Our world turns out digital step by step with each new day. And payment processing has evolved into a paramount aspect of running any business. However, with the rise of payment handling business masters face the challenge of regulatory compliance. Both high-risk and low-risk businesses must navigate complex and ever-changing regulatory requirements to sidestep costly penalties and reputational damage. The business interruption was identified as the top risk among organizations for 2021, accounting for 41% of the identified risks, which also included supply chain disruptions. Cyber incidents such as cybercrime, data breaches, and fines and penalties were a close second, comprising 40% of the identified risks. In this article, we'll delve into the world of regulatory compliance and payment processing, exploring the challenges faced by both high-risk and low-risk businesses, and proposing practical tips for navigating these complex requirements. So, let's cut the mustard and dive right in!
Understanding High-Risk and Low-Risk Businesses
Criteria for classifying businesses
The risk level of a business contains various factors such as industry, transaction volume, and chargeback rates. Generally, businesses that operate in industries with a higher risk of fraud or financial instability are considered high-risk. We can mention online gaming, adult entertainment, and e-commerce businesses are typically classified as high-risk. By the same token, businesses that process a high volume of transactions or have a history of high chargeback rates are also considered high risk.
On the other hand, low-risk businesses are those that operate in industries with a lower risk of fraud and financial instability, such as healthcare, education, and professional services. Additionally, businesses that process a low volume of transactions or have a history of low chargeback rates are generally considered low-risk.
According to Navex Global, the maturity level of risk and compliance programs has improved significantly. The study found that the number of risk and compliance programs classified as "mature and advanced" increased by 29%, whereas the number of programs categorized as "reactive and basic" decreased by 35%.
Examples of high-risk and low-risk industries
Among high-risk businesses, we can mention online gambling sites, adult entertainment websites, and online marketplaces. These businesses often have a higher risk of fraudulent transactions, which can lead to chargebacks and financial losses. Additionally, businesses in the firearms industry, debt collection, casinos, export, and travel are often classified as high-risk due to the regulatory requirements and potential legal liabilities.
On the flip side, low-risk businesses are as different as night and day from their high-risk counterparts. They are as safe as houses when it comes to fraudulent transactions and chargebacks. Some examples of low-risk businesses are dime a dozen, including health care providers, accounting firms, law offices, grocery stores, and clothing retailers.
Regulatory Compliance for High-Risk Businesses
Key regulations and guidelines
High-risk businesses must adhere to several essential regulations and guidelines to maintain regulatory compliance. One of the most important regulations is the Payment Card Industry Data Security Standard (PCI DSS), which outlines security requirements for businesses that handle credit card transactions to protect against data breaches and fraud. Another key regulation is Know Your Customer (KYC), which requires businesses to verify the identity of their customers to prevent money laundering, fraud, and terrorist financing.
Anti-Money Laundering (AML) regulations are also crucial for high-risk businesses, as they require companies to implement policies and procedures to detect and prevent money laundering and other illegal activities. AML regulations typically involve customer due diligence, record-keeping, and reporting suspicious activity to authorities. Adherence to these and other regulations is critical for high-risk businesses to avoid fines, penalties, and reputational damage. Besides, 34% of organizations outsource some or all of their compliance functionality.
Challenges and solutions for high-risk businesses
Common compliance challenges faced by high-risk businesses include:
- Keeping up with changing regulations: High-risk businesses must stay up-to-date on evolving regulations and guidelines, which can be challenging and time-consuming.
- Ensuring data security: High-risk businesses often handle sensitive customer information and payment data, making them vulnerable to data breaches and cyber-attacks.
- Verifying customer identities: High-risk businesses must comply with KYC regulations, which require them to verify the identity of their customers. This can be challenging if the business operates in multiple jurisdictions with different ID requirements.
- Preventing fraud and chargebacks: High-risk businesses are at a higher risk of chargebacks and fraud, which can lead to financial losses and reputational damage.
- Obtaining insurance coverage: High-risk businesses may face difficulty obtaining appropriate insurance coverage at reasonable rates due to their perceived risk level.
Potential solutions for these challenges include:
- Partnering with compliance experts: High-risk businesses can benefit from working with compliance experts who can help them navigate regulatory requirements and stay up-to-date on changing regulations.
