Everything You Need To Know About High-Risk Industries

High-Risk Merchants

In addition to the merchant’s actual product or service, a merchant may be considered high risk for operational reasons. This could include:

• Large processing volume (either a high volume of transactions or a high average transaction rate)
• Cross-border transactions, which entail more regulatory complexity
• Merchants who are new
• Merchants with low credit scores
• Charges for products or services offered in the future

What Stance Do Major Card Brands Take on Products or Services in High-Risk Industries?

It’s important to know how card brands approach high-risk industries. Policies around risk mitigation play an important role in preventing the sale of potentially problematic products and services.

Mastercard requires acquirers to perform fraud control and risk monitoring, including but not limited to fraud screening and fraud scoring services. Their rules state that acquirers should classify high-risk merchants and diligently ensure sellers aren’t processing illicit transactions that could damage the brand and/or be illegal.

According to the new rules put forth under the Visa Integrity Risk Program (this program replaces the Visa Global Brand Protection Program), high-risk merchants are separated into three tiers — “High Integrity Risk Merchants are classified by business type and the level of risk they pose to the ecosystem.” These new rules state, “The High Integrity Risk levels consist of three tiers, with each tier requiring commensurate due diligence requirements.”

Monitoring High-Risk Industries Requires Interdepartmental And Interorganizational Teamwork

Mitigating risk requires a deep dive into commercial ecosystems and a nuanced understanding of compliance. Likewise, technology, underwriting, and sales strategies are necessary to ensure you’re safely operating within high-risk verticals.

According to Electronic Transactions Association, “Merchants operating in the high-risk vertical often offer significant revenue opportunities. However, additional resources are needed to underwrite and monitor these merchants.”

It’s important to confer with policy experts before entering into any high-risk industry so that you can develop guidelines to more safely onboard and monitor these merchants. It’s also important to stay abreast of trends to understand how these industries are changing and what types of emerging activity could expose you to risk.