As online businesses and transactions become more common, problems like banks blocking particular transactions are happening more often. So, if you're wondering why won't my bank let me buy crypto, it's because banks are blocking wire transfers to crypto exchanges in order to protect themselves from clients complaining after falling for scams and then requesting chargebacks. Chargeback is the process of a customer declaring charges, in this case, the bank wire, as false and requesting cancellation and refund from the bank. This makes dealing with high-risk businesses such as crypto exchanges problematic, so banks try to avoid making bank wire to them.
High-risk businesses have a significantly higher chance of fraud and chargebacks. Transactions in such businesses are usually hard to reverse. And have a high potential for disputes or are subject to complex regulations. Some more characteristics that define high-risk businesses include unstable market conditions and the need for cross-border transactions that complicate legal compliance. As a result, banks and payment processors put in place stricter preventive measures.
Cryptocurrency exchanges are not the only high-risk industry facing such challenges. Sectors like telemarketing, luxury goods, and online dating services also struggle with similar issues. To reduce the financial loss of high-risk transactions, banks implement various measures, such as imposing higher fees, enforcing strict verification processes, and sometimes outright blocking transactions. These strategies are designed to reduce the frequency of chargebacks and fraud cases. However, this can lead to customer frustration when they find themselves unable to complete transactions with these businesses.
This article will explore the reasons why banks categorize certain industries as high-risk and the specific challenges faced by businesses operating within high-risk sectors. We’ll examine the risks of fraud and chargebacks in crypto transactions, other high-risk industries that experience similar issues, and the strategies banks use to minimize chargebacks. Additionally, we’ll discuss the reason for the high fees charged by credit card issuers, ways to bypass bank restrictions on high-risk transactions, and how using PlasBit virtual card can offer a solution to these challenges. Each section will provide insights into the complexities of high-risk transactions.
The Risks of Fraud and Chargebacks in Crypto Transactions
As cryptocurrencies become more popular, banks face growing risks associated with fraudulent transactions. Due to the anonymous and irreversible nature of crypto transactions, scammers have found ways to exploit the system, putting financial institutions in a vulnerable position. The following scenario highlights how fraud and unauthorized transactions can financially damage banks and make collaboration with cryptocurrency businesses risky.
Scammers Use Credit Card Details to Buy Crypto
Because crypto transactions have a high degree of anonymity and are mostly irreversible, they have become the best choice for scammers. Through data breaches, phishing scams, and other methods, Scammers obtain someone’s credit card details. Then, they purchase some crypto and use crypto tumblers to hide the source and destination of crypto transactions and make their fraud untraceable.
The Customer’s Chargeback Request
So when the cardholder finds out about the fraudulent transactions, they request a chargeback, and in cases involving stolen card details, their claim is usually accepted, and their stolen assets get fully refunded.
The Bank’s Dilemma: irreversible Crypto Assets
The risks of financial involvement with crypto businesses are highlighted in such cases because, unlike conventional payment methods, crypto transactions are usually irreversible. This means that a scamming case involving cryptocurrencies creates a significant financial loss for the bank.
To avoid such significant risks, banks often implement strict measures, such as blocking or limiting transactions involving cryptocurrency. To banks, these measures are necessary for minimizing financial losses that come with the nature of the crypto industry.
The Risk of Emotional Crypto Purchases
This section is an example of scenarios where even a non-fraudulent purchase of cryptocurrencies can lead to financial losses for the bank.
Reckless Trading and Market Volatility
There are times when unlucky situations occur, and users realize that they have lost a significant amount of money and become desperate. For example, when a client purchases cryptocurrencies and loses their assets because of reckless trading or the price of cryptocurrency going down.
Filing Fraud Complaints after Losses
In such scenarios, a common tactic used by some individuals is to file a fraud complaint and try to recover their lost funds by claiming that they did not authorize the transactions or that they have been misled into making those transactions. This behavior is very dangerous because false chargebacks can lead to criminal charges, financial penalties, and even imprisonment.
The Bank’s Financial Burden
If such false chargeback requests go through investigation and get marked as valid, the bank is required to pay back the lost capital. This puts a significant financial burden on the banks as the cryptocurrency is lost and irretrievable.
