Risky Business: A Merchant’s Guide to High-Risk Industries

By Jared Ronski, Co-Founder of MerchACT

Perhaps you’re a seasoned e-commerce merchant determined to venture into a new area. Maybe, instead, you are a hopeful entrepreneur convinced that your latest idea will be the game-changer. You may even be a long-established brick-and-mortar retailer finally ready to migrate your business to the Web.

If any of these aspirations, either knowingly or unknowingly – as is often the case – lead you into what’s considered a high-risk industry, you will need to take certain precautions. Whether you dive in or you drift into these often treacherous but potentially rewarding waters without the proper knowledge and tools, you stand to incur exorbitant fees, imperil your customers, damage your reputation and, quite possibly, sink your business.

What Determines a High-Risk Industry?
In the online world, the term itself does not necessarily refer to the actual products or services provided but more so to a business’ vulnerability to cybercrimes. Data breaches, identity theft, fraudulent charges and costly chargebacks all impose a financial risk on the merchant account providers, payment card processors, banks and credit card companies without whom e-commerce enterprises cannot exist.

Therefore, merchants looking to operate within these industries can have a much more difficult time securing the partnerships they need to get their businesses off the ground. The less-informed ones will either be flat-out denied by one or more of these entities, dashing any dreams of online riches, or they will pay such inflated fees that real profits will be hard to come by.

It should be noted that any merchant in any industry could be deemed a high risk by their account provider or payments processor if their business experiences frequent cases of fraud and chargebacks. However, this discussion focuses on the industries that are most typically predetermined as such, and how these merchants can most effectively succeed in this alluring but complex vertical.

Which Industries are Considered High-Risk?
Some high-risk industries may seem fairly obvious, not because the businesses are illegal or the merchants are in any way dishonest – far from it. In most cases, they are hardworking, industrious men and women with a keen sense of business. But because of the nature of their trades, the industries are highly regulated, and unpredictable markets make it difficult to forecast and therefore monitor purchasing behavior as closely as businesses in more mainstream industries.

Some of these industries include adult entertainment, online gambling (both poker and sports betting), tobacco and e-cigarettes, gaming (video) and online dating. Each of these presents their own set of challenges for card processors and merchant account providers. For some, the issue is inconsistent regulation, which can be an invitation to fraudsters. Others experience problems with cybercrime due to the fact that the businesses are largely subscription-based. Customers typically use their personal information to subscribe to the business, which can open the door to data breaches and stolen identities. Most merchants entering these industries are aware of the risks involved, and the most successful ones follow the guidelines provided below to minimize their exposure to fraud – and put their account providers and payments processors at ease.

Other industries that are frequently considered high-risk may seem less obvious to some. In fact, many aspiring merchants – like the established brick-and-mortar retailer above – are surprised if not shocked to experience so much difficulty gaining approvals from account providers and processors.

Some of these industries include the sale of jewelry, computer software (and hardware), and electronics – all of which deal in expensive products that are highly sought-after and easily purchased only to be resold illegally at high profits. The financial and legal services industries are a favorite target for hackers looking to steal identities and access accounts. Even the travel and hospitality industry can be considered high-risk because of the common practice of buy now, pay later – another open invitation for cybercriminals.

What’s a Merchant to Do?
Whether a merchant enthusiastically charges into a high-risk industry or is surprised to learn that their business has been categorized as such, the opportunities for success are no less – and oftentimes more – than any other e-commerce venture. Most if not all of the examples above are billion-dollar industries, which puts high-risk businesses in relatively rare air.

But it’s a commitment that may require heavier lifting than “traditional” e-commerce, and the following steps are paramount to success:

• Seek out the growing community of merchant account providers and payments processing partners that specialize in the high-risk space. They will work with and not against you when issues arise, as true partners should.

• Identify your blind spots – the aspects of your business that are most vulnerable to fraud. Different industries present different challenges.

• Invest in the technologies best equipped to strengthen those weak spots. Standard security measures likely will not be enough, but there are many software vendors that specialize in comprehensive fraud-prevention systems that include features such as IP geolocation, chargeback alerts and more.

• Finally, maintain clear and thoughtful communications with your customers throughout the purchase process. This can act as a deterrent to fraudsters who thrive on virtual anonymity, as well as reducing cases of “friendly fraud” that are often the result of easily avoided misinterpretations of your policies.

High-risk e-commerce is an exciting, dynamic world that offers unlimited potential for those in the know. Whether there by choice or circumstance, it’s up to you: either sink or swim.

About the Author
Jared Ronski is a co-founder of MerchACT and works with merchants globally to ensure they are paired with the right merchant account for their specific business needs. He has worked closely with higher risk business models and has provided companies of all sizes with payment processing solutions.