High-risk business is not necessarily hazardous. On the contrary, it may be profitable, promising, and, most importantly, legal. But this does not mean that the high-risk industry is named “just like that.” Problems with a company that operates in a high-risk area are quite possible.
A high-risk business has a high probability of encountering difficulties of various kinds, including breaking legal requirements, customer dissatisfaction, or a high probability of bankruptcy.
Some determinants of high-risk industries for banks are too superficial, based on niche or clientele. But, at the same time, other indicators are directly related to the merchant’s business practices.
There is no generally accepted classification. In the simplest version, companies are divided into two groups – some are engaged in a high-risk business, and others are traditional. But it is also possible to single out a more extended version of the term, built based on three zones:
Companies whose core business is payment processing don’t want to work with high-risk companies in the first place because of the potentially high losses. First, high-risk companies are more likely to fail. Secondly, it negatively affects their reputation. How will other firms look at a company that handles payments from a firearms dealer or a casino whose reputation isn’t perfect?
Let’s consider a company that sells electronic cigarettes. A common reason for not doing business with them is the huge chargebacks.
It is important to understand that the more risky a company’s activities are, the greater the risks that the payment processor will have to take. Accordingly, high-risk companies will have to pay a much larger commission, and it is far from the fact that any high-quality payment provider will want to cooperate with such a company.
The list of areas of activity that are traditionally classified as high-risk businesses is quite wide. Does this mean that running a high-risk business is futile? Of course not. But in this case, it is better to conduct financial affairs with professionals.
Here’s a list of high-risk industries:
The activities listed above are classified as high-risk businesses because of too many chargebacks and the associated risks of abuse and fraud.
The main problems of companies working in high-risk industries are difficulties with banking services, opening accounts, and tight control by regulators. Therefore, it is so important to do everything to ensure that the registration of a company and the opening of a bank account for it are carried out in full compliance with applicable law. As a result, a high-risk business may well be profitable and potentially successful, even considering chargebacks and a high level of risk of unfulfilled financial obligations.