You’ve probably seen certain industries labeled as “high risk”. Then when you look a bit deeper you realize that, from a financial standpoint, these industries are no more high risk than non-high risk industries: chargebacks are lower, the businesses are more profitable, etc..
So what exactly is high risk and how is it defined?
For some interesting learnings we turned to GOAT Payments, a specialized payments company with decades of combined experience in “high risk” processing (we’re going to use quotations around the term high risk to emphasize how farcical it is).
How is high risk defined?
The term “High Risk” has been used interchangeably over the past decade by sponsor banks to describe both strategic and emerging verticals. High risk verticals are those with increased potential for regulatory violations, extended delivery times, high ticket sizes, and reputational damage, and elevated chargeback rates. A merchant’s historical financial activity and customer experience are also factored in when assessing their risk profile. While risk mitigation tools and services have advanced considerably, certain inherent challenges remain with some high risk product types that are difficult to fully overcome. As such, sponsor banks argue that the high risk designation remains necessary despite these technological advances.
It’s been our experience that a lot of payment companies eschew “high risk” because there’s some perceived taint to these types of merchants.
We think that’s ridiculous.
If you had an underwriting model and blinded the merchant MCCs you’d never know the difference between “high risk” and non-high risk merchants. In fact, the “high risk” merchants might actually be more sound.
Why is high risk hard for conventional payments companies?
High risk requires additional effort to support. Conventional payment companies have strategically dedicated less time to review policies around restricted and prohibited merchants for the ISO Partner. As a result, underwriters are generally given very little guidance from their sponsor banks or processors to help get these merchants approved. Rather, more time is spent explaining to ISOs why the merchant cannot be approved. Underwriters lack preparation and tools to adapt new policies that incorporate the nuances of these verticals based on the guidance of their company goals which focus on lower risk and lower margin merchants. Ergo, most traditional banks and payment companies are unwilling to allocate resources to support these merchants.
By the way, here are some examples of “high risk” merchants:
Reputational Risk – Adult, firearms, donation sites, etc..
Regulatory Risk – Cannabis, free trial offers, CBD, PO pharmacy, gaming, adult, etc..
Extended Delivery – Any product that takes more than two weeks to deliver – e.g. an airline or cruise line that books one-year in advance where there’s a lot of exposure involved with taking payments in advance. Same with custom furniture, etc..
High ticket items – Jewelry, plastic surgery, cars, etc..
Specialty High Risk industry examples – MLM, river boat cruises, airline charters, cannabis dispensaries, coaching seminars (large ticket booked in advance ), timeshares, vape and tobacco shops, auction houses, adult dating sites, CNP (card not present) guns or pharmacy.
Payments companies are often beholden to only one processor, and if these processors aren’t comfortable with the additional data inputs the banks foist for “high risk” merchants it’s a pointless and frustrating exercise for the payments companies.
Mainstream processors suggest few options exist to get the best terms and pricing for these merchants to operate effectively. However, processors may still put ISOs through fruitless underwriting processes with no intention of approving these merchants, limiting the education and support ISOs receive.
Jenna Padilla, SVP Enterprise & Strategic Partners @ Goat Payments
How has GOAT solved the problem?
At Goat Payments, we have designed our programs based on lessons learned from past experience. We’ve built partnerships with over 30 sponsor banks, providing complete transparency throughout the approval and onboarding process. This gives ISOs the ability to easily onboard high risk merchants and provide multiple options to their merchants. We also provide advisory services and guidance to ISOs, promoting an expert-rich experience and streamlining the underwriting documentation process for banks. By advising merchants upfront on the fastest path to approval and terms, we limit back-and-forth and delays.
In our experience a lot of these “high risk” payments companies really gouge on rates. We connected with GOAT in researching payment modalities for cannabis and found GOAT to be above board and fair. Moreover, they had several layers of redundancy – e.g. if one payment method/bank failed they could intelligently route to the next one – solving a big headache for anyone who operates in “high risk”.
It feels like there are a ton of underserved merchants based on today’s “high risk” perceptions. GOAT would seem to offer an economic and viable way to support these merchants while conventional processors ignore them.
To learn more about GOAT or high risk generally, contact Jenna Padilla:
Jenna@GoatPayments [dot] com
Mobile: 214-929-2780
Add comment