Although the term High-Risk sounds scary, it is nothing to be afraid of. The trading industry has evolved significantly over the last 15 years and the various service providers including banks and payment solutions, evolve with it (for the most part anyways). With some planning and strategic business mapping, it is all manageable. First thing’s first though, so let’s understand what “high-risk” actually means and then jump into some ways to mitigate the challenges you may face.

Understanding High-Risk Merchant Classification

Firstly, we need to understand why online trading brokerages often fall into the high-risk merchant category. We all know that volatility is a main feature of the online trading industry and financial markets as a whole. This, although presenting opportunities for traders, can also cause complications with regards to the actual processing of payments and transactions. Combined with the potential for fraudulent activity, chargebacks and regulatory compliance requirements, all contribute to being a “risky” business.

Online industries that you may see classed as “high-risk” include: 

1. Online gambling & casinos
2. Pharmaceuticals & Nutraceuticals (Supplements)
3. Travel & Tourism
4. Debt Collection & Credit Repair
5. Online Auctions & Marketplaces

What does it mean for you as a broker?

Definitely a few challenges, but with so many brokers in operation there are obviously solutions available. Some of these challenges will likely include a smaller choice of payment processing solutions to choose from (this in its way may be a good thing – more on this later), higher transaction fees compared to low-risk categories, and stricter terms and conditions when it comes to agreements. As a high-risk merchant, you may face increased scrutiny from regulatory bodies, requiring robust compliance measures to be in place (no surprise there).

For every challenge a solution.

While being labeled a high-risk merchant may pose some obstacles, there are several ways to overcome them. Consider the following:

1. Pick the right partners

Earlier we mentioned less choice when it comes to payment solution providers. That being said those that are open to work with high-risk merchants usually have multiple creative solutions to address the needs of brokers worldwide. Seek out such providers or consultants (hello😊) who can help connect the dots for you.

2. Be proactive against fraud

Invest in advanced fraud prevention tools and technologies to detect and prevent fraudulent activity. Multi-factor authentication, address verification, and transaction monitoring can all work to safeguard against unauthorized transactions and chargebacks.

3. Compliance is key.

Keep Up! Regulators are becoming more and more active when it comes to oversight of firms providing online trading solutions to retail traders. Stay compliant with relevant laws and regulations governing the services you are authorized to provide. Establish internal policies and procedures to uphold industry standards and manage risk.

4. Don’t keep all your eggs in one basket.

Avoid reliance on a single payment processing channel or provider. Diversify your payment options to spread risk and minimize disruptions in case of service interruptions or account closures (it happens). Explore alternative payment methods such as e-wallets, cryptocurrencies, and acceptable alternative payment methods. 

5. Talk about it – clearly.

Many disputes can be avoided with clearly defined terms of service, fees, and policies to customers. Having this information available throughout the process of registration, account approval, funding and withdrawal will help manage expectations and reduce disputes. Provide excellent customer service and responsive support when issues or challenges crop up and avoid delays.

6. Solid as a rock.

Financial stability and sound business practices reassure payment processors and financial institutions of your reliability. Maintain healthy cash flow, manage any debt responsibly, and keep accurate financial records to instill confidence in potential partners.

With risk often comes reward, so don’t get discouraged if you are facing some hurdles. Do your homework and you will likely find that you are able to overcome most. You can always contact us to discuss your case!

According to an article published by EY, Paytechs make up 25% of fintechs. Judging by how many payment related brands are present on event floors, we would even venture a bit higher. At the core of paytech, like fintech, is the drive towards innovation and efficiency but with focus on functionality for payments and transactions.

A Niche in Tech.

Unlike traditional financial institutions that were often weighed down by legacy systems and all the baggage that comes with, Paytech companies are nimble, tech-savvy disruptors hungry to reshape how we transact.

Of note is the emphasis that Paytech’s place on streamlining payment methods, enhancing security, and providing seamless user experiences. From mobile wallets to contactless payments (are cards still a thing?😉), Paytech solutions are at the forefront of innovation, catering to the demands of an increasingly digital economy, including your online trader audience.

