It’s easy to assume that banking services are out there for everyone. That it’s an inclusive service that serves the greater good. While in most cases that’s true, there are some industries which find it difficult to access traditional banking services, making their business operations tricky, to say the least.
However, this isn’t just because banks want to be awkward. Far from it; they have reasons for restricting services to certain sectors and much of that comes down to an increase in different types of fraud. According to FinCEN analysis, the number of suspicious activity reports showing suspicious activity had increased by 30% by August 2019.
Certain industries have more challenges than others, and while some of this simply isn’t their fault and comes down to malicious actions from others, it affects businesses on a wide scale. Not only do the individual businesses suffer, but if banks were to offer their services, the bank would suffer too.
To help you understand whether your business falls into this category and what you can do, let’s take a deep dive into the high-risk industries for banks.
Understanding High-Risk Industries in Banking
Overall, high risk industries for banks create an increased financial, reputational, and legal risk. The reason is because many of these businesses have strict and complex regulatory rules to comply with, a high chance of fraud or money laundering, or that they sell controversial goods and services. These high-risk industries are not illegal, but the problems they could potentially cause for a bank makes them simply too hard to work with.
In some cases, these industries aren’t black listed entirely, yet banks working with them usually exercise large amounts of caution, leading to potential restrictions. Extremely robust risk management processes are also implemented to try and reduce some of the associated issues.
The table below gives a clear overview of the risks and impacts for banks working with a high-risk industry.
| Risk Factor | Description | Impact on Banking |
| Regulatory Complexity | Industry subject to multiple, often changing regulations | Increased compliance costs and risk of violations |
| Fraud Potential | Higher likelihood of fraudulent activities within the industry | Greater need for transaction monitoring and due diligence |
| Reputational Risk | Association with controversial or potentially harmful products/services | Potential loss of other clients and negative public perception |
| Financial Volatility | Unstable cash flows or high-risk financial models | Increased credit risk and potential for defaults |
| Operational Opacity | Difficulty in verifying the legitimacy of operations or sources of funds | Challenges in conducting effective due diligence |
Financial Services and Money Transmission
The first on our list of high-risk industries is financial services and money transmission. It might seem counterproductive for banks (who are financial institutions themselves) to place restrictions on these types of businesses, but it all comes down to regulations and fraud risk.
Let’s explore some of the specific businesses affected by this.
1. Cryptocurrency Exchanges and Trading Platforms
Cryptocurrencies have become extremely popular over the last few years, leading to an increased number of exchanges and trading platforms. However, these are deemed high-risk industries for banks due to their volatility, which can be extreme at times. In addition, these businesses have a higher risk of fraud and the potential for money laundering, so it’s a tricky one for banks to deal with.
While blockchain technology has its advantages in many areas, the decentralized nature of crypto causes challenges for banks. There are also many regulatory challenges, particularly when it comes to cross-border transactions.
2. Payday Lenders and Check-Cashing Services
Payday lenders and cash-checking services are also on the list of high risk industries. These are businesses that offer financial services and short-term loans, often with very high interest rates. The reason for their high-risk label is because, in some cases, these businesses have a reputation for predatory practices. In addition, there is a very high chance that they will experience defaults on loans that customers simply can’t afford to pay due to the high interest rates.
If a bank works with these high risk businesses, they often impose caps on interest rates and use risk assess models to evaluate business portfolios.
3. Offshore Banking and Investment Firms
Other types of business in the high risk category include offshore banking and investment firms. These are businesses that work in jurisdictions that have less strict tax laws, or areas where regulatory oversight isn’t quite as robust. Of course, these businesses themselves aren’t illegal but they do have connections with money laundering and tax evasion in some cases, and banks understandably prefer to distance themselves from that.
These types of businesses must navigate the challenges of high-risk payment processing in order to run their businesses smoothly. That often means using a dedicated high-risk merchant account, such as the accounts we offer at PayCompass. Our accounts are designed with these particular risks in mind, helping you to comply with regulations and monitor transactions for any signs of fraud.
4. Money Transfer Services and Remittance Companies
Banks also deem money transfer services and remittance companies to be high-risk, meaning they either need to work within a specific high-risk account or can’t use traditional banking services at all. The reason is that moving money across borders can occasionally be down to less than innocent reasons, with the potential again for money laundering, and in some cases, terrorism funding.
