PayCompass

Mastering Unconventional Growth Strategies for High-Risk Merchants:
A Comprehensive Guide

Growth is important for every single business, but it’s certainly more challenging for some than others. Take high-risk businesses, for example. The very nature of a high-risk classified business means that it faces more stringent regulations and legal issues, a higher incidence of chargebacks, and it takes a lot more effort to convince customers to place their trust in them. All of this means a strong business growth strategy is needed to overcome the challenges and look toward success.

However, it’s not all doom and gloom. By carefully researching growth strategy for high-risk merchants, you can create the very best plan for your needs. Of course, you also need to identify the best tools, too. With that in mind, PayCompass offers high-risk merchant accounts to make your life easier and reduce troublesome chargebacks.

In this guide, we’ll explore everything you need to know about growing your high-risk business, jumping over hurdles and finding a smoother path forward.

TL;DR

  • High-risk businesses face more hurdles in terms of business growth, due to additional challenges.
  • PayCompass offers a solid payment solution for high-risk businesses, with tools tailored to their specific and unique needs.
  • Regulations vary across regions, but high-risk businesses can capitalize on this to gain a competitive advantage.
  • Building networks and partnerships can help to create a supportive ecosystem for a business to thrive.
  • Building customer trust and developing a positive brand image is vital for business growth and credibility.
  • Exploring niche markets can give a competitive edge to high-risk businesses looking to develop a loyal customer base.

PayCompass Welcomes High Risk Businesses

While it’s true that high-risk businesses do face more challenges in terms of regulatory oversight and payment processing issues, there are solutions. One of them is PayCompass.

We offer a tailored payment processing service for high-risk businesses in particular. We understand the hurdles you have to jump over just to keep your business ticking over, and we’re well placed to help. We offer dedicated merchant accounts for high-risk businesses, such as travel, online dating, CBD, tobacco, and subscription services.

Our application process is streamlined and offers fast approval so you can get started right away. We are an excellent alternative to PayPal, Square, and Stripe, who all have several restrictions on high-risk businesses, including high fees. Instead, we offer competitive fees, multi-currency support, and chargeback protection. Put simply, you can go about your business without worrying that your account is going to be restricted or blocked. That kind of peace of mind is invaluable, leaving you free to focus on growing your business.

Leveraging Regulatory Arbitrage

As a high-risk merchant, you can make use of regulatory arbitrage to your benefit. It’s easy to assume that regulations simply cause more problems, but when you look at them in a different way, they can lead to new opportunities. You can do this by exploring the differences in regulations between various jurisdictions, then strategically navigate your way through them to optimize your business operations. This can, over time, reduce your exposure to risk.

It’s a complex strategy but it’s one that allows you to gain a competitive edge. When you consider the high losses many businesses face due to fraud in particular, it’s vital to look at all angles. For instance, a 2023 survey by the National Retail Federation found that return fraud cost retailers a huge $101 billion in 2022. With that in mind, making use of regulatory arbitrage is key.

Let’s explore this in more detail.

Cross-Border Regulatory Arbitrage

Exploring cross-border regulatory arbitrage is a good starting point. This allows you to expand your operations across borders while keeping your regulatory burdens to a minimum. To do this, you must carefully choose the jurisdictions with the most favorable regulations for your particular business. From there, take a close look at your operations and change them to suit these regulatory differences.

Jurisdiction Shopping

One way to do this is through jurisdiction shipping, which is a key part of the cross-border arbitrage puzzle. This requires careful research to compare different regulatory environments across the world. When doing this, it’s important to consider different elements, such as tax implications, how politically stable the area is, banking services, regulations in that region, and how easy it is to do business there. All of this gives you key information to help make a decision, ultimately finding an area that gives you a balance between business ease and regulatory flexibility.

Regulatory Sandboxes

We can also talk about regulatory sandboxes. These are programs that allow high-risk businesses in particular to text out new products or services with less stringent conditions. These regulations in these programs are more relaxed, giving more scope for experimenting.

Industry-Specific Compliance Innovations

Choosing a high-risk merchant processor like PayCompass is only part of the puzzle in terms of business operations. It’s vital to stay ahead of any new regulations to ensure you comply with them. Failure to do so can end in disaster. For that reason, putting into place compliance solutions that are tailored to your particular business area can not only solve that problem but can also give you a competitive edge.

Blockchain-Based Compliance Systems

Blockchain is revolutionizing the world one step a time, and high-risk business is no different. This type of technology has potential to boost transparency and make it easier to comply with regulations that change over time. Key areas where blockchain can help include identity verification, transaction audits, and anti-money laundering checks.

To implement blockchain, spend time looking at different platforms and protocols to choose the one that suits your business best. Take into account things like security, scalability, and compatibility with key regulations. From there, test the system’s viability with a pilot program and look for areas where performance can be improved. Slowly integrating blockchain into your compliance framework will take time, but it will help you maintain compliance and boost transparency

AI-Driven Risk Assessment

Image showing a high-risk merchant planning business growth.

