Imagine this: You own a charming online bookstore, selling unique novels to a loyal group of readers. Payments come through smoothly—no issues—and your payment processor appreciates you for being low-risk. Now, picture this one: you’ve started a thriving CBD business with customers pouring in and payments rolling in fast. But here’s the catch—payment processors aren’t as excited. They tag your business as “high-risk,” which means extra fees and stricter terms to deal with.
Now, why the different treatment? Low-risk businesses enjoy predictable transactions, while high-risk ones face chargebacks, regulations, or operate in tricky industries. High risk isn’t bad—it just means you need a payment gateway built for the challenge.
Today, we’ll completely break down the whole concept of low-risk vs. high-risk businesses in terms of payment gateway and guide you toward the best decisions. Let’s dive in!
Payment Gateways for Businesses
A payment gateway is essential for businesses to process electronic payments securely and efficiently. A payment gateway acts as a secure bridge connecting customers, businesses, and their banks. It encrypts sensitive details, like credit card numbers, to keep transactions safe and protected.
A payment gateway does the heavy lifting for businesses, managing tasks like approving credit card payments and moving funds from the customer’s bank to the business’s account. It supports multiple payment options, including credit cards, debit cards, and digital wallets.
While incredibly useful, these gateways aren’t free—they usually charge a fee per transaction and sometimes a monthly fee. That’s why picking the right payment gateway is so important. It ensures smooth payment processing, whether your business is low-risk or high-risk, and meets your specific needs.
Some popular and famous payment gateways are:
- PayPal
- Stripe
- Authorize.Net
- NMI
Business Types Regarding Risk Factors
When it comes to payment gateways, businesses are grouped into three categories based on their risk levels:
- Low-Risk: Businesses with stable revenue, low chargeback rates, and minimal regulatory concerns, often operating in predictable industries.
- Gray or Middle-Risk: Businesses in legally uncertain or ethically gray areas that face moderate scrutiny and occasional payment challenges.
- High-Risk: Businesses prone to higher chargeback rates, fraud, and regulatory oversight, often in volatile or heavily regulated industries.
Each group has unique traits that affect how they manage payments and financial relationships. Let’s talk about the two mentioned model types today:
Low-Risk Business: Characteristics, Example, and Others
A low-risk business is one that payment processors and banks see as safe and reliable. These businesses usually operate in stable industries with steady revenue and fewer customer disputes or chargebacks.
What makes them stand out? Their sales are predictable, they have loyal customers, and they rarely run into financial trouble. This reliability makes it easier for them to secure merchant accounts quickly and at lower costs.
Examples: Low-risk businesses include retail stores selling non-perishable goods, professional services like accounting, educational institutions, etc.
Characteristics:
- Industries Labeled Low-Risk
- Single Currency Operations.
- Operations in Low-Risk Countries.
- Monthly transactions under $20K.
- Ticket sizes below $500.
- Low dispute rates (below 0.5%).
- Very Low or Zero Chargebacks.
- Around 100 transactions daily.
- Minimal regulatory scrutiny.
- Low initial investment.
- Common payment gateways include PayPal and Stripe.
High-Risk Business: Characteristics, Example, and Others
Some businesses earn the “high-risk” label because banks and payment processors view them as more likely to deal with chargebacks, fraud, or financial trouble. Industries like gambling, CBD, and adult entertainment often face more disputes and tighter regulations. But it’s not just the industry that matters—your business history plays a role too.
Issues like poor credit, unpredictable sales, or a previously terminated merchant account can raise your risk level. Being labeled high-risk means tougher payment processing, higher fees, and stricter rules, making it harder for these businesses to stay on track.
Examples: Gambling, SEO services, subscription-based businesses, etc.
Characteristics:
- Monthly transactions over $20K.
- Over 100 transactions daily.
- Higher transaction volume.
- Ticket sizes above $500.
- Multiple Currencies.
- High dispute rates (above 1%).
- Extended delivery timelines.
- Frequent use of recurring billing
- Specialized payment gateways like Authorize.Net are more common.
Interested in knowing more about high-risk businesses? Browse the blog “Understanding High-Risk Business: Risk Factors and Solutions.”
Signs You Might Have a High-Risk Business
You may be wondering what the exact signs are to look for if your business is high-risk or not. Here are some very prominent signs that indicate the level of your business’s risk factor:
- Industry Type: Operating in sectors like adult entertainment, tobacco, or firearms.
- Processing History: Frequent chargebacks or large transaction volumes.
- Payment Methods: Heavy reliance on credit card transactions, especially internationally.
- Chargeback Ratio: High chargeback rates by transaction count or dollar value.
- Personal Credit: Low personal credit scores affecting reliability.