When working with these types of businesses, banks must have extremely robust KYC (Know Your Company) and AML (Anti-Money Laundering) procedures in place.
5. Debt Collection Agencies
Image of a man holding a debt collection notice.
The final type of high-risk business in the financial industry relates to debt collection. These are agencies that recover unpaid debts, working on behalf of creditors. The reason for the high-risk label is because there may be aggressive or illegal practices used, and this can affect the reputation of the associated bank.
Such agencies must comply with FDCPA (Fair Debt Collection Practices Act) in order to be considered for banking services.
Adult and Vice-Related Industries
Due to the type of products and services sold, the adult industry, and any businesses that sell vice-related products are also considered to be high-risk by banks.
6. Online Gambling and Sports Betting Platforms
The rise of online gambling has been staggering, and sports betting isn’t far behind it. These have always been quite popular but when forced to spend large amounts of time at home during the COVID-19 lockdown, many customers chose to spend their time on these platforms. However, these are considered high-risk businesses for banks due to the high potential for fraud and money laundering. There are also ethical considerations to bear in mind, such as the risk of addiction, and trouble verifying user age.
Banks that choose to work with this high risk industry must ensure that companies comply with regulations across jurisdictions by using quality monitoring systems.
7. Adult Entertainment and Pornography Websites
It probably comes as no surprise that adult entertainment and pornography websites are deemed high-risk by banks. This is because of their controversial nature and the high risk that content may be illegal and distributed where it shouldn’t be.
If a bank chooses to work with these businesses, they often face reputational risks, many of which simply don’t accept. There is also the strong need to be extremely careful about age verification and content moderation.
These industries have a very high risk of chargebacks, which creates problems in terms of payment processing. Additionally, these sites usually work on a subscription basis, and this is something that PayCompass can help with. We offer subscription merchant services that include built-in chargeback prevention and real-time transaction monitoring, designed to deal with the challenges that subscription models often face.
8. Cannabis and CBD Products
The rise of cannabis and CBD products has fuelled an entire industry, but the fact that these products aren’t legal everywhere creates unique challenges. As a result, many banks label such businesses as extremely high-risk, either refusing to work with them at all or placing strict restrictions upon them.
However, PayCompass’ CBD merchant accounts can overcome this problem and allow you to continue your business dealings without interruption. The fact that this high-risk account is designed with your particular business type in mind makes life much easier.
9. Vaping and E-cigarette Companies
With an increasing number of people looking for an alternative to cigarette smoking, vaping and e-cigarettes have become very popular. However, these are also companies that face a lot of scrutiny in terms of health concerns and increased regulatory oversight. As a result, these appear on the list of high-risk industries that banks are cautious about.
There is a clear need to stay up-to-date with regularly changing regulations and to provide compliance. As a result, many of these companies seek alternative payment processors, including PayCompass. Our merchants account feature many tools that can help you free up time and space to monitor regulations and your overall compliance.
10. Alcohol and Tobacco Manufacturers/Distributors
Leading smoothly on from the last point on the list, alcohol and tobacco manufacturers and distributors face the same level of scrutiny. Therefore, banks have similar concerns about these high risk businesses.
This entire industry is extremely regulated and there are many public health concerns associated with it. Any bank that works with businesses on this high-risk industries list must deal with very complex tax structures and restrictions regarding advertising.
High-Volume or High-Value Transactions
Businesses that regularly deal with either high-volume or high-value transactions, or potentially both, are also high risk industries for banks. Let’s explore why
11. Firearms and Ammunition Dealers
Image of a woman with a suitcase.
The travel industry as a whole regularly deals with high-volume and high-value transactions, but there are many other challenges that travel agencies and tour operators deal with too. The main one is a high risk of fraud, but these companies often deal with third-party vendors, which makes the entire picture more complicated. As a result, changes in itineraries or cancellations add to the complex picture.
At PayCompass, we offer dedicated travel agency merchant accounts that are designed for these unique challenges. In particular, our accounts allow for multi-currency transactions, side-stepping many of the problems that come with currency conversion in a cash-intensive business.
