Running a business comes with the need for a bank account that can allow you to make transactions. A bank account is a necessity when it comes to running your business, and you might think that all businesses have access to one.
However, when a business forms part of the high-risk sector, they may struggle or even be excluded from utilising financial services like a bank account. These industries are considered “underserved industries” as they face challenges around financial exclusion. This is because financial institutions are usually hesitant to onboard businesses that fall within the high-risk sector; as they propose a serious financial risk to the institution.
Why are high-risk sectors excluded?
A business is given the “high-risk” label when they form part of a certain sector or industry. Usually these industries are at a risk of financial failure, or they are close to illegal trading. A high-risk business can also be labeled as such simply by the location that they trade it, like Brazil, or Mexico, or Russia, as these countries have had higher cases of ‘illegal’ transacting in the past and are considered high risk
Many industries, some that form part of our daily lives, are financially underserved, like:
- The gaming sector
- Gambling companies
- Cash businesses that can easily allow for fraud
- Firearms dealers
- The Marijuana sector
- The alcohol industry
- Real estate
- Adult entertainment
- New businesses
- Businesses with a high chargeback volume
- Multi currency businesses
- Businesses trading in high-risk countries
There are many other factors that are taken into account when considering if a business is high-risk or not. This is normally dependent on if the business is within a sector that can easily host fraudulent and allow for illegal activities. Another factor that financial institutions also look at, is if terrorist attacks are frequent within the industry.
Usually cash businesses are seen as high-risk as they are the most likely to form part of money laundering schemes. Sectors that deal in tobacco, firearms, and alcohol are also within the high-risk label as they provide a serious threat to the lives of people, and can easily allow for illegal activity.
A business can also be seen as high-risk if they have a low credit score. A low credit score rating is not always due to the fact that the business doesn’t pay their bills, it could simply mean that they are new and don’t have a credit history. There are many things that could be impacting the credit score of a business, leading to being financially underserved.
Financial institutions are wary of banking with these industries as it might lead to:
- Loss in profit
- Money traded through illegal activities
- Loans going unpaid
- Security risks for existing clients
- Fraudulent activities that can cause security risks
The risks that these businesses pose are often seen as liabilities to banks. They also have their own security in mind when denying businesses that trade in high-risk sectors.
Sure, it makes finding financial services difficult for these businesses, but at the same time we need to keep in mind why those regulations are in place.
How PayPugs banks the ‘underserved’
Owning and running a high-risk business is stressful, and being financially underserved just adds to the headache. We at PayPugs know how challenging it can be to run a business and deal with the financial aspects.
And so we have vouched to serve those businesses that fall within high-risk industries. We offer customised financial solutions for businesses who are considered high-risk.
The way we ensure that a business is safe to make use of our services is through thorough due diligence checks. We ensure that we make proper use of AML (anti money laundering) and KYC (know your customer) checks before onboarding a client.
These checks are important for the safety of PayPugs, but also for our clients. Once a business has passed the due diligence checks, we onboard them and give them the opportunity to customise our solutions to suit their needs.
As a customer centric company that believes in offering the best support for high-risk industries; we have an onboarding specialist that guides any business through each step to make sure that they are comfortable with the process. This specialist stays with you from the start through to official use, giving you a direct line of communication.
If you are interested in what we have to offer you, book a call with us and find out how we can serve the financially underserved.