Using AI in growth strategies for high-risk merchants can yield results.
Source: Pexels

We make use of Artificial Intelligence in many different areas of life and business, and it can be very valuable in high-risk business settings. This is particularly the case in risk assessments, using machine learning algorithms and big data analytics. You can develop in-depth risk models that can change depending on market conditions as they happen.

All of this can help you to spot any potential compliance problems before they occur, boost your resource allocation for risk management, and improve decision-making.

Ecosystem Cultivation

Your business is not an island, and that means you’ll need to identify the services that can help you not only run smoothly, but grow over time. We call this your ecosystem, and it’s vital to spend time identifying the best areas to focus your attention. For instance, understand what is a high-risk merchant account and understand how it can help you.

A series of complimentary services will give you the time and resources to develop new innovations and grow. The table below explains this further.

Ecosystem Component

Benefits

Challenges

Strategic Partners

Shared resources, expanded reach

Aligning goals, maintaining independence

Vertical Integration

Control over supply chain, cost reduction

High initial investment, complexity

Innovation Hubs

Access to new technologies, talent pool

Managing intellectual property, resource allocation

Regulatory Allies

Improved compliance, industry advocacy

Maintaining neutrality, managing conflicts of interest

Vertical Integration Strategies

A major game-changer for many high-risk businesses is the idea of vertical integration. This means you develop in-house solutions to help you deal with your most critical operations. Of course, this means you don’t have to rely on external businesses to help you, and gives you greater control. Ultimately, it’s about balancing the use of outside provisions while also maintaining enough control within your business.

For instance, online travel agents often look for ways to streamline multi-currency payments for travel businesses, and this is something that an outside provider such as PayCompass can do. However, for other parts of their business, vertica. integration helps them maintain control.

Custom Underwriting Models

One area that can benefit from vertical integration is custom underwriting. This allows you to accurately assess individual clients in terms of risk, therefore cutting down on potential issues down the line. Regular chargebacks or problems with identity verification can cause regular payment platforms to flag transactions and accounts. That’s why choosing a tailored high risk account is a better option.

Custom underwriting models can also help to streamline the onboarding process for your customers, so it’s not only efficient but also secure. To implement these models, start by carefully assessing the risk factors that are specific to your industry. Machine learning can be used here to develop a predictive model or scoring system, and this can be used to assess individual clients. Of course, it’s also important to refine your systems on a regular basis and update them whenever new developments and regulations arise.

Strategic Partnerships and Alliances

One option is to join a risk-sharing consortium. This is a collaborative group of high-risk merchants that work together to distribute financial risks. A positive side effect is stronger negotiating power with service providers. After all, there is strength in numbers, opening up the possibility of better terms from financial institutions, and sharing compliance resources and costs.

The decision to join a consortium is personal and it’s important to look for partners who have a similar interest. Additionally, make sure there is a clear governance structure in place and a robust risk-sharing agreement.

Risk-Sharing Consortiums

One area that can benefit from vertical integration is custom underwriting. This allows you to accurately assess individual clients in terms of risk, therefore cutting down on potential issues down the line. Regular chargebacks or problems with identity verification can cause regular payment platforms to flag transactions and accounts. That’s why choosing a tailored high risk account is a better option.

Custom underwriting models can also help to streamline the onboarding process for your customers, so it’s not only efficient but also secure. To implement these models, start by carefully assessing the risk factors that are specific to your industry. Machine learning can be used here to develop a predictive model or scoring system, and this can be used to assess individual clients. Of course, it’s also important to refine your systems on a regular basis and update them whenever new developments and regulations arise.

Reputation Engineering

What is a high risk merchant if not the sum of its reputation? How the public perceives your business is key, and this can also boost your standing within the industry. Trust is everything but it begins with creating a solid reputation and ensuring that you maintain it at all times.

Data analytics are useful here, and it’s possible to measure and track metrics related to your reputation. This not only helps you maintain that positive image, but also helps you take action if you notice any dips.

Narrative Control Techniques

Building trust is key for high-risk merchants.

Trust plays a huge role in high-risk merchant business growth.
Source: Pexels

You certainly don’t need to leave everything to chance in terms of your business reputation. It’s important to have strategies in place that can manage the outside narrative about your business, and even influence it. Think of it as being proactive in shaping how the public perceives your business, reducing the chance of negative press, which may bring extra scrutiny from regulators.

Let’s explore how you can do that.

Transparency Initiatives

A good place to start is with transparency initiatives. These are key in building trust and ensuring credibility, highlighting responsible practices, such as your commitment to ethical operations. This type of initiative includes submitting regular reports about your compliance, being open in your communication, especially in terms of risk management, and engaging with customers and stakeholders.