How?

Looping blockchain into this, think Ripple. By leveraging distributed ledger technology, Ripple facilitates near-instant cross-border transactions at a fraction of the cost of traditional methods. This not only accelerates transaction times but also eliminates intermediaries, reducing the risk of errors and fraud.

Similarly, mobile payment platforms give so many entrepreneurs the ability to enter the digital marketplace and compete on a level playing field at much lower cost with less complicated processes.

Paytechs and their evolution are important to the overall Fintech space since many companies in financial services, lending, wealth management and insurance depend on them to run as seamlessly as possible. Imagine the “brokernextdoor” who relies completely on psps to accept deposits and process withdrawals. By being in synch with solutions (especially those who are developing for high-risk), these platforms can help brokers expedite transactions, reduce processing fees, and enhance overall user satisfaction.

Challenges and Opportunities:

Paytech faces its fair share of challenges, including regulatory scrutiny, cybersecurity threats, and compatibility issues between systems etc. BUT the global shift towards cashless transactions, coupled with a smartphone in almost every pocket with its own digital wallet, the path is paved for this tech niche to thrive. This is without even going into the realm of AI and biometrics and how they will be used to further enhance security and convenience.

The role of Paytech in shaping the future of finance cannot be overstated. From simplifying everyday transactions to driving financial inclusion on a global scale, it holds the key to unlocking new possibilities and reshaping the way we interact with money. 

2023 saw lots of action in the online trading space. From Prop Firms to M&As, alongside which the technology backing our trading ecosystem continues to evolve, including payments and banking, shaping the landscape of accessibility for traders worldwide. On the topic of Payments & Banking, in 2024, we see the meeting of the minds between innovation and convenience.

Here are our top 5 trends in the payments and banking space for the online trading community this year:

• Getting cryptic about it 😉: As in the 2023, Cryptocurrencies have cemented their position as a mainstream asset class, and their integration into online trading platforms is rapidly increasing. In 2024, the momentum is bound to continue and undoubtably increase with platforms offering trading pairs with cryptocurrencies, catering to the growing demand from traders. It’s only natural that with the adoption of blockchain technology, payment processing will be enhancing security and transparency, providing traders with peace of mind and efficient transactions.

• De DeFi: On the broader market, DeFi continues to disrupt traditional finance by offering decentralized alternatives to traditional banking services.

• “I want it NOW”: Speed is of the essence, and in 2024, instant settlements and real-time payments is the norm. Traditional banking systems & flows are being replaced by faster and more efficient payment networks, giving traders the ability to execute transactions seamlessly and capitalize on market opportunities without delay. As quickly as a deposit is accepted, the expectation is equal speed for withdrawal execution (obviously dependent on your terms & conditions). Withdrawals are one of the main topics on broker review sites, so be conscious of your performance in this regard.

• Make it even more personal: In a world where automation is everywhere, the need to balance with personalization, flexibility and human touch where applicable is growing more apparent. Look for ways to go the extra mile. Check out neobanking and the personalization many of them employ. Remember personalization is key to tapping into the millennial and Gen-Z audience and user demographics are evolving with every year. Get ahead of the curve.

• “Print me baby one more time”: As cyber threats continue to evolve, ensuring the security of online trading platforms and associated transactions is paramount. In 2024, biometric authentication is a big topic and trend in banking and payment systems, providing an extra layer of security beyond traditional passwords and PINs. Things like fingerprint & facial scanning and voice recognition technologies enable seamless and secure access to accounts, safeguard sensitive information and work to prevent unauthorized access. Hello web 3.0. (This also helps with the innovation needed to improve your standing with the overall classification of risk with banks and payments, gearing you towards lower chargebacks and potential fraud).

From cryptocurrency integration to biometrics, these trends are reshaping the way traders interact online and handle their money. By embracing these trends, brokers can stay competitive and capitalize on emerging opportunities with confidence and ease.