It can be hugely frustrating and inconvenient when you attempt to open a merchant account, only to be denied by a payment processor. You would not be the first person to experience this scenario, so why does it happen?
A key point to make is that refusal might feel personal, but in reality, it is simply because processors rely heavily on risk assessments to decide who they’re willing to work with.
It could be anything from your financial history to the type of industry your business trades in. Once a red flag is raised, it can soon lead to an application being rejected outright. If you run a gun shop, for instance, it would make sense to search for gun-friendly credit card processors who don’t consider this type of business to be a barrier to opening an account.
With that in mind, let’s take a look at some of the main reasons why a payment processor might refuse to open an account for you. Knowing how your application is viewed should help you to find the right solution.
Are you viewed as a high-risk business model?
One of the most common reasons a payment processor might refuse to open an account is when your type of business is viewed as being in a high-risk category.
In general, certain industries are labeled as high-risk due to higher rates of chargebacks, an increased prospect of fraud, and greater regulatory scrutiny. This includes adult entertainment, CBD sales, travel services, and firearms dealers. For instance, if you’re running a gun shop, many mainstream processors will avoid doing business with you, even if your operations are fully legal.
Firearms sales are subject to increased liability and legal oversight, especially across state lines. Unfortunately, many payment providers aren’t equipped, or willing, to take that on. That’s why it’s advisable to work with a high-risk payment processor that understands the nuances of your industry.
Do you have a poor credit history?
Another major factor is when you have a poor or limited credit history. If your business is brand new or you have a weak credit profile, processors may view you as a financial risk.
A history of personal or business bankruptcies, defaults, or outstanding tax liens can also raise red flags that lead to a rejection. If this is the case, you will need to find a processor who is more tolerant to this sort of profile.
Your chargeback history could be seen as a risk factor
As part of the application vetting procedure, processors will also review your chargeback history closely. If you’ve had a merchant account terminated in the past for exceeding chargeback limits, that can prove detrimental.
In essence, a high chargeback rate indicates either poor customer satisfaction or potential fraud, two things payment processors want to avoid. Businesses that frequently deal with customer disputes, such as subscription services or ticket resellers, can soon find themselves labeled as high risk.
Does your business lack clarity or consistency?
Inconsistent or unclear business practices can also be an instant dealbreaker. Payment processors want to know exactly what you’re selling and how you’re selling it. If your website lacks clear policies, opaque pricing, minimal contact information, or onerous terms of service, these are all potential problems.
Bottom line, if your business description is too vague or if there’s a mismatch between what you claim to do and what your website shows, that can result in your application being declined. Remember, transparency is absolutely essential.
Compliance problems is another red flag
Finally, any known compliance issues can soon lead to a refusal.
If your business operates in a tightly regulated sector or comes with legal baggage, payment processors may decide the risk isn’t worth it. You will need to work with the processor to allay their fears.
In short, payment processors are cautious for a reason. That should not be viewed as a negative, it just means you may need to find a provider who specializes in your industry and can manage the risks that come with it.