Banks Block Crypto Transactions to Avoid Losses
So, if you’ve ever wondered why won't my bank let me buy crypto, it’s probably because banks want to avoid situations where they are forced to pay back clients the losses caused by a transaction made by scammers. Due to the nature of Blockchain and cryptocurrencies and the lack of security features like reversible transactions, banks fear potential financial risks and cut ties with crypto-related businesses.
As highlighted in this section, there are numerous cases of regular clients attempting financial fraud, and a percentage of these fraudulent claims lead to a complete refund. So, the financial damages caused by some clients’ mistakes are paid by the banks, too.
How Banks deal with High Chargeback rates
From user errors to merchant and systems failure, there are many reasons for high chargeback rates, but banks have adapted to such problems and use different systems and measures to reduce the chance of such mishaps.
International Transfer Issues
Due to differences in currency conversion rates, fees, and local banking laws, international transfers can lead to disputes and misunderstandings. For example, when a customer transfers an amount internationally, they might not understand that international transfer fees are higher or that exchanging their currency also has some fees. If customers feel that they were overcharged or that they were not properly informed, they will request chargebacks. To avoid such cases, banks make sure to display any fees, exchange rates, and additional charges before the customer finalizes the transfer.
Inability to Contact Merchant
If customers are unhappy with a product or service, they usually first contact the merchant to request a refund or to resolve the dispute. However, when the merchant is unresponsive, customers have no other way but to contact their bank to request a refund. To avoid such problems as a part of their contract, banks require merchants to have clear contact information and good customer service.
Incorrect Account Information
Sometimes, bank transfers fail because clients enter incorrect information. This causes errors in the transformation process and leads to customers requesting a chargeback. To reduce the chance of such accidents, banks have put preventive measures in place. For instance, they use prompts that ask customers to double-check their account information before requesting a transfer.
Duplicate Transactions
Accidental duplication of bank transfers happens when the system processes the same transaction twice. If the customer repeatedly clicks the Submit button or the processing system glitches, such an error might happen. However, banks use systems that identify duplicate transfers and prevent them from being processed.
Blocking or Limiting Certain Transactions
Banks can block or restrict transactions and transfers related to businesses that are in high-risk industries. If you ever had the problem, why won't my bank let me buy crypto, It’s because the crypto industry is a high-risk one, and transactions related to this industry have a higher chance of chargeback, and banks want to avoid absorbing losses from such irreversible transactions.
As the financial space progresses, new problems arise. However, the innovation of new safety tools and measures helps financial institutions remain Cautious of these risks and enables these agencies to improve their safety standards, benefiting both the banks and customers.
How Credit Card Processors Protect Themselves with High Fees
Credit card companies charge high fees from businesses operating in high-risk industries to protect themselves from the financial impact of chargebacks. These fees reduce the increased risk and potential costs associated with processing transactions in high-risk sectors. These industries have a higher potential for disputes, fraud, and regulatory challenges. These fees keep the high-risk industries functional and keep problems like why won't my bank let me buy crypto from happening to their users.
Higher Transaction Fees
While the standard fee for each credit card transaction is between 1.5% to 3%, high-risk businesses are charged between 4% to 10% for each transaction. This increased fee guarantees that even with the higher rate of chargeback, the bank is not going to absorb added financial damages.
Chargeback Fees
The administrative cost of each chargeback consists of the investigation costs, communication with both the customer and the merchant, and the office costs of the process. These costs are taken from the merchant, ranging between $20 to $100 for each transaction.
Rolling Reserves
In some contracts, the high–risk business is forced to maintain a rolling reserve. This is between 5% to 10% of the merchant's sales, which is kept by the payment processor for 90 to 180 days. In case of chargebacks and other financial problems, this works as a financial pillow for the payment processor.
Monthly Minimum Fees
Some credit card processors take a monthly fee from high-risk businesses, ensuring that they take a certain amount in case the merchant does not generate enough in transaction fees. This method of billing guarantees a level of financial safety net for the payment processor.
What Makes an Industry High-Risk?
Various financial and legal features make industries high-risk; in this section, we go over a few of them so you can understand the reasons behind this categorization of businesses and industries.
