6 Reasons Your Merchant Account May Be Denied — and What to Do About Them

It’s a relatively rare occurrence, but from time to time, banks or credit card processors can deny a business’ merchant account application.

Whether you’ve experienced getting denied or are planning to apply for a merchant account and want to increase your chances of approval, it’s a good idea to understand some of the top reasons a merchant account may be denied.

Doing so can allow you to prepare for a future application or help you understand what to improve on if you’ve had a merchant account denied.

Check out the reasons below:

1. You have an unfavorable personal credit history

This is one of the most common reasons processors deny merchant account applications. Poor personal credit — typically due to large sums of unpaid debt or a history of late payments — can be reason enough to deny your account.

What to do about it: If your account was denied because of less-than-stellar credit history or if you know you have unfavorable credit and want to reduce the chances of getting denied, you should look into another signer (business partner, etc.) who has more favorable credit.

In some cases, the processor my accept a personal guarantee to serve as collateral in case things go south with your account. Having a large amount of cash reserves may also do the trick.

2. You’re in a high-risk industry

Certain merchant account providers can get squeamish around businesses they deem are “high-risk”. High-risk industries are those that experience more chargebacks and fraud or ones who have a greater chance of problems down the road. For this reason, merchant account providers may limit businesses from those industries.

If your business falls into any of the following categories, you  may be considered high-risk:

  • Adult
  • Tobacco
  • Firearms and ammunition
  • Gambling
  • Travel and hospitality  
  • Medical
  • Legal services
  • Financial services

What to do about it: Before applying for a merchant account, do your research on the provider and see if they work with high-risk merchants. Payment processors often display this information on their website, but if you can’t get your hands on the info you need, you can always call and ask.

It’s also important to note that risk tolerance varies from one merchant account provider to the next, so if you’re denied by one provider, you may still have a chance at another. You need to search for a payment processor that works specifically with high-risk industries.

3. Inconsistencies between processing volume and industry

Merchant account providers have a general idea of the average processing volume of a business depending on their industry. So, if the provider sees inconsistencies between what you say you will process and what the industry average is, your application will be flagged.

What to do about it: Start by being honest and upfront in your application. Don’t overestimate your sales and processing volume when applying for a merchant account. The key is to provide realistic figures.

If your business does process considerably more than the industry average, it does not mean you will automatically be denied. However, the merchant account provider will need more information. Inconsistencies between processing volume and industry are common when inexperienced criminals attempt to open accounts and perform fraudulent transactions.

4. You’re on the MATCH List

The MATCH (Mastercard Alert to Control High-Risk Merchants) list also known as the Terminated Merchant File (TMF) is a record shared by merchant account providers and the banking community to alert providers before they enter into a contract with the high-risk merchant.

Think of it as a blacklist that identifies merchants who have had their accounts terminated in the past.

Leaving a merchant account in poor standing or having outstanding bills are some of the main ways merchants get on this list. Others include fraudulent activity, too many chargebacks, bankruptcy, etc.

What to do about it: If your merchant account was denied because you’re on the MATCH list/ TMF, get in touch with the acquiring bank that put your business on the list. Find out the reason you were blacklisted and inquire on what you can do to get off the list. For instance, if you’re account has outstanding bills, then you’ll need to settle them first in order to be taken out of the list.

Do note that the decision to remove you from the MATCH / TMF list is at the discretion of the bank.

If you’re unable to get off the list, you can find a merchant provider that works with businesses who are on the MATCH / TMF list. Either that, or you’ll have to wait until you’re automatically removed — which takes 5 years.

5. You have active tax liens

Tax liens — which are typically imposed for delinquent taxes — can raise red flags during the merchant account underwriting process. Similar to having a poor credit history, tax liens can scare off merchant account providers and result in them denying your application.

What to do about it: Settle any tax issues and delinquencies before applying for a merchant account. You’ll want to keep your financial and tax history clean to increase your chances of a successful application.

6. Your business doesn’t have a good reputation

It’s not uncommon for merchant account providers to look into a business’ reputation when evaluating their application. Underwriters may examine your website, reviews, and social accounts to ensure that you’re not scamming people.

What to do about it: For starters, see to it that you and your team are upholding legal and ethical business practices. Be transparent with how you deal with your customers, and make sure that you’re being fair and accurate with your advertising and marketing. Don’t mislead people and avoid making claims that you can’t back up.

And stay on top of your online reputation. Encourage happy customers to write honest reviews on Facebook, Yelp, and Google. If you have negative reviews, address them early on to resolve any customer conflicts.

Final words

Getting your merchant account denied can be discouraging, but know that there are ways to get through. As long as you’re staying on the right side of the law and you’re legit with your offerings, you’ll find options that can get your merchant account up and running.

Good luck!