Why payment processing Is High Risk
Key Takeaways
- • Kratom is classified high-risk due to FDA warnings and regulatory uncertainty
- • Banks face reputational risk and potential regulatory scrutiny for your accounts
- • Standard risk controls include reserves, volume caps, and enhanced monitoring
- • Specialized high-risk processors offer viable solutions for compliant kratom businesses
For retailer in this spaces and manufacturers, understanding why your business is classified as high-risk is essential for securing reliable payment processing. This classification affects your rates, terms, and available processors. Here's what you need to know.
How Banks Classify Kratom
Financial institutions categorize kratom as high-risk based on several factors:
Regulatory Classification
The FDA has issued multiple public health advisories about kratom, including import alerts allowing seizure of kratom products. While kratom remains legal federally, these advisories create significant banking concerns:
- ⚠ FDA Import Alert 54-15 allows detention without examination
- ⚠ DEA considered Schedule I classification (not implemented)
- ⚠ Six states have banned kratom sales outright
- ⚠ Multiple counties and cities have local restrictions
Merchant Category Code (MCC) Issues
Kratom lacks a dedicated MCC, forcing businesses into general categories like "health supplements" or "miscellaneous retail." This creates complications with card brand rules and processor policies that specifically restrict certain product types within these codes.
Risk Controls Processors Require
Financial Controls
- Rolling Reserve: 5-15% of transactions held for 6-12 months
- Volume Caps: Monthly processing limits, often $25K-$100K initially
- Delayed Funding: 2-7 day settlement delays vs. next-day
- Higher Rates: 2.95-4.5% vs. 1.5-2.5% for low-risk merchants
Compliance Controls
- Website Monitoring: Regular audits of claims and content
- Transaction Monitoring: AVS, CVV, velocity checks
- Chargeback Alerts: Real-time notification systems
- State Verification: Geo-blocking for restricted states
Why Traditional Processors Decline Kratom
Major payment processors like Square, Stripe, and PayPal explicitly prohibit kratom in their terms of service. Their reasons include:
- Regulatory Liability: Potential SEC, FDA, or state attorney general actions
- Reputational Risk: Association with products under federal scrutiny
- Chargeback Exposure: Higher dispute rates in botanical supplement categories
- Banking Partner Restrictions: Their acquiring banks prohibit certain product types
- Underwriting Complexity: Automated approval systems can't handle nuanced risk assessment
The High-Risk Processing Solution
Specialized high-risk processors work with domestic and offshore acquiring banks that accept regulated botanical products. These relationships enable kratom businesses to accept credit cards legally and compliantly.
What High-Risk Processors Offer
- ✓ Domestic and international acquiring options
- ✓ Industry-specific underwriting expertise
- ✓ Chargeback prevention tools
- ✓ Compliance monitoring and guidance
- ✓ Multi-MID load balancing
- ✓ Transparent reserve release schedules
Frequently Asked Questions
Will kratom ever be classified as low-risk?
Only if the FDA formally approves kratom as a dietary supplement or the regulatory landscape significantly changes. Currently, this seems unlikely in the near term.
Can I hide that I sell kratom from my processor?
Absolutely not. Misrepresenting your business is merchant fraud, resulting in immediate termination, MATCH listing, and potential legal consequences.
Why are my rates so much higher than regular retail?
Higher rates compensate processors for increased regulatory risk, enhanced underwriting, compliance monitoring, and higher chargeback exposure.
Do offshore processors offer better rates?
Sometimes, but offshore processing has trade-offs including currency conversion fees, longer settlement times, and potentially less consumer trust.
What happens if my chargeback ratio exceeds 1%?
You'll likely face increased reserves, rate increases, volume restrictions, or account termination. Prevention is critical.
Can I use multiple processors to spread risk?
Yes, many established kratom businesses maintain multiple merchant accounts for redundancy and volume management. This is a recommended strategy.
Ready to Get Started?
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