Ultimately, transparency builds trust, and customers stick with businesses they trust.

Industry Advocacy

Being visible within your industry and taking a leading role in lobbying and public relations is another key aspect of transparency. However, it also goes a long way toward improving the regulatory and social climate for high-risk businesses in your niche.

Start by looking at key areas that impact your industry and create your own clear position on it, using evidence-based practices to back this up. Then, build partnerships with people and businesses with the same way of thinking. Together, you can identify policymakers and media outlets that will help get your message out there. Of course, it’s also important to regularly monitor any developments within the regulatory field, so you can stay relevant and make lasting change.

Trust-Building Technologies

Technology can do almost everything these days, and that includes building trust and credibility. Making use of these methods can boost your reputation beyond measure.

Decentralized Reputation Systems

Proving that blockchain is a flexible tool, it can also be used in reputation tracking to give proof of trustworthiness. The key here is blockchain’s decentralization and its immutability. Such systems mean that your business compliance records and interactions are stored securely and remain unchanged, creating transparency. There is no intermediary required with blockchain, which is another trust-boosting factor.

Real-Time Compliance Monitoring

Compliance in real-time is a powerful tool that allows stakeholders to regularly check whether you’re complying to regulations. This level of transparency is vital and shows that you’re willing to be held accountable at all times. Real-time compliance monitoring gives instant visibility, so stakeholders don’t need to give you advance notice, which could then cause them to ask whether any information has been changed. At this point, they see everything as it is.

A strong feature of these systems is the automated alerts they provide, giving you information to help minimize risk quickly. Additionally, they also generate audit trails that can be used in your compliance strategy.

Data Monetization Strategies

When talking about growth strategies for high-risk merchants, we should also discuss data monetization.

It’s true that high-risk businesses have valuable data and it’s a good idea to create strategies to make the most of this and look toward new opportunities.

Anonymized Industry Insights

A concern with data monetization is privacy, so it’s important to focus on that first to ensure you remain in compliance with regulations. A good way to do this is to aggregate and anonymize transactions and customer behavior data. This takes away the privacy concern but protects the value of the data.

Risk Modeling Services

Another potentially lucrative move is offering risk assessment tools to other businesses. You can base this on your existing data and algorithms, using things like industry-specific risk scoring, custom risk assessment frameworks, and predictive analytics for fraud detection.

The table below gives some more useful information on the types of data you could use.

Data Monetization Strategy

Potential Revenue Streams

Implementation Challenges

Risk Modeling Services

Subscription fees, Pay-per-use

Data privacy, Model accuracy

Trend Forecasting

Report sales, Consulting services

Data collection, Predictive power

Alternative Credit Scoring

Licensing fees, API access

Regulatory compliance, Bias mitigation

Industry Benchmarking

Membership fees, Custom reports

Data standardization, Competitive concerns

Trend Forecasting

Trend forecasting is another area to think about. This means developing new predictive models that relate to specific industry trends. You can use your data and offer it to other high-risk merchants regarding predictions of regulatory changes, customer behaviors and how they’re evolving, and any early warning signals for new risks.

Data-Driven Financial Products

To take things a step further, another growth route is to create innovative financial instruments that other high-risk industries will find useful. These can create new streams of revenue and contribute to your greater industry ecosystem.

Alternative Credit Scoring

High-risk businesses often face problems with accessing financial services, and a lot of that comes down to credit scores. A good way to overcome that is to create new credit assessment methods by using data sources that are non-traditional.

Creating a new model could include looking at customer feedback and rating, order volumes and transaction patterns, along with performance metrics specific to that industry.

Industry-Specific Insurance Products

Insurance is another area that many high-risk merchants struggle with, so it’s a good idea to tailor your efforts toward this area. You could look at cyber liability insurance products, chargeback insurance for high-risk e-commerce businesses, or regulatory change protection. The latter in particular is useful to help protect businesses against evolving changes.

Risk Modeling Services

Another potentially lucrative move is offering risk assessment tools to other businesses. You can base this on your existing data and algorithms, using things like industry-specific risk scoring, custom risk assessment frameworks, and predictive analytics for fraud detection.

The table below gives some more useful information on the types of data you could use.

Niche Market Penetration

Tapping into niche markets can increase market share.

Increasing market share is a key part of high-risk merchant business growth.
Source: Pexels

Niche markets have the potential to bring extra revenue and build a strong customer base. Untapped markets or areas where current customers are underserved could reduce competition easily, creating a strong avenue for growth. These are very useful for high risk merchant marketing endeavors in particular and could lead to exceptional results.

Micro-Segmentation Techniques

To capture a niche market, it’s important to create a highly targeted strategy. This will help you to capture sub-segments and bring greater results. In essence, micro-segmentation allows you to tailor your services and products to needs that are extremely specific, allowing them to resonate deeply with select customers. Let’s explore this further.

