High-Risk Businesses and Payment Transaction Methods
Whether you're a freelance worker, a small business owner, or an online business, accepting payments for goods and services was never easier than it is today. But with the rise of new payment services like PayPal and Stripe, we find ourselves asking: what about high-risk business? Some organizations (especially startups) may not be able to get merchant accounts with traditional financial institutions.
High-risk businesses are those that engage in activities that are considered to be high-risk. But this classification can be very subjective. Many times the businesses that are involved in dealing with (but not limited to) online gambling and casinos, investments and brokerages, cryptocurrency, online ticketing, forex, medical cannabis/marijuana, CBD products, online dating and adult services, sex toys, subscriptions, pharmaceuticals, cigarettes/vapes, travel bookings, I.T. support, and service replications are deemed to be high risk.
The conventional payment methods for high-risk businesses are the same as those who are considered lower risk: cash, checks, and money orders, which are slowly being replaced by the use of credit and debit cards, or electronic money transfers. This is due to the convenience and speed that these methods offer as well as the security provided by them. There are many dangers involved with accepting cash as payment as it can be counterfeit, as well as it also being untraceable. Checks and money orders are always traceable, yet they can be forged or stolen, and checks can even be drawn using funds that do not exist. Thankfully, there are payment service providers that can help you mitigate risk when accepting online payments.
This article aims to discuss about the business payment methods for high-risk businesses. It will discuss the risks involved, common payment methods, and how to mitigate risk.
Common Payment Methods for High-Risk Businesses
As a merchant whose business is in the high-risk sector, it is important to know which payment option you will provide to your customers – given the ease of payment, customers are more likely to pay faster and sooner than if they had limited options. Putting-up choices for payment methods for clients shield the interests of the organization. In case clients can't pay quickly, the company should provide them with easy and realistic payment options to make it helpful for them.
Debit, Credit, and Prepaid Cards — When it comes to paying for a high-risk business, a credit card payment can be a useful tool for managing risk. When you pay with a credit card, you are responsible for paying for charges you've approved. If you didn't give your approval, the credit card company will often assume the liability and pass the cost onto the business. In some cases, the business may be able to reverse the charges, but even in those scenarios, you won't have to pay if you're exercising due diligence in making sure that your card is only used for authorized purchases.
Mobile POS — Portable POS frameworks are powerful, offering the arrangements organizations need to deal with exchanges, for example, versatile Visa handling, client record support, synchronizing on the web and in-person exchanges and that's just the beginning — in a stripped-down, simple to-utilize stage on a natural, handheld gadget. But on the other hand, there may be security issues that are related to hacks, cyberattacks, or malware. Also, these mobile devices aren't by and large known to be sturdy, so it is conceivable that organizations should pay to shield their POS frameworks from unintentional damage — or probably pay to supplant them frequently.
MOTO — MOTO (Mail Order Telephone Order) are frameworks that permit organizations to take and oversee card exchanges from a distance. This electronic installment framework works with installment exchanges that can be assumed control via phone or through email or composing solicitations. With MOTO, there's no physical signature or record of a personal identification number (PIN) that could prove the charge is valid. On the other hand, it is also harder to detect fraud with a MOTO transaction because of the lack of physical connection to the individual who approved the payment.
E-Commerce or Electronic Transfers — This can be the fastest and most helpful tool in money or transfer. Electronic transfers permit you to get huge installments without paying many expenses. Other known advantages are, it is more secure, comfortable to use, can save you from handling costs, safe from fraud, straightforward or transparent, and contactless. This payment method could be a decent choice on the off chance that you offer items or administrations to different organizations. In some cases, faster payment transfer means faster product delivery.
Mitigating the risk of payments in high-risk businesses
There will always be risks in any payment method, whether we like it or not. It can't be avoided, but can be mitigated. Payment method is one of the biggest issues that businesses face today. When running a high-risk business, there is a higher probability that your payments may not be collected. If failure to receive payments were to happen more than once, your business would be in jeopardy. As an example, if you are running a business online, risks involve fraud and technical errors. There are a few ways on how to mitigate the risk of payment transfers for high-risk businesses:
Maintain Online Security — High-Risks businesses are prone to fraud activity as payments are mostly handled online. Business owners should always monitor their bank transactions and see if there are uncommon transactions. These matters should be looked over closely to confirm if there is possible fraud from unknown customers. Transactions should be transparent with the system data and bank transactions. It is very difficult to check whether a transaction has been approved or a fraud, and greater efforts with online security which is sometimes due to employee fraud, should be alerted.
Payment Risk Management Plan — The risk of engaging in payments with high-risk businesses can be mitigated with a strong business plan and a strong risk management strategy. Having to do proper risk management will help the merchant identify, measure, and monitor risks associated with the business operations. Identifying payment risks in businesses may mitigate issues before they occur. Be that as it may, fundamental dangers by a wide margin offset different sorts of dangers. The business owner may maintain a list of potential business payment risk and evaluate the impact, detection, and severity of these risk and apply a corresponding mitigation plan. PFMEA or potential failure mode and effects analysis can be a useful tool in mitigating any risk in the business setup.
Consulting with Payment Experts — Mitigating the high risk of payment failure also includes finding a service provider that can help you partner up with hundreds of payment service providers (PSPs) and acquiring banks and allow your business to accept various payment types from customers. They analyze and process transaction data which includes transmitting relevant information to an issuing bank, such as the credit card or debit card number that links to a bank account. These entities handle your application by collecting all necessary business information and help you understand the requirements to start up your online payment transactions. These entities can also perform KYC (Know Your Customer) which aim is to prevent money laundering and any other fraudulent activities by doing background checks and screening organizational documentations.
Different countries have different regulations when it comes to money laundering, prevention of fraud, and payment transfers. It is important to know your target market, its local regulation and the requirements to be able to legally transact within that location despite being in the high-risk business. If you are a start-up, or you need a payment method which will not compromise your online business transactions, it is important to know very well which path you are taking into.
About PSP Angels
PSP Angels is a payment consulting firm specialising in helping online businesses optimise their payment flows and costs by finding the best payment and banking solutions.
About the Author
Viktoria Soltesz (viktoriasoltesz.com) is the founder of PSP Angels. Having run her finance and tax consulting firm in Cyprus for over 15 years, Viktoria has extensive experience with payment issues and high risk industries.
Viktoria is also the Partner of Oxygia, a boutique firm in Malta, Cyprus which was created to improve the payments processing infrastructure for clients within the iGaming industries, specifically.
She used to lecture at the University of West London and is now a regular speaker at iGaming, blockchain, fintech and investment conferences.
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