4 Reasons You Could Be Denied for a Merchant Account
Many retailers struggle getting approved for merchant accounts to process credit card transactions. It's important to be prepared and knowledgeable about the merchant account industry so that you have a high chance of success. Here are some reasons that you could be denied for a merchant account or dropped by a merchant account processor:
1. You sell a product or service that's considered high risk.
Credit card processors can be very picky about the types of businesses they accept. This is a problem that many legal, legitimate retailers run into. Some industries classified as "high risk" are smoking paraphernalia, travel and vacation packages, magazines, and nutraceutical sales. These industries may be considered high risk because of their reputation, having a history of fraudulence or being a financial risk. Many processors will not look at the individual merchant applying for the account, but instead lump all high-risk merchants together and deny them.
2. You're in an industry with a history of high chargebacks.
Banks and processors don't want to sponsor businesses with high chargeback ratios — i.e., the number of chargebacks divided by the total transactions for a business. If a company doesn't have the means to refund a customer, the credit card processor for that transaction is then responsible. Therefore, any company with a history of high monthly chargeback requests isn't an ideal merchant for a bank to sponsor. Instead of looking at the chargeback history of a specific merchant, processors will often deny a merchant because the industry they're in has a history of high chargebacks. They would rather not take the risk at all. Some industries with a history of high chargebacks sell products with extended warranties and high price points, such as electronics and jewelry stores.
3. You have a low credit score.
It's not uncommon for banks and processors to deny merchants who have bad personal credit. Banks place high value on credit scores. The owner is viewed as the representative of a business, so their personal finances reflect the financial risk (or lack thereof) for the merchant. Standard merchant account processors have lower charges for customers, but less protections, therefore they only accept merchants they know aren't a significant risk.
4. You bring in a high monthly volume.
You may be thinking “how can bringing in too much money be an issue?” Unfortunately, credit card processors often view this as a risk. Standard merchant accounts have monthly volume caps. This is because there's always a risk that merchants cannot cover their own chargebacks, and then it falls on the processor and sponsoring bank to cover the chargeback costs for them. Therefore, the higher the monthly volume intake for a merchant, the greater the chargeback risk.
If any of this describes your business, the best solution would be to apply for a high-risk merchant account. The rates may be higher, but there will be more protections and you will be less likely to be dropped by your processor.
Marty Carroll is the founder of Limitless Payment Solutions, a high-risk credit card processing firm.