High risk customers are those who operate in an industry that is considered high risk by financial institutions. Whether a customer is labeled as high risk or not will also depend on other factors including but not limited to the industry type, chargeback activity, transaction size, billing model, and credit score.

Once a customer is labeled as high risk, it can be more difficult to secure payment processing with traditional financial institutions. 

That’s where TailoredPay can help. Our relationships with payment processors and industry experts enable us to provide your business with the merchant account and payment processing services it needs to grow and thrive.

Is Your Business Considered High Risk?

Whether or not your business is considered high risk often depends on the following circumstances: 

• Credit score: Just like in the personal finance space, businesses with bad credit (or no/limited credit history) might be classified as high risk.
• Billing model: If your business offers free trials that upgrade to paid subscriptions, it will likely be a high risk business. Subscriptions and other forms of recurring billing are often labeled high risk by traditional payment processors.
• High Rates of fraud or chargebacks in your industry: As you might expect, if you go into an industry known for a higher-than-average fraud or chargeback ratio, your business is likely to be labeled high risk.

Customers by Industry

Some industries are considered to have more risk than others, as they typically fall under the above-mentioned circumstances. Some examples of higher risk industries are: 

Anti-Money Laundering and High Risk Customers

Showing proof of Anti-Money Laundering (AML) practices is an important part of becoming approved for payment processing, specifically for high risk customers in industries such as cryptocurrencies. AML refers to the regulations and procedures in place that comply with legal requirements related to suspicious financial activity. An example of an AML procedure might involve what is known as a holding period. This means the funds from a transaction are held in an account for a specific number of business days.

It’s common for crypto exchanges to be required to show proof of what AML procedures they have in place before setting up a merchant account with an independent payment processing provider. 

AML vs. Know Your Customer

Know Your Customer (KYC) is often confused with AML practices and though both are important, they are two separate elements. While AML proof of practice is often required for crypto exchange businesses to open a merchant account/utilize payment processing services, KYC is a series of steps taken by the payment processing provider to ensure the customer is who they say they are (and does not have a history of fraudulent activity).

KYC might include requesting documents such as a passport, driver’s license, or government-issued ID. You might also need to provide a voided check or bank letter, 3 months of your most recent credit card processing statements for your previous provider, and 3 months of your most recent bank statements. 

Merchant Accounts for High Risk Customers

So, if traditional institutions won’t offer merchant accounts to high risk customers, how can a high risk business obtain an account? By contacting a high risk merchant account provider. They can provide payment processing services to businesses that are classified as having a higher probability of chargebacks or fraud relative to more traditional businesses, larger transaction sizes, high risk labeled industries, and order fulfillment timeframes that are considered too high risk.

High Risk Clients: Frequently Asked Questions

What makes a customer high risk?

Your business is likely to be deemed high risk by traditional financial institutions if it has one or more of the following: Bad credit, free trials, recurring billing, high-ticket sales, high rates of fraud, or a large number of chargebacks in your industry. To define high risk customers, this is typically the criteria used. 

Who are high risk customers for payment processors? 

High risk customers are typically conducting business in industries that are considered to be high risk. This can include organizations in the cryptocurrency space and companies that sell alcohol or CBD products.

Who are medium risk customers? 

Medium risk customers often fall into the high risk category, which means there isn’t necessarily a “medium risk” category. Low risk customers typically meet the following criteria: Have transaction volumes less than $20,000 per month, only use one currency, have an average transaction amount of $500 or less, conduct business in one country that is also considered to be low risk, experience very little to no chargebacks, and operate in an industry that is deemed low risk. 

How do you find your high risk customers? 

The classification of high risk customers tends to be based on the industry, since some industries are considered riskier than others. You can view an industry list here.