- Bank Statements: Irregular patterns raising concerns.
- Sales Model: Models like dropshipping, MLMs, or subscriptions increase risk.
- International Sales: Transactions outside low-risk regions like the U.S. or Europe.
These are common signs of a high-risk business. Confused still? Dig deeper; check out our blog on the same title: “Signs if I Have a High-Risk Business.”
Low-Risk Vs. High-Risk Business
Low-risk and high-risk businesses differ in how they operate and all the challenges they face. Low-risk businesses are predictable and stable—somewhat boring if you ask me. On the other hand, high-risk businesses often deal with uncertainty and greater scrutiny—don’t forget the thrill. Let’s very briefly discuss the general differences between those businesses:
Risk Profile
Low-risk businesses are considered safe and reliable, with minimal disputes or fraud to worry about. High-risk businesses, on the other hand, face more challenges, like higher chargeback rates and stricter regulations.
Types of Businesses
Retail stores and professional services, such as accounting, are typical examples of low-risk businesses. High-risk businesses, however, operate in industries like gambling, CBD, or subscription-based services, where risks are naturally higher.
Industries Involved
Low-risk industries are simple and steady, making them easier to navigate. High-risk industries, by contrast, are more volatile or subject to heavy regulations, making them far more challenging to manage effectively.
Financing Options
Low-risk businesses have an easier time getting funding and enjoy lower fees. High-risk businesses often struggle with fewer financing options and are hit with higher interest rates.
Cost Implications
Low-risk businesses benefit from lower transaction fees. High-risk businesses, however, pay more because payment processors see them as riskier.
Regulations
Payment gateways trust low-risk businesses, offering them easier fee structures and compliance processes. High-risk businesses face stricter regulations and tougher payment terms.
Revenue Stability
Low-risk businesses enjoy steady income, while high-risk businesses must navigate unpredictable earnings and higher operational costs.
Low-Risk Vs. High-Risk Business Comparison Table
| Characteristics | Low-Risk Business | High-Risk Business |
|---|---|---|
| Risk Profile | Safe and reliable, with minimal disputes or fraud to worry about. | Face more challenges, like higher chargeback rates and stricter regulations. |
| Industries Involved | Low-risk industries are simple and steady, making them easier to navigate. | High-risk industries, by contrast, are more volatile or subject to heavy regulations, making them far more challenging to manage effectively. |
| Financing Options | Have an easier time getting funding and enjoy lower fees. | Often struggle with fewer financing options and are hit with higher interest rates. |
| Cost Implications | Benefits from lower transaction fees. | Higher transaction fees. |
| Regulations | Enjoy easier fee structures and compliance processes in payment terms. | Face stricter regulations and tougher payment terms. |
| Revenue Stability | Steady income. | Unpredictable earnings and higher operational costs. |
| Examples | Retail stores and professional services, such as accounting, educational institutions, etc. | Gambling, SEO services, subscription-based businesses, etc. |
Low-Risk Vs. High-Risk Business in Terms of Payment Gateway
Well, enough chitchat. It’s time to explore the main topic of the blog: how payment gateways create differences between low-risk and high-risk businesses.
Payment Gateway Features
Low-risk businesses can access mainstream payment gateways like PayPal or Stripe with simple setups and standard features. High-risk businesses, however, require specialized gateways with advanced fraud detection and chargeback management, often at higher costs.
Requirements
For low-risk businesses, requirements are straightforward, such as proof of identity and business registration. High-risk businesses face stricter scrutiny, including additional documentation like financial history and compliance certificates.
Approval Process
Approval is quicker for low-risk businesses, often completed within days. High-risk businesses undergo extensive checks, sometimes taking weeks, as payment processors assess potential risks.
Fees
Low-risk businesses enjoy lower processing fees and minimal charges. High-risk businesses pay significantly higher fees, reflecting the added risk payment processors assume.
Chargeback Handling
Chargebacks are rare for low-risk businesses and are easily managed. High-risk businesses, on the other hand, deal with higher chargeback volumes, requiring robust dispute resolution tools.
Fraud Prevention Features
Low-risk businesses rely on basic fraud prevention features. High-risk businesses need advanced solutions like multi-layered authentication and real-time fraud monitoring to mitigate risks.
Contract Terms
Low-risk businesses often have flexible, short-term contracts. High-risk businesses are usually bound by longer, more restrictive contracts due to the increased risk involved.
Support for Industries
Payment gateways for low-risk businesses support a wide range of common industries. High-risk businesses require specialized gateways tailored to high-risk sectors like gaming, CBD, or adult content.
Payment Method Support
Low-risk businesses enjoy standard payment methods like credit cards and digital wallets. High-risk businesses require additional support for international payments, crypto, or alternative methods due to customer base diversity.
