All businesses are exposed to some degree of risk, and it's evident in the failure rate of new businesses; as an entrepreneur, you're making the best assumption based on known variables and hoping you can account for any unknowns. While risk is unavoidable in the business world, some ventures are deemed riskier than others. For modern-day businesses, accepting digital payments can be a make-or-break decision. Online payments and digital settlement are the mediums consumers prefer to use and the user experience they expect. However, not everyone can onboard to a traditional payment network; if they do, they might have limited support or have to fork over additional costs. Financial institutions evaluate many criteria to classify businesses as high—or low-risk. Along with your company's financial health, banks and payment processors also analyze your industry to determine how much risk the business is exposed to. Companies operating in high-risk industries face unique and significant challenges when it comes to banking. These challenges stem from the inherent risks associated with these businesses, which often involve heightened regulatory scrutiny, increased fraud potential, and higher chargeback rates. This can make it difficult for these companies to find and maintain banking relationships, leading to operational hurdles and financial instability.

What constitutes a "High-Risk" Industry?

High-risk industries are typically those that are perceived to have a higher likelihood of fraud, money laundering, or other financial crimes. Some common examples include:
  • E-commerce: Online businesses, particularly those selling high-value items or dealing in digital goods, are often considered high-risk due to the increased potential for fraud and chargebacks.
  • Gambling and Gaming: Online casinos, sports betting, and other forms of gambling are heavily regulated and carry inherent risks for financial institutions.
  • Adult Entertainment: Businesses in the adult entertainment industry face significant challenges due to the nature of their products and services.
  • Cannabis: The cannabis industry is still relatively new and unregulated in many jurisdictions, making it a challenging space for banks to navigate.
  • Vaping/E-Cigarette: Despite its popularity and turning itself into a $22 billion dollar market annually, the industry is considered high-risk by banks and credit card processing companies as it's tightly regulated by the Food and Drug Administration (FDA)US.
  • Arms dealing: Companies involved in arms sales are subject to strict regulations and are often considered high-risk by banks. 
  • Travel and Tourism: While not inherently high-risk, certain segments of the travel industry, such as tour operators and travel agencies, can be susceptible to fraud and chargebacks.
  • International trade with high-risk countries: Businesses conducting transactions with countries known for corruption or financial instability may be flagged as high-risk by banks
Now, you might not be an international arms dealer or drug cartel, but you could be treated like one given the business or country you're in, and that's the reality for many operating in certain grey markets. For example, you could be a mom-and-pop boutique CBD business, operating by the book in all other aspects of your business, selling a naturally grown and manufactured product. Still, banks will avoid touching you with a 10-foot pole because you're grouped in with all other cannabis-related businesses, and the onus is on you to explain why you're not a risk. Another would be a legitimate travel agency offering holiday packages and accommodation options in a country SWIFT or international banks feel are risky, making it hard for you to transact with your international clients and losing out on possible business. It's not your fault your native country and the country from which your client lives aren't on good terms; that should have nothing to do with two willing participants wanting to exchange. Unfortunately, that isn't the reality, and as a result, your business suffers.  

The Challenges Faced by High-Risk Businesses

Banks and traditional payment processors won't work with these businesses because it breaks their risk models and could result in financial losses. Perhaps they have tried in the past and were burned by this industry, so they paint everyone with the same brush, leaving you standard. And even if they do bank you and change their policies in the future, if your merchant application was rejected or you could end up on a TMF/MATCH list, a risk-monitoring database that helps banks identify merchants with a history of fraudulent activity, excessive chargebacks, or terminated accounts. A Scarlett letter for financial services. As a high-risk industry or location, you have to deal with the following, which can cost you time and resources and take away your attention from what you're good at: running a business and servicing your customers.

Difficulty Obtaining a Merchant Account:

  • Increased Scrutiny: Banks and payment processors conduct rigorous due diligence on high-risk businesses, often requiring extensive documentation and financial information.
  • Higher Rejection Rates: Many banks are hesitant to onboard high-risk businesses due to the perceived risks, leading to higher rejection rates for merchant account applications.
  • Limited Options: Even if approved, high-risk businesses may have limited options for merchant accounts, often being restricted to specialized providers that charge higher fees.

