Running a high risk credit card processing comes with unique obstacles that can significantly impact operations, growth, and longevity. These businesses, often categorized due to factors like industry regulations, transaction volumes, or perceived risk of financial losses, must tackle an array of challenges to remain viable.
From difficulties in securing payment processing to staying compliant with stringent regulations, here are some of the most common challenges faced by high-risk businesses, supported by insights and examples.
1. Difficulty Securing Payment Processing
One of the primary concerns for high-risk businesses is obtaining and maintaining payment processing services. Banks and payment processors are often hesitant to work with businesses deemed “high-risk” due to the higher chance of chargebacks, fraud, and legal issues.
For instance, industries like online gambling, adult entertainment, or CBD sales encounter frequent payment gateway refusals due to unpredictable transaction patterns. Chargeback rates for many of these industries can exceed the industry standard of 0.9%, leading processors to shy away from partnerships.
Quick Stat: According to data from Merchant Maverick, certain high-risk industries experience chargeback rates as high as 2-3%, which is significantly above what traditional processors deem acceptable.
2. High Fees and Costs
If a high-risk business does manage to secure payment processing, the costs are noticeably higher compared to low-risk businesses. These can include elevated transaction fees, rolling reserves, and higher monthly charges.
For example, a typical merchant might pay 2-3% in processing fees, while high-risk businesses may see fees in the range of 6-10%. Additionally, some processors require a percentage of sales to be held in reserve for up to six months, limiting cash flow.
High costs can strain smaller businesses within high-risk categories, making it even harder to compete or grow sustainably.
3. Compliance with Strict Regulations
Many high-risk industries operate under complex legal and regulatory frameworks. For instance, companies in the financial tech or cryptocurrency sectors must adhere to Anti-Money Laundering (AML) policies and Know Your Customer (KYC) protocols. These regulations are constantly evolving, and failure to comply can result in fines or even the shutdown of the business.
For CBD companies, navigating the patchwork of state and federal laws can be particularly challenging, especially when it affects how products are marketed and sold across regions.
Insight: Statista reports that compliance costs have consistently risen for regulated industries, with smaller high-risk businesses bearing the brunt of the expense.
4. Reputation and Trust Issues
High-risk businesses often face skepticism or mistrust from both consumers and partners. Negative perception, whether due to stereotypes surrounding the industry or reports of unscrupulous operators, can make it challenging for such businesses to build a loyal customer base.
For instance, payday loan companies often face backlash over high interest rates, while dietary supplement brands might struggle with credibility due to concerns about product safety and efficacy.
Building brand trust requires significant investment in transparency, marketing, and customer service to overcome these doubts.
5. Limited Access to Traditional Funding
Securing loans or investments can be an uphill battle for high-risk businesses. Traditional financial institutions often avoid lending to these types of ventures due to their perceived instability and risk of default.
For example, businesses in the cryptocurrency space may struggle to access funding due to concerns about volatility and regulatory scrutiny. Without sufficient access to capital, scaling operations or recovering from financial setbacks becomes a sizable hurdle.
Final Thoughts
Operating a high-risk business is undoubtedly a complex task, compounded by challenges in payment processing, compliance, trust, and funding. However, understanding these hurdles provides a clearer path toward overcoming them. By leveraging alternative financial solutions, emphasizing transparency, and staying ahead of regulatory trends, high-risk businesses can shift the narrative and achieve sustainable growth.
For those navigating these tough waters, resilience, adaptability, and preparation are the key ingredients for long-term success.