Compliance Requirements
Compliance is simpler for low-risk businesses with fewer regulatory hurdles. High-risk businesses face stricter compliance requirements, often needing legal expertise and constant monitoring.
Customer Support
Low-risk businesses can rely on standard customer support services. High-risk businesses require dedicated, round-the-clock support to handle complex issues and minimize disruptions.
Transaction Limits
Low-risk businesses generally operate with higher transaction limits. High-risk businesses may face limits on transaction amounts or daily processing caps due to increased financial risks.
Risk Management Practices
Low-risk businesses follow basic risk management practices. High-risk businesses must invest in advanced tools and strategies to mitigate higher fraud and dispute risks.
Integration Flexibility
Low-risk payment gateways offer seamless integration with standard platforms. High-risk businesses often need custom solutions to align with the specialized requirements of their payment gateways.
Global Reach
Low-risk businesses have straightforward global payment options. High-risk businesses face restrictions on international transactions, with only select payment processors supporting their needs.
Rolling Reserves
Low-risk businesses rarely deal with rolling reserves. High-risk businesses are often required to maintain reserves as a safeguard against potential losses.
Data Security Standards
Low-risk businesses meet basic security standards like PCI compliance. High-risk businesses must go above and beyond, with enhanced encryption and fraud protection protocols to ensure customer and business safety.
| Characteristics | Low-Risk Business | High-Risk Business |
|---|---|---|
| Payment Gateway Features | Can access mainstream payment gateways like PayPal or Stripe with simple setups and standard features. | Require specialized gateways with advanced fraud detection and chargeback management, often at higher costs. |
| Requirements | Requirements are straightforward, such as proof of identity and business registration. | Face stricter scrutiny, including additional documentation like financial history and compliance certificates. |
| Approval Process | Quicker, often completed within days. | Undergo extensive checks, sometimes taking weeks, as payment processors assess potential risks. |
| Fees | Enjoy lower processing fees and minimal charges. | Pay significantly higher fees, reflecting the added risk payment processors assume. |
| Chargeback Handling | Chargebacks are rare and are easily managed. | Deal with higher chargeback volumes, requiring robust dispute resolution tools. |
| Fraud Prevention Features | Rely on basic fraud prevention features. | Need advanced solutions like multi-layered authentication and real-time fraud monitoring to mitigate risks. |
| Contract Terms | Often have flexible, short-term contracts. | Usually bound by longer, more restrictive contracts due to the increased risk involved. |
| Support for Industries | Payment gateways for low-risk businesses support a wide range of common industries. | Require specialized gateways tailored to high-risk sectors like gaming, CBD, or adult content. |
| Payment Method Support | Enjoy standard payment methods like credit cards and digital wallets. | Require additional support for international payments, crypto, or alternative methods due to customer base diversity. |
| Compliance Requirements | Simpler with fewer regulatory hurdles. | Face stricter compliance requirements, often needing legal expertise and constant monitoring. |
| Customer Support | Can rely on standard customer support services. | Require dedicated, round-the-clock support to handle complex issues and minimize disruptions. |
| Transaction Limits | Generally operate with higher transaction limits. | May face limits on transaction amounts or daily processing caps due to increased financial risks. |
| Risk Management Practices | Follow basic risk management practices. | Must invest in advanced tools and strategies to mitigate higher fraud and dispute risks. |
| Integration Flexibility | Low-risk payment gateways offer seamless integration with standard platforms. | Often need custom solutions to align with the specialized requirements of their payment gateways. |
| Global Reach | Have straightforward global payment options. | Face restrictions on international transactions, with only select payment processors supporting their needs. |
| Rolling Reserves | Rarely deal with rolling reserves. | often required to maintain reserves as a safeguard against potential losses. |
| Data Security Standards | Meet basic security standards like PCI compliance. | Must go above and beyond, with enhanced encryption and fraud protection protocols to ensure customer and business safety. |
How to Choose the Right Gateway for Your Business
Choosing the right payment gateway isn’t just about cost—it’s about finding one that meets your industry’s demands and protects your business from risk, especially if your business is high-risk. Taking the time to choose carefully can save you headaches and keep your operations running smoothly; as not all gateways are created equal, and the right one can make a big difference in handling your unique challenges.
Here’s what you should consider:
Industry Compatibility
Ensure the gateway specializes in your industry. High-risk businesses, like gambling or adult entertainment, need providers experienced with their specific needs and regulations.
Chargeback Management
Look for gateways that offer robust tools to monitor and reduce chargebacks. High-risk businesses are more prone to disputes, so having prevention systems in place is a must.
Fraud Protection
Choose a gateway with advanced fraud detection features to keep your transactions secure. This is crucial in industries that face higher risks of fraud.