12. Luxury Goods Retailers
By this point, the question of what high-risk industries are is clear – these are businesses that deal with unique challenges, including luxury goods retailers. Due to the high value of their transactions, many banks restrict or prohibit them. These retailers must have extremely robust procedures in place to monitor for any suspicious purchases, due to the very high risk of fraud and money laundering.
13. Real Estate Investment Firms
Another of the high-risk businesses banks are often wary of includes real estate investment firms. These often handle extremely large amounts of money, along with complex transactions that cause a high risk of fraud and money laundering concerns.
Many of these businesses also work within high value markets, so banks must be extremely careful about where funds are coming from. The sum of these concerns often leads banks to choose not to work with such businesses.
14. Car Dealerships
It might sound surprising, but car dealerships are also high-risk sectors that many banks restrict working with. This is mostly due to the high value of each transaction, along with the chance that a vehicle could be used in illegal transfers of funds.
While in itself, the industry doesn’t raise eyebrows, it’s the potential reasons for such high value transactions that banks are wary of, causing problems in payment processing.
15. Auction Houses
Following the pattern of other businesses within this section, it’s probably clear that auction houses are also considered high-risk. Again, it’s because of the large transaction value of just one sale, leading to questions and challenges about whether financial misconduct is involved.
Businesses must show extreme vigilance in ensuring the identity of the bidder and processing the payment carefully. All of this leads banks to restrict their services to such businesses.
Technology and Online Services
Next on our list of high risk industries comes technology and online services. The digital world brings many opportunities but just as many challenges. Many of these cause banks to restrict their services to these businesses.
16. Online Dating Platforms
Online dating is very popular these days, yet there are as many problems as opportunities with such platforms. For instance, authenticating user identity is one of the main challenges for businesses, while also using technological methods to spot potential romance-based scams.
Banks deem online dating platforms as high risk businesses, restricting many of their services as a result.
17. Social Media and Content Sharing Platforms
This may be another surprising addition to the high-risk industries list, but social media and content sharing platforms have many challenges that banks deem red flags.
The main problem is the sheer size of these platforms, with reach that goes far beyond borders on a global scale. As a result, it’s very hard to track content that could potentially be harmful, while there are also many strict regulations to bear in mind.
As a result, banks often prohibit payment processing for these types of businesses.
18. Crowdfunding and Peer-to-Peer Lending Sites
From the last point, it’s easy to understand why crowdfunding and peer-to-peer lending sites face hefty restrictions and are high-risk for banks. There is a lot of work that goes into providing the legitimacy of specific projects and preventing illegal fund transfers. This involves extremely robust measures and constant monitoring to look for abnormal funding patterns.
19. Virtual Reality and Augmented Reality Companies
With the rapid development of technology, there are many new opportunities, which has led to the emergence of virtual reality and augmented reality companies. However, these types of businesses are subject to new regulations, many of which are still unclear as they’re so new. So, while there is a lot of potential for these types of businesses in terms of growth, they are held back to some degree due to concerns about financial misconduct from unclear rules.
For now, these are deemed to be part of a high-risk industry for banks.
20. Cryptocurrency Mining Operations
At the start, we mentioned cryptocurrency exchanges, and challenges also extend to cryptocurrency mining operations. There are many gray areas involved in this process and from a regulatory point of view, it’s muddy due to the decentralized nature of digital currencies in particular. All of this, along with extreme volatility, makes it a risky endeavor for banks offering financial services.
Controversial or Highly Regulated Industries
The final section of our high-risk industries for banks compilation is related to controversial industries or those which are very highly regulated. Let’s dive in and learn more.
21. Private Military Contractors
Any company that provides military or security services in environments that are deemed high-risk also face payment processing challenges from traditional banks. This is because they are associated with conflict zones and may be connected to human rights concerns. Of course, there is also a strong regulatory viewpoint here, as these types of businesses are subject to strict export controls.
All of this means these companies are firmly on the list of high-risk industries that banks avoid.
22. Firearms and Ammunition Manufacturers/Retailers
It’s unsurprising that manufacturers and retailers of firearms and ammunition are heavily regulated. In addition, there are very complicated licensing requirements to navigate. Banks often worry about reputational damage with any connections to these types of businesses, and there are many ethical and political concerns to take into account too.
