Keeping your business safe

High risk transactions refer to financial exchanges that are highly likely associated with financial issues and crimes. Businesses that frequently become victims of such transactions are more likely to struggle or fail financially. For such businesses and merchants, rejection from payment gateways and banks is also more likely.

For a business to survive and profit, setting up measures for effective transaction monitoring is crucial. While there are many transaction monitoring service providers, understanding high risk transactions yourself is the key to keeping your business safe.

Understanding high-risk transactions

High risk transactions carry a greater chance of financial fraud through chargeback, money laundering, and other scams. Risk-based transaction monitoring for banks and businesses is crucial due to increased incidences of fraud for all digital businesses. While external services can help, understanding the different types of high risk transactions is the first step to curbing and controlling fraud.
Suspicious transaction monitoring: 5 risk factors to keep an eye out for

While monitoring bank transactions in their entirety is essential for security purposes, a more keen eye on high-risk ones is the key to being safe and compliant.

Following are some types and risk factors for high risk transactions that all businesses need to be wary of.

Utilizing CND or Card Not Present transactions

CND or Card Not Present transactions do not involve the physical presence of the cardholder or the card. This means that information on the card is being carried over to the payment gateway in some other form.

CND transactions include all transactions over mail orders, phone, email, text, etc. Automatically billed payments, such as online subscription setups, are also CND transactions.

A lack of physical presence of the card or cardholder is what makes these transactions more likely to be fraudulent and high risk transactions. This is because anyone can steal card information and use it remotely.

First-time customers and a higher chance of fraud

First-time customers are more likely to commit fraud and harm a business than older clients and customers. While some scammers may conduct sleeper fraud by stealing information and maintaining long and balanced relationships with the banks, most simply go on and make the necessary transactions. This makes first-time customers have a higher chance of high-risk transactions than repeat clients. Cross-checking all first-time transactions can take time and effort for businesses despite its importance.

Large transactions or high-ticket purchases

Businesses that charge expensive rates for their products are more at risk for fraud. However, even if you have lower prices, larger orders involving more money signal high risk transactions. This is why businesses with hefty prices and those dealing in the wholesale marketplace need effective fraud transaction monitoring solutions. The same goes for high-volume businesses that may not be in the wholesale department but still have a large customer base.

Accepting International accounts

International transactions are some of the biggest and most common high-risk transactions. These are risky for the businesses that accept them and carry a high risk of transferring laundered money.

International transactions are risky because countries have different banking, financial crime, and digital payment processing regulations. In third-world countries, the risk of high risk transactions is even higher. FATF lists certain countries that are at higher risks of money laundering, terrorism financing, and proliferation financing. For transactions from these countries, strict AML transaction monitoring systems help curb financial crime.

Working in a high-risk industry

Three prime factors define whether an industry is high or low risk. These are:
  • Having high-risk customers
  • Selling high-risk products or services
  • Utilizing high-risk modes of financial transactions
Based on these three parameters, industries more prone to high risk transactions include but aren’t limited to:
  • Financial services
  • International businesses
  • Businesses involved in expensive products such as boats, planes, real estate, etc.
  • Adult and gambling companies and websites
  • Debt collection and consolidation services

Firearms businesses

Understanding your identity as a high-risk business
High-risk businesses are more likely to fail due to scams and can have difficulty finding good financial partners. Having to deal with high-risk financial exchanges further increases the likelihood of high risk transactions. Understanding such transactions and risk factors that may affect your risk level. Banks primarily consider four factors before determining the risk level of a business. These factors include:
  • Industry type
  • Financial history and model
  • Billing model
  • Processing volume
Assessing your businesses against these factors and addressing issues that need to be addressed are crucial for financial security.

The final word

High risk does not necessarily mean bad. It just means that such businesses require more attention, safety protocols, and regulation. For example, a bank might classify a business with a processing volume of over 1 million transactions as a level 1 risk. Still, if handled correctly, this business will bring significant profits to the bank. At the same time, however, such a large transaction volume also increases the risk of fraud. It is easier for scammers to get away with scamming businesses that have hefty financial dealings.

This is why understanding high risk transactions is crucial for businesses that want to thrive. Only after a thorough understanding of high-risk transactions can a business set up effective transaction monitoring solutions and stay safe and compliant with regulations.