New or Emerging Markets
Industries that are new and have limited financial history can be considered high-risk. This is because they lack a proven record of financial stability and also lack established consumer protection laws and regulations. Banks are cautious about such businesses because of their highly unstable nature. For example, any new law or regulation might create an unexpected challenge, and because they have no proven track record, it is more likely that they fail to deliver services, resulting in a high number of chargebacks.
Cross-Border Transactions
Industries that involve cross-border transactions are considered high-risk, and with international transactions come complex international laws and regulations. Banks also have difficulties managing and monitoring these transactions for the possibility of money laundering and fraud. These challenges result in higher operating costs and a higher risk of legal problems.
Recurrent Revenue Models
Any industry that provides subscription-based services can be considered high-risk. Due to the nature of such businesses, continuous change is a necessity. This results in more customer dissatisfaction and an unstable chargeback rate. Making such industries risky for banks.
As you can see, there are many characteristics that can make a business high-risk; for instance, any instability and added legal and financial challenges increase the risks for the payment processor agencies.
High-Risk Industries
We mentioned before that the cryptocurrency business is not the only high-risk industry; in fact, almost any business that you might suspect of being high-risk is probably one.
Telemarketing
Telemarketing is considered a high-risk business. Because of its frequent chargeback requests and aggressive sale tactics. This results in customers agreeing to purchase under pressure but regretting their decision later. Lots of clients also feel misled, which leads to them disputing transactions. This increases the rate of chargebacks, which is exactly what banks are trying to avoid. Moreover, telemarketing businesses sometimes operate under little oversight and are involved in fraudulent activities. These characteristics make such businesses high-risk and contribute to banks being cautious about handling transactions for businesses in this industry.
Luxury Goods
The luxury goods industry includes businesses like designer clothing, special accessories, and high-end jewelry. Naturally, this business involves expensive purchases and high-value transactions, attracting criminals looking to exploit these businesses. Additionally, this industry deals with cross-border transactions, which creates complications such as currency exchange and different regional customer protection laws. Such factors make banks hesitant about these businesses and lead to preventive measures being used to avoid potential fraud and chargebacks.
Dating Services
Online dating businesses, especially those with expensive membership fees, have been categorized as high-risk. Factors such as romance scams, users failing to cancel their memberships, buyer remorse, dissatisfaction with the service, and fake profiles involving fraud have led to this categorization. These factors have elevated this industry’s risk profile and resulted in banks having more restrictions on transactions related to this sector.
Escort Services
Throughout history, the escort service industry has been banned and regulated many, many times, and in fact, there are still regions all over the world where such businesses are still illegal. This continuous discrimination is the result of this sector’s contradiction with social, ethical, and religious values. Furthermore, because of the abstract products and services of this section, chargeback rates are really high. So, unsurprisingly, most banks don’t want to associate themselves with such businesses and limit or block any transaction involving this industry.
Alcohol Sales
The online sale of alcohol is heavily regulated and has many complexities; for example, its potential for unauthorized purchase by minors. Moreover, many countries have their own specific laws and regulations for online sale of alcohol. Failure to follow these local laws and regulations might lead to legal and financial penalties for both the disturber and the payment processor. So, it is no surprise that purchasing alcohol online is blocked or heavily restricted by many banks.
Many old, famous, and profitable businesses have been labeled as high-risk and also subjected to strict regulations. These restrictions are annoying, but not only do they not destroy an industry. They improve the standards in quality and safety of such sectors.
Reasons Credit Card Companies Face Chargebacks
Chargebacks are a major problem for credit card companies, especially when dealing with high-risk industries. These disputes can result in significant financial losses for card providers, as they are often required to refund customers. Understanding the top reasons behind chargebacks helps highlight the challenges banks face and why they use some restrictive measures to handle high-risk transactions.
Unauthorized In-App Purchases
As more and more children get access to in-app purchases, the number of parents disputing these unauthorized purchases has increased as well. While there are in-app measures and international laws in place to prevent unauthorized purchases made by minors, some apps do not comply with these laws.
Misleading Advertising and Product Descriptions
When misleading advertisements and wrong descriptions disappoint or harm customers, they might dispute the charges.