- Implementing strong data security measures: High-risk businesses should invest in robust data security measures, such as encryption and secure payment processing, to protect against data breaches and cyber-attacks.
- Using digital verification tools: High-risk businesses can streamline the KYC process by using digital verification tools, such as facial recognition or biometric identification.
- Implementing fraud prevention measures: High-risk businesses should implement fraud prevention measures, such as transaction monitoring and chargeback prevention tools, to reduce the risk of financial losses.
- Exploring alternative insurance options: High-risk businesses can explore alternative insurance options, such as captive insurance or risk retention groups, to obtain appropriate coverage at more reasonable rates.
Working with high-risk payment processors
Partnering with specialized high-risk payment processors can offer several benefits for high-risk businesses, including:
- Expertise in high-risk industries: High-risk payment processors have experience working with businesses in high-risk industries, making them well-equipped to handle the unique compliance and security challenges that come with these industries.
- Mitigation of fraud and chargebacks: High-risk payment processors often have sophisticated fraud detection and prevention measures in place, which can help reduce chargeback rates and protect the business from financial losses.
- Compliance with regulations: High-risk payment processors are knowledgeable about the regulatory requirements that high-risk businesses must adhere to and can help ensure that the business complies.
- Access to banking and financial services: High-risk payment processors may have established relationships with financial institutions that are willing to work with high-risk businesses, allowing the business to access banking services and other financial products.
- Flexibility in payment options: High-risk payment processors may offer a wider range of payment options than traditional payment processors, allowing the business to cater to the specific needs of its customers.
Regulatory Compliance for Low-Risk Businesses
Key regulations and guidelines
A single non-compliance event can cost organizations an average of $4 million in lost revenue. Low-risk businesses must adhere to several regulations and guidelines to ensure compliance. Some of these regulations include the Payment Card Industry Data Security Standard (PCI DSS), the General Data Protection Regulation (GDPR), and the Payment Services Directive 2 (PSD2).
PCI DSS is a set of security standards that all businesses that accept credit or debit card payments must adhere to. It aims to protect sensitive cardholder data and prevent data breaches. GDPR, on the other hand, is a regulation that requires businesses to protect the personal data of their customers and employees. It also gives individuals more control over their data and requires businesses to obtain explicit consent before collecting, processing, or storing their data.
PSD2 is a European Union directive that regulates payment services and requires businesses to implement strong customer authentication (SCA) for online transactions. Low-risk businesses must ensure they comply with these and other relevant regulations to avoid legal and financial penalties, protect their customers' data, and maintain trust and confidence in their brand.
Gainsays and solutions for low-risk businesses
Some expected submission contests faced by low-risk businesses include:
- Keeping up with changing constraints: Even though low-risk companies have fewer restrictions to follow than high-risk ones, they still need to stay updated on any changes to their industry-specific rules and adapt their practices accordingly.
- Data privacy and security: Low-risk businesses must comply with data protection statutes, such as the General Data Protection Regulation (GDPR), which requires them to protect customer data and seek consent before using it for any purpose.
- Payment processing: Low-risk businesses may face challenges in securing reliable payment processing solutions that relent with statutes such as the Payment Services Directive 2 (PSD2).
- Anti-money laundering (AML) compliance: Low-risk businesses may still be subject to AML decrees and need to confirm they have adequate policies and procedures in place to prevent money laundering.
Some potential regulatory compliance solutions for these challenges include:
- Conducting regular observation audits to identify and address any gaps in adherence.
- Implementing data protection measures such as encryption and two-factor authentication to protect customer data.
- Partnering with payment processors that specialize in low-risk businesses and have expertise in PSD2 compliance.
- Developing and implementing AML compliance programs and training employees on AML constraints and best practices.
Choosing the right payment processor
Choosing a dependable payment processor is a big deal for low-risk businesses. It ensures that payments go through safely and without any hiccups. By teaming up with a trustworthy payment processor, low-risk businesses can prevent possible fraud and financial setbacks. Also, a dependable payment processor can aid in regulatory compliance by following industry yardsticks and approaches like PCI DSS and GDPR. This ultimately helps businesses steer clear of costly fines and penalties.
Here are some examples of reliable payment processors that low-risk businesses can consider:
- Stripe: A popular payment processor that is known for its ease of use, reliability, and intense focus on security.