This means businesses working within this space must choose their high-risk merchant service provider carefully. At PayCompass, our high-risk merchant accounts are perfect for businesses who struggle to work with traditional routes. We offer fast acceptance and exceptional customer support, helping you overcome any challenges you face.
23. Pharmaceutical Companies
With many regulations designed to ensure safety and to avoid illegal distribution, pharmaceutical companies are on the high-risk industries list for banks to potentially avoid. Drugs manufacturers must comply with strict regulations, particularly companies that deal with controlled substances. In addition, there are many concerns regarding the legitimacy of clinical trials, distribution channels, and marketing practices.
Of course, such companies face payment processing problems, and the PayCompass pharmacy merchant account is the ideal answer. We have developed tools that help you to spot fraud, monitor transactions, and avoid worries over frozen or blocked payments.
24. Political Organizations and Lobbying Groups
It’s important for banks to remain neutral in any political issues, so it’s unsurprising that political organizations and lobbying groups are high-risk listed businesses for banks. Aside from this, there are also other concerns to consider, such as the potential for foreign interference and illegal contributions. Such companies must comply with very strict reporting requirements to ensure transparency, creating a risk profile that’s simply too much for traditional financial institutions.
25. Multi-level Marketing (MLM) Companies
Finally, multi-level marketing, or MLM, companies, are also considered high-risk businesses for banks. These are companies that can, in some cases, look a lot like pyramid schemes, which leads banks toward a cautious approach. They also have high failure rates and a potential for deceptive practices.
Key Considerations for Banks
Image of a man in a bank looking at charts and statistics.
We’ve talked about 25 high risk industries for banks, so what should banks consider before deciding whether they should connect with these types of businesses? There is no easy answer to this question as each industry has its own unique challenges. However, regulatory compliance, reputational impact, financial stability, operational risks, and fraud risk should all play a huge part.
The table below outlines specific risk management strategies for banks and how they work.
| Risk Management Strategy | Description | Key Benefits |
| Enhanced Due Diligence | Comprehensive background checks and ongoing monitoring | Early detection of potential risks |
| Transaction Monitoring | Real-time analysis of financial activities | Rapid identification of suspicious patterns |
| Regulatory Technology | Automated compliance tools and reporting systems | Improved accuracy and efficiency in compliance |
| Staff Training Programs | Regular education on industry-specific risks and regulations | Increased awareness and better risk mitigation |
| Third-Party Audits | Independent assessments of risk management practices | Objective evaluation and credibility enhancement |
The Future of High-Risk Banking
High-risk industries face many challenges, including new technologies, constantly changing regulations, financial issues, and societal changes. All of this means banks and other financial institutions need to stay up-to-date and work to anticipate new trends while managing risks and grabbing new opportunities.
When putting together a risk management strategy, it’s vital to take advantage of new technology. This will help banks to manage risks without the risk of human error. For instance, AI and machine learning are both fantastic technologies to incorporate into a strategy, and both are able to assess huge amounts of data in the blink of an eye.
Ultimately, the ability to embrace risk management innovation and technology is a key player in whether or not banks can work alongside high-risk industries while minimizing potential problems.
Learnings Recap
Throughout this guide, we’ve talked at length about 25 high-risk industries that pose problems for banks and regular financial institutions. From this, it’s clear that there are many challenges to overcome and having a robust risk management strategy is vital.
Of course, much of the responsibility also falls at the feet of the business itself. They must ensure that they comply with all regulations, reduce risk wherever possible, and monitor everything carefully. The good news is that there are many technological tools that can help with all of this and take manual work out of the equation.
For banks, having knowledge specific to each industry is a major advantage. This will not only allow them to make strong decisions in terms of whether or not to work with an industry, but also informs risk management. Within this, regular staff training is also important, particularly in industries where regulations change very quickly.
As a high-risk business, you may be struggling with payment processing. Perhaps you’re facing high fees or regular account blocks and you’re keen to find a solution. That’s where PayCompass comes in. Our merchant accounts are designed for the challenges you face regularly.
From chargeback prevention to real-time transaction monitoring, fast acceptance to excellent customer service, our list of features goes on. The next step is to get in touch and learn more! Simply fill in our contact form and one of our highly-trained experts will be in touch to help you revolutionize your payment processing journey.