Psychographic Profiling

Advanced data analytics are extremely useful in this regard and psychological characteristics and lifestyle factors provide a strong base. Psychographic profile includes interests, hobbies, personality traits, values, beliefs, and individual lifestyle choices.

To use this powerful strategy, collect data from various sources, including social media, surveys, and behaviour tracking methods. You can then use cluster algorithms to identify segments and develop a persona for each. From there, you can tailor your marketing toward that persona, regularly refining it as time goes on.

Geo-Targeted Risk Assessment

Located-based targeting is just as important, and this is ideal for tailoring your services toward specific areas to capture regional opportunities. This could include analyzing regional environments, assessing economic conditions and digging deeper into market dynamics, while also looking at cultural factors.

Cross-Industry Expansion

Another solid area of growth to explore is cross-industry expansion. This is a good way to leverage your expertise in areas that are adjacent to your current space. That way, you can diversify your revenue and look toward new competencies that could develop further over time.

Risk Management Consulting

If you have years of experience in your niche, why not explore the option of offering consulting services to new businesses? Even experienced businesses new to high-risk sectors will no doubt find your advice valuable. You could offer guidance on risk management, crisis management, or regulatory compliance, to name just a few.

Compliance Technology Licensing

Many businesses similar to yours will face regulatory challenges and this creates an opportunity for you. Developing proprietary compliance solutions and licensing them to other businesses could give you a new diverse revenue stream. In addition, it will strengthen your position within your industry and give you a great reputation. Options include regulatory reporting platforms, policy management tools (powered by AI), or automated compliance monitoring.

Micro-Segmentation Techniques

To capture a niche market, it’s important to create a highly targeted strategy. This will help you to capture sub-segments and bring greater results. In essence, micro-segmentation allows you to tailor your services and products to needs that are extremely specific, allowing them to resonate deeply with select customers. Let’s explore this further.

Disruptive Pricing Models

Sometimes it’s wise to go against the grain and that’s certainly true when looking at developing new and disruptive pricing strategies. These can challenge the traditional route and bring fantastic advantages your way. Over time, these may bring you greater market share, boost customer loyalty, and help you optimize your revenue.

Risk-Based Pricing Structures

Dynamic pricing models that can automatically adjust depending on real-time data and market conditions are a useful choice. These can help you align your pricing better with the current level of risk. Over time, you will be able to respond much faster to market conditions, offer better rates to customers, and price your products more accurately.

Predictive Pricing Algorithms

Machine learning can be used to boost pricing strategies based on recent data and trends. If you’re operating in very competitive markets, predictive pricing algorithms can create a real edge. In particular, they can accurately forecast demand so you can adjust your prices properly. Additionally, they can look for optimal price points for specific segments, and spot and quickly respond to pricing changes by your direct competitors.

Subscription-Based High-Risk Services

It’s possible to create revenue streams that continually recur by using subscription-based models. These are ideal for high-risk businesses as they create stable income, and with the right marketing, can improve retention. A few key areas to consider include regular risk assessments, compliance monitoring, reporting, and looking toward specialized products or services.

Learnings Recap

We’ve covered a lot of ground in this guide, but it’s clear that high-risk businesses face more challenges than what we could call “standard” options. From payment processing issues to increased regulatory scrutiny, there is a real need to focus not only on operational ease but growth too. Thankfully, we’ve talked about many ways you can do just that.

Two of the things we talked about were regulatory arbitrage and ecosystem cultivation. These are both extremely powerful and highly innovative methods to boost growth, particularly for high-risk businesses. This is all about diversifying how you run your business and how you look toward new opportunities, potentially developing new income streams. When you do this, much of the uncertainty associated with high-risk business reduces.

It’s also a good idea to look at moving into niche markets, or areas where current customers are underserved in some way. You can fill that gap and gain a major competitive advantage over your competitors. However, don’t assume that your competitors are your direct enemies! Joining forces with those in your niche can help you create a supportive ecosystem, reducing many of the risks associated with high-risk businesses.

Of course, we can’t forget about the challenges associated with payment processing, and this is where PayCompass comes in very useful. We offer tailored solutions for high-risk merchants in particular, and these can be used as part of your overall growth strategy. We offer advanced payment processing abilities, along with overall risk management. Ultimately, we understand the challenges that your business faces and we tailor our approach to suit your needs.

If you’re ready to help boost your business growth while ticking off challenges, complete our contact form today. One of our experts will be in touch to help you move toward your business aims.

About the author:

Harris Nghiem

An accomplished writer with over a decade of experience in the financial industry. Specializing in high-risk payment processing, regulatory compliance, and financial strategies, Harris combines in-depth expertise with a talent for making complex topics accessible. His work empowers businesses to navigate financial challenges with confidence and clarity.

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