacco, gambling, weapons, alcohol.
  • High employee injury
  • Noncompliance with industry security regulations

Grey Zone

  • High-risk businesses with a previous history are categorized in the grey zone. The factors that get business included in grey zones are as follows:
  • Poor or no business credit score
  • High chargeback frequency
  • International merchants accept the international currency.
  • Previously labeled as a Terminated Merchant.
  • A high volume of refunds and returns
  • Business is new, and there is little to no history of processing credit cards.

What If Your Industry/Business Is In The Grey Zone?

The business history determines the type of credit card processing available for the businesses in the grey zone. Businesses in the grey zone with sound processing and financial stability can easily find a provider to get help with online payments. However, the new and companies with poor business history may find it challenging to get online payment processing.

What if your industry/business is in the red zone?

The businesses that are in the red zone and fall in the high-risk business category can find a provider to help accept payments through online mode. Some payment gateways specialize in certain high-risk businesses, and they help such businesses/companies to get the Virtual POS Terminal. In simple terms, businesses in the red zone can easily acquire online payment services.

What Are The Consequences Of Being A High-Risk Business?

Regardless of the zone, high-risk businesses can experience more consequences and difficulties from e-commerce payment processors and financial institutions. Thus, a high-risk business owner needs to crack the best high-risk processing methods to sail smoothly in the fast-paced digital world without any hiccups. As a high-risk business, one may experience the following difficulties:

  • Stricter application processes- When the business owner applies for financing the business or searching for the right payment processing solution for the goods and services, the application process gets tougher compared to other industries. The financial institutions desire to take on accounts that pose a minimal risk so that the high-risk customers will face a more stringent application process. Thus, one will need to provide more evidence supporting the business’s finances or have a reserve amount in the account, which is determined based on the sales for payment processing platforms.
  • Compliance requirements- As a high-risk business owner, one must have more strict health and safety compliance requirements or be under the radar for more frequent investigations. Thus, e-commerce platforms are more prone to online retail fraud or industries that score high on the US health and human service risk index.
  • High-risk merchant account- Many high-risk businesses require a merchant account and accept non-cash payments. A high-risk merchant account through which the business will process customer credit cards. The accounts are entirely different from the traditional low-risk merchant accounts as they can support industries that many others cannot.
  • Chargeback rates- High-risk businesses, especially those with high online sales volumes, are more prone to chargebacks. A chargeback is put on the business when a customer has a dispute with your business due to attempted fraud on the e-commerce merchant’s side. Chargeback costs some high-risk businesses thousands of dollars in revenues; thus, several high businesses invest in chargeback prevention and protection.

Now that one is aware of being in the red or grey zone business and the consequences or hurdles that it faces, one needs to focus on getting the best high-risk processing aspects.

What Are The Best High-Risk Processing Aspects?

A merchant’s account is considered high-risk if the payment processor thinks the business is at a higher risk to the banks. High-risk businesses are prone to chargebacks. When the businesses have a history of chargeback and refunds, the bank puts the amount of money that covers the chances of fraud or chargebacks in your account.

Benefits Of Having The High-Risk Merchant Account

Running a high-risk business is quite tricky, and it has many limitations. You may have to pay higher processing fees for a high-risk merchant account. However, there are some benefits for the high-risk businesses to own a high-risk business account:

  • Let you expand your Business: If you have a high-risk merchant account, you will be able to sell even those products and services that are not allowed to sell on the low-risk merchant account. Therefore, businesses can have more opportunities to grow in the long term.
  • High profits: When the businesses have broader possibilities to sell the products, they will likely bring more profits.
  • Worldwide payment access: High-risk merchant account allows the merchants to accept transactions in multiple currencies. Therefore, they can sell globally at low risk.
  • High chargeback protection: It is easier to maintain a high-risk merchant account. A merchant with a regular account may end up with a terminated account if the chargeback crosses the threshold. Even if a chargeback exceeds, the account will close in a high-risk merchant account.

Conclusion

Some kinds of businesses are more high-risk than others, and depending on certain factors, they are categorized into red and grey zones. It affects their opportunity to acquire the multi-acquiring Payment Gateway. However, if the business can maintain a good credit score and business history, getting the payment processor becomes easier with chargeback protection.