Flexible Pricing
High-risk gateways often have higher fees. Compare pricing structures to find one that offers fair rates for your business size and transaction volume.
Global Payment Support
If your business operates internationally, pick a gateway that supports multiple currencies and regions. This ensures seamless global operations.
Customer Support
Opt for a gateway with 24/7 support to handle any technical issues or disputes quickly.
Key Insights on Low-Risk Vs. High-Risk Business
- Payment processors see low-risk businesses as safe bets, offering them quick approvals and lower fees.
- High-risk businesses, on the other hand, face tougher rules, higher costs, and extra scrutiny due to risks like chargebacks or fraud.
- Retail stores and professional services are classic low-risk examples, while industries like CBD, gambling, and adult content often get labeled high-risk.
- Mainstream gateways like PayPal and Stripe are great for low-risk businesses, but high-risk ones need specialized options like Authorize.Net for added fraud protection.
- High-risk businesses often pay higher fees and deal with rolling reserves, making it costlier to stay compliant.
- Regulatory hurdles are minimal for low-risk businesses, while high-risk ones must invest in strict compliance and advanced fraud prevention.
- Transaction limits and stricter terms are common for high-risk businesses, while low-risk ones enjoy more flexibility and smoother operations.
- Picking the right payment gateway isn’t about cost alone—it’s about finding one that matches your business’s unique challenges and keeps everything running smoothly.
FAQ
Q1: What Makes a Business Low-Risk?
Answer: Low-risk businesses are steady and predictable, operating in industries with minimal disputes or regulatory challenges. They often have low chargeback rates, stable income, and reliable customer bases.
Q2: What Business Has the Lowest Risk?
Answer: The lowest-risk businesses are those with consistent demand and fewer operational hurdles, such as grocery stores, bookkeeping services, and educational institutions.
Q3: What Business Do Banks Consider Low-Risk?
Answer: Banks see businesses with predictable revenue, a clean financial history, and low chargeback rates as low-risk. Retail shops, professional services, and local businesses are typical examples.
Q4: What Business Do Banks Consider High-Risk?
Answer: High-risk businesses usually operate in volatile industries like gambling, CBD, or adult entertainment. Factors like high chargeback rates or financial instability also contribute to this label.
Q5: What Are the Four Major Types of Business Risk?
Answer: The 4 main types of business risk are:
- Operational Risk: Internal disruptions like staff errors or technical issues.
- Financial Risk: Challenges with cash flow, debt, or market changes.
- Compliance Risk: Failing to meet legal or regulatory standards.
- Reputational Risk: Negative public perception or bad reviews affecting trust.
Q6: Why Would You Choose a High-Risk Investment Over a Low-Risk One?
Answer: High-risk investments often offer higher returns. For instance, startups or volatile markets may yield big rewards compared to safer investments like savings accounts or bonds.
Q7: Why Are Some Businesses Labeled As High-Risk by Payment Processors?
Answer: Payment processors classify businesses as high-risk if they face frequent chargebacks, operate in regulated industries, or have unpredictable income streams.
Q8: Can a High-Risk Business Transition to Low-Risk Status?
Answer: Yes! By improving financial stability, reducing chargebacks, maintaining compliance, and demonstrating a clean payment history, businesses can shift to a lower-risk status.
Q9: What Payment Gateway Is Best for High-Risk Businesses?
Answer: Gateways like Authorize.Net, PayKings, or First Data are trusted options. They cater to high-risk businesses with fraud prevention and dispute management tools.
Q10: Are Fees Higher for High-Risk Businesses? Why?
Answer: Yes, because payment processors take on more risk. High chargeback rates, fraud, and regulatory scrutiny increase costs for high-risk businesses.
Q11: How Do Payment Gateways Manage Fraud for High-Risk Businesses?
Answer: High-risk gateways use tools like fraud detection software, transaction monitoring, and data encryption to prevent fraudulent activities.
Q12: Is It Harder For High-Risk Businesses to Get Approved for a Merchant Account?
Answer: Definitely. Payment processors carefully review high-risk businesses, and approval often takes longer due to concerns about disputes and financial stability.
Q13: What Factors Influence the Cost of Payment Gateways for High-Risk Businesses?
Answer: Costs depend on the industry, chargeback rates, transaction volumes, and international sales. Higher risk means higher fees and stricter contracts.
Q14: How Can High-Risk Businesses Reduce Chargeback Rates?
Answer: To lower chargebacks:
- Use clear product descriptions and billing info.
- Prioritize customer support and satisfaction.
- Use fraud detection tools and verify customer identities.
- Use a chargeback management service.
- Strengthen payment authorization procedures.
- Monitor and analyze chargeback data.
