With ecommerce fraud threatening to exceed $100 billion by 2029, businesses, regulators, and financial institutions are trying to mitigate losses and general risk.
Secure payment processing is necessary for basic business survival, but not all companies have access to the same types of solutions.
Payment processors classify businesses by industry and risk levels, meaning traditional services like banks cannot always accept high-risk and regulated industries like CBD, adult entertainment, firearms, and online gambling. These industries require a different security infrastructure. We’ll look into secure payment options for both traditional and high-risk industries, and how to make a choice between the two.
Traditional Payment Processing Systems
Traditional payment processing systems are best for stable, low-risk businesses. But it’s a question of what types of businesses qualify as low-risk.
Basically, these are classic retailers and services that primarily operate within their own country, have predictable transaction volumes, and low chargeback ratios. That’s your local dentist, pet store, or restaurant chain.
These systems have standard security protocols: SSL/TLS encryption, CVV and AVS verification, EMV chip technology, and PCI-DSS Level 1 compliance.
Accounts are easy to open, fees are low, and most accounts get approved. These are mainstream, well-known systems for the most common business types.
These systems are perfectly fine for low-risk environments, and they’re generally upgrading (biometrics, tokenization). However, they often lag behind high-risk specialists when it comes to sophisticated fraud patterns.
And if you’re in a business that has had a volume spike, chargeback over 1%, or an issue like a data breach, you may get your account terminated or frozen automatically, or end up on a list of high-risk merchants.
High-Risk Payment Processing Systems
Some types of businesses naturally do have higher chargeback rates; they are prone to attacks, they operate internationally, or belong to a highly regulated industry, so traditional transaction processing systems avoid working with them. These industries typically require high-risk merchant services that help them stay secure and deal with a more challenging payment environment.
Besides CBD, adult entertainment, and online gaming, high-risk industries also include travel, subscription services, high-ticket items (over $500), financial services, and nutraceuticals.
These specialized providers aren’t less trustworthy because they accept regulated industries. They are often much better suited to protect merchants, service providers, and customers from fraud.
Among other things, they usually offer better authentication protocols, blockchain integration, dedicated security teams that are watching for threats 24/7, and prevention tools like machine learning algorithms specialized for fraud pattern recognition. They are also much more likely to approve an account compared to a traditional provider.
The accounts typically come with chargeback prevention tools like alert networks, as well as automated evidence collection, or real-time dispute resolution. This means customers get to resolve the issue before it becomes a formal chargeback request.
However, these providers do come with some downsides. They have higher processing and account fees, longer approval processes, and they might require merchants to have rolling reserves of 5 to 10%.
The cost is worth it for businesses that need it, as accounts are stable, less likely to be frozen, and the security technology is at a higher level compared to traditional processors.
Plus, businesses that expect aggressive growth or significant changes in business model don’t have to worry about triggering traditional security systems. That means low chances of account termination or getting flagged on international high-risk merchant lists.
And with just card-not-present fraud projected to reach $49 billion globally by 2030, the extra safety is a sound investment for international businesses.
Security Will Have to Improve for Both
There is a divide in security tech between traditional and high-risk payment processing, but it’s mostly about different priorities.
Traditional processors optimize for the majority, which can cause them to be slow to catch up with tech advancements. Specialized services, on the other hand, have to stay innovative or they risk much more.
They play an important role in the ecommerce security sector, as they test and implement tech that becomes the standard in the industry as a whole over time.
However, it will remain a challenge as both businesses and bad actors become more powerful with AI tools in their hands.