- Square: A payment processor that is popular among small businesses due to its affordable rates and user-friendly interface.
- PayPal: A well-known payment processor that is widely used for its convenience and reliability.
- Authorize.Net: A payment processor that offers a range of features for online and offline transactions, including fraud detection and prevention tools.
- Braintree: A payment processor that is owned by PayPal and offers advanced features such as recurring billing, subscriptions, and customizable checkout pages.
Remember that the selection of a payment processor depends on your business needs and requirements, and it is essential to research and compares multiple options before making a decision.
Best Practices for Navigating Regulatory Compliance: Corytech’s Insights
Navigating regulatory compliance can be a challenging task for businesses of all sizes and industries. But regulatory monitoring can save businesses $1.03 million on average. We will explore the best practices and insights from Corytech, a leading payment processor, on effectively managing regulatory subordination.
Regular monitoring and updates
Corytech recommends regular observing of regulatory changes and updates to ensure that business operations remain compliant. This includes staying informed about changes to laws and ordinances that affect your industry and understanding how these changes impact your business. By staying up-to-date, businesses can avoid costly fines and penalties and maintain their reputation as compliant and trustworthy organizations. The leading suggestion by security professionals to improve their company's security posture is upgrading tools, as reported by 67% of respondents. However, they face challenges in implementing this recommendation due to integration issues, lack of expertise, and the overwhelming number of tools to manage.
Employee training and awareness
Corytech suggests implementing ongoing training programs that provide employees with a clear understanding of regulatory necessities and how to maintain adherence. By increasing employee awareness and knowledge, businesses can prevent subordination failures and avoid potentially costly mistakes. This can also help establish a culture of compliance within the organization.
Leveraging technology and third-party services
Corytech recommends utilizing payment processors, software solutions, and other technology tools to help monitor and maintain compliance. Additionally, partnering with specialized compliance services providers can help businesses navigate the complexities of regulatory requirements and reduce the burden of compliance management. By utilizing technology and third-party services, businesses can streamline compliance processes and focus on their core operations.
Innovative payment solutions FAQ
How can businesses stay up-to-date with changing regulations and guidelines related to payment processing?
To stay up-to-date with changing limitations and guidelines related to payment processing, businesses can subscribe to industry news and updates, attend relevant industry conferences and events, and regularly review regulatory updates from relevant authorities. It's also important to work closely with trusted payment processors and compliance service providers who can provide guidance and insights on regulatory changes and help ensure that businesses remain compliant with the latest prerequisites.
How can employee training and awareness programs help businesses maintain regulatory compliance in payment processing?
Employee training and awareness programs can help businesses maintain regulatory compliance in payment processing by ensuring that all employees are knowledgeable about the constraints and guidelines related to payment processing. This includes understanding the importance of keeping, knowing the company's policies and procedures, and being able to identify and report any potential submission issues. By providing ongoing training and regular updates on regulatory changes, businesses can ensure that all employees are equipped to comply with decrees and avoid potential violations. This can help prevent costly fines and reputational damage while promoting a culture of conformity within the organization.
How does partnering with a specialized high-risk payment processor benefit high-risk businesses?
Partnering with a specialized high-risk payment processor can benefit high-risk businesses in several ways. First, these processors have specialized expertise and experience in dealing with the unique conformity requirements of high-risk industries. They can provide tailored solutions and support to help businesses maintain consent and minimize the risk of financial penalties. Additionally, these processors often have relationships with banks and financial institutions willing to work with high-risk businesses, which can be difficult to obtain independently. Finally, by partnering with a specialized high-risk payment processor, businesses can focus on their core operations and leave compliance management to experts. This can help save time, money, and resources while improving overall deference efforts.
Regulatory compliance remains a crucial aspect of payment processing for both high-risk and low-risk businesses. Non-compliance can result in hefty fines, legal actions, and reputational damage. However, with the right payment system, taking advantage of emerging technologies can be more accessible than ever. Corytech's innovative fully-featured platform is designed to help businesses of all types navigate regulatory compliance while streamlining payment processing operations.
By partnering with Corytech, businesses can benefit from reliable payment processing, advanced security measures, and specialized compliance services. Request a personalized demo today to see how Corytech can help your business achieve its payment processing goals while maintaining regulatory compliance.