Delayed or Failed Deliveries
With increasing populations across the world, the shipping and distribution industry has been failing more frequently and has been experiencing more delays. When customers do not receive their deliveries or receive them in the wrong timeframe, they request chargebacks. Moreover, clients might dispute the charges if the goods delivered are incorrect or damaged. This puts pressure on card issuer to put in place measures that force delivery agencies to improve their service quality.
High-Risk Transactions
As it was discussed before, some high-risk businesses have a high rate of chargebacks by nature. Businesses like cryptocurrency exchanges or adult content productions have abstract and easy-to-dispute products and services.
Poor Customer Service and Response Times
Our research in PlasBit shows that customers who face issues with products and services and receive poor customer service are most likely to file for a chargeback. Furthermore, slow response time and unresolved complaints can lead to customer frustration and frequent disputes.
Dealing with transaction restrictions can be frustrating for both customers and businesses, but as we discussed in this section, in many situations, failure from businesses results in financial damages to the credit card companies. If such businesses do not improve, they will become businesses with a high-risk profile. So card providers use these frustrating restrictions to ensure a safe financial environment both for themselves and their clients.
Strategies Credit Card Companies Use to Minimize Chargebacks
We discussed the importance of preventive measures and in this section, we highlight various restrictive measures used by credit card companies in their struggle to reduce chargeback rates and improve the quality of services provided by collaborating merchants.
Customized Merchant Agreements
When collaborating with high-risk merchants, credit card companies use stricter special agreements that have specific terms and conditions to reduce the risk of chargebacks. Conditions such as secure refund policies and stronger fraud prevention measures. Having a clear and robust contract enables both banks and high-risk merchants to work efficiently to reduce chargeback rates.
Strict Verification Processes
Another method of reducing fraudulent transactions and, in turn, chargebacks is to use a multi-step verification process. Credit card companies usually use this method for high-risk or suspicious transactions. This process usually includes multi-factor authentication and customers verifying their identity through additional steps, like personal questions or calling from a trusted number.
Educating Customers and Merchants
Card providers also have educational programs both for merchants and clients. These programs teach merchants and clients about chargebacks and ways to avoid them. For example, customers learn to recognize fraud and how to report it. And merchants learn how to improve their refund policies, change and better their transaction process, and make the billing process clearer.
How to Bypass Bank Restrictions on High-Risk Transactions
After having the problem of why won't my bank let me buy crypto, some users might use alternative cards, and some might use other methods of payment. However, one of the fastest ways to lift your card’s restrictions is to call the card provider itself. After verifying your identity and ownership, you might be asked to sign some legal papers. But usually, after going through some necessary legal steps, you are allowed to use your card without any restrictions, or at least without most restrictions.
Unlocking Easy Access to Cryptocurrencies with PlasBit
One simple and reliable way of bypassing banks’ restrictions on high-risk transactions is using PlasBit. In this method, you can directly transfer your funds from the bank to a registered exchange like PlasBit. After you transfer your funds to your PlasBit wallet, you have the ability to purchase various available cryptocurrencies. This method works as a much simpler alternative to older methods of bypassing banks’ restrictions.
Conclusion
Banks are very selective when it comes to handling risky customers, and this extends to cryptocurrency exchanges as well. Because of the high risk of chargebacks, fraud, and the complicated legal issues associated with these industries, banks tend to avoid these industries by simply banning transactions related to them. This means that when you attempt to transfer money to a crypto exchange, your transaction may be declined, and you may be left scratching your head, asking why won’t my bank let me buy crypto? The answer lies in the financial risks that these transactions pose to banks; the losses from fraud and irreversible cryptocurrency transactions force banks to use such strict measures.
To avoid the negative impact of chargebacks, banks implemented several measures, including increasing the charges for high-risk businesses, conducting detailed identification, and educating both consumers and merchants on how to reduce chargebacks. These strict measures are directed not only toward the crypto industry but also other sectors such as telemarketing, luxury goods, and online dating services.
Nonetheless, these issues can be overcome by following the steps outlined in this article, including contacting your bank to remove restrictions or to transfer funds to a reputable platform like PlasBit to purchase crypto. These solutions enable you to avoid the obstacles set by conventional banking systems, allowing you to engage in the cryptocurrency community freely and securely. We hope these strategies prove effective in showing you a more seamless process of buying cryptocurrencies.
