Understanding the difference between high-risk and traditional accounts is crucial for businesses operating in industries classified as high-risk. Whether it’s gaming, cryptocurrency, or CBD, these businesses face unique challenges when dealing with banks. While traditional businesses can often secure accounts with minimal hurdles, high-risk businesses must navigate a complex process with additional requirements. This article dives into what sets high-risk accounts apart, the challenges they pose, and how Risk Link can help businesses overcome these obstacles.
What Makes a Business High-Risk?
Banks label certain businesses as high-risk due to their increased potential for fraud, chargebacks, or non-compliance with regulatory requirements. In the payments industry, no single organization defines high-risk criteria; instead, each bank or payment system sets its own standards. Commonly flagged industries include online gaming, cryptocurrency, and CBD, among others.
When working with a bank, businesses are often informed upfront if their industry is excluded. However, outright rejection is rare. Instead, banks typically conduct a thorough investigation of the business, assessing its risk profile based on internal criteria. This leads to delays and added complexity for high-risk businesses seeking to open a bank account.
The Difference Between High-Risk and Traditional Accounts
Traditional business accounts generally come with straightforward application processes and lower costs. For high-risk accounts, the story is different. Here’s how they compare:
1. Lengthy Application Process
High-risk businesses face extensive scrutiny before being approved for an account. Banks often require detailed documentation, such as financial histories, processing patterns, and even personal credit records. Payment processors may also evaluate partnerships and business dealings. This rigorous process ensures compliance but can significantly delay account approval.
2. Higher Fees
Processing fees for high-risk businesses are substantially higher than those for traditional businesses. While a typical transaction fee for a low-risk business may be around 0.3%, high-risk businesses can face rates as high as 1.5%. This increase reflects the additional risk management costs incurred by banks and payment processors.
3. Cash Reserve Requirements
Many payment processors require high-risk businesses to maintain reserves. These reserves act as a safeguard against potential losses due to chargebacks or fraud. Common reserve methods include:
- Rolling Reserves: A percentage of transactions (up to 10%) is held for a set period, such as six months. For instance, funds processed in January might not be fully accessible until July.
- Limited Reserves: A fixed amount is held until the reserve reaches a specific target. Once achieved, no additional reserves are taken, but the existing balance remains locked.
- Mandatory Reserves: Entire transactions may be held until a predetermined threshold is met.
Why Risk Link Is the Solution for High-Risk Businesses
Risk Link specializes in helping high-risk businesses navigate the complexities of opening and maintaining bank accounts. With over 20 years of experience and a robust network of banking partners, we provide tailored solutions to meet your unique needs.
Our Expertise Includes:
- Compliance Guidance: Ensuring your business meets all regulatory requirements, reducing the likelihood of delays or rejections.
- Streamlined Applications: We handle the heavy lifting, from document preparation to liaising with banks, saving you time and resources.
- Custom Banking Solutions: Leveraging our partnerships, we match businesses with banks that understand high-risk industries.
How Risk Link Can Help Your Business
By partnering with Risk Link, high-risk businesses gain access to a wealth of banking options that might otherwise be unavailable. Our team works diligently to streamline the application process, minimize fees, and ensure compliance with all relevant regulations. Whether it’s managing reserves, reducing processing costs, or securing a reliable banking partner, Risk Link is your trusted intermediary.
Frequently Asked Questions
- What is the main difference between high-risk and traditional accounts? High-risk accounts require enhanced due diligence, higher fees, and often have reserve requirements to mitigate risks.
- How can Risk Link assist high-risk businesses? Risk Link provides expertise in compliance, documentation, and banking partnerships to streamline account setup and management for high-risk businesses.
To learn more about how Risk Link supports high-risk businesses, contact us today or visit the Financial Conduct Authority’s official guidelines here.
