The term ‘high-risk’ instantly conjures up images of dangerous tightrope walks, freefall skydiving attempts, or even a desperate business gamble that could spell disaster. In reality, when associated with business, the term high-risk is not the end of the world.
In this guide, we will discuss the ins and outs of a high-risk business and help you understand which industries may face the most danger moving forward.
What is a High-Risk Business?
Let’s start with the basics. Believe it or not, a high-risk business does not have anything to do with the potential for failure or disaster. It actually has to do with credit.
A high-risk business is considered by credit processors to have a higher risk of chargebacks, which is the return of money to a customer after they have made a purchase. This usually happens due to fraudulent activity, which is why businesses in certain industries that attract more fraudsters will be labeled as ‘high-risk’.
What Factors Determine Risk?
When determining a business’s risk level, banks and lenders use several factors to assess the likelihood of chargebacks. These may include:
- The industry in which the business operates
- Whether the products/services are digital or physical
- The amount of money being exchanged
- The types of payment methods accepted
- Any customer complaints lodged against the business
How Do I Know If My Business Is High Risk?
If you think your business may fall into the high-risk category, there are a few steps you can take to confirm this.
- Review your customer transaction history to see if there has been an increase in chargebacks.
- Check for any complaints or reviews that may have been left about the business, which could indicate a higher risk of fraud.
- Find out what payment processors you currently use and what their policies are on high-risk businesses.
- Contact your bank or lender to see what their assessment is.
What are Some Examples of High Risk Industries?
Businesses in the following industries may be labeled as high-risk:
- Online gaming
- Adult entertainment
- Travel
- Debt collection
- Pharmaceuticals
- Cryptocurrency trading
Are There Risk Factors You Can Control?
Yes! While some factors that contribute to a business’s risk level may be out of their control, there are certain steps businesses can take to reduce the risk of chargebacks. These include:
- Utilizing payment processors with strong fraud protection systems.
- Setting up processes for verifying customer identities and addresses prior to transaction completions.
- Requiring additional verification documents for orders over a certain amount.
- Ensuring your website is secure, with a valid SSL certificate.
- Utilizing fraud protection tools to detect and prevent suspicious activity.
Bottom Line – Let Bethany Insurance Help Your Business
By taking the necessary steps to ensure your business is as secure as possible, you can significantly reduce the risk of chargebacks and protect your business from any potential losses associated with high-risk activities. The more effort you put into making your business secure, the more likely it will be categorized as low-risk by banks and lenders.
If you, like many other businesses, are concerned about navigating the roads of risk, don’t feel like you have to do so alone. At Bethany Insurance, we pride ourselves on being able to assess the needs and worries of our clients and customize their business insurance to resolve those. Contact us today to see how we can help ease your mind.