Higher Processing Fees:

  • Risk Premiums: Banks and payment processors often charge higher processing fees for high-risk businesses to compensate for the increased risk.
  • Chargeback Fees: High-risk businesses are more susceptible to chargebacks, which can result in significant financial penalties.
  • Reserve Requirements: Some banks may require high-risk businesses to maintain large reserve balances to cover potential chargebacks, tying up valuable capital.

Regulatory Compliance:

  • Stringent Regulations: High-risk industries are subject to numerous regulations, including anti-money laundering (AML) and know-your-customer (KYC) requirements.
  • Complex Compliance Programs: Businesses must implement robust compliance programs to meet regulatory requirements, which can be costly and time-consuming.
  • Risk of Fines and Penalties: Non-compliance with regulations can result in significant fines and penalties for businesses.

Reputational Damage:

  • Negative Perceptions: The association with a high-risk industry can negatively impact a company's reputation, making it difficult to attract customers and partners.
  • Media Scrutiny: High-risk businesses are often subject to increased media scrutiny, which can amplify negative perceptions and damage their brand.
  • Difficulty Securing Funding: The challenges associated with banking can make it difficult for high-risk businesses to secure funding from investors and lenders.

Debanking is on the rise

Marc Andreessen kicked off quite the heated debate appearing on Joe Rogan's podcast — claiming that banking regulators had cut off tech and crypto companies from the financial system. https://www.youtube.com/watch?v=pRj9pIITwEU While over the pond in the UK, the number of debanking cases stands at around 140,000, with data pulled from Barclays, HSBC, TSB, Lloyds, Santander, NatWest, Metro and Handelsbanken. We've seen a spike in debanking, with official complaints over businesses losing accounts doubling in the last year; new figures show 3,858 complaints in 2024 alone.

Mitigating the Challenges

While the challenges faced by high-risk businesses are significant, there are several strategies that can help mitigate these risks:
  • Choosing the Right Partner: Partnering with a specialized payment processor that understands the unique needs of high-risk businesses can help to streamline the onboarding process and reduce costs.
  • Implementing Robust Fraud Prevention Measures: Implementing strong fraud prevention measures, such as address verification and ID verification, can help to reduce chargebacks and improve approval rates.
  • Maintaining Strong Compliance Programs: Adhering to all relevant regulations and maintaining a robust compliance program can help to minimize the risk of fines and penalties.
  • Building Strong Relationships: Building strong relationships with banks and payment processors can help to improve communication and understanding, leading to more favourable terms.

Bitcoin can go where banks can't go

Even then, those precautions won't guarantee you consistent access to banking services, and you'll need something more reliable, like a globally available digital payment network that is censorship-resistant and can be transferred across borders with relative ease. This is where Bitcoin comes into play; using a service like Flash, you can connect your various business assets, like your eCommerce store or in-store POS system, to a Bitcoin wallet and start to receive Bitcoin payments for all your products and services. There is no need for special licences or applications. All you need to know is how to set up and manage a Bitcoin wallet. As a payment method, Bitcoin doesn't discriminate based on your country of origin or industry and is far easier to manage than running an all-cash business, as some are forced to do so when they are denied banking services. Once set up, you can start accepting Bitcoin payments immediately from customers both locally and internationally on both the base chain and the Lightning Network, depending on the goods or services you render.

Managing risk and reward

Companies in high-risk industries face significant challenges when it comes to banking, including difficulty obtaining merchant accounts, higher processing fees, and increased regulatory scrutiny. But it no longer needs to be a death blow for your business; you can bypass these antiquated systems and leapfrog straight towards the future of money and trade. A future where you receive your money instantly, have complete custody of funds, can manage your refunds and no longer need to ask permission or walk on eggshells in order to manage a critical part of your business.