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 your 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.
Response to the Top 5 Most Common Merchant Account Complaints
We love Merchant Maverick, a great website that helps small business owners learn about credit card processing and decide which merchant service company will be the best for them. In fact, many of our members tell us that they found Payment Depot by first reading reviews of other companies on MM. So when we saw this great article posted this week by Levi at Merchant Mav, we thought our members would appreciate our take on it too. First, maybe start by reading their post:
Now, here’s our take on the top complaints about merchant account companies (Other than Payment Depot!)
1. Difficulty Cancelling Services
Levi is right. You shouldn’t be forced to stay with a merchant service provider if you want to cancel. At Payment Depot we don’t want anyone to be “stuck” with us. We want to create long lasting relationships with our members and we want them to stay with us because they want to, not because they have to. So we don’t have a contract and you can call our customer service to cancel your membership any time. We actually go one step further and offer a 90 day money back guarantee on your membership fee! If you try us and need to cancel for any reason during the first 90 days, we will refund your entire membership fee.
2. Bad/Expensive Leasing Agreements
We don’t lease out equipment at Payment Depot. We have seen merchants who have paid thousands of dollars over a 3 or 4 year period for a terminal that could have been purchased for a few hundred dollars. Leasing equipment is almost always a bad deal for a merchant and it is something that we choose not to offer even though it would be highly profitable for us. All of the equipment that we sell comes pre-programmed and ready to use and is supported by our in house technical support. Our terminals start at $299.
3. Deceptive Sales Tactics/Representatives
This industry is known for being dishonest and for taking advantage of hard working business owners. At Payment Depot, all of our members receive Interchange + 0% pricing. We pass through the dues and assessments from the card brands and show everything on the statement. We know that business owners value their time which is why we do not use outside sales agents or cold call prospective members. We rely on our own advertising efforts and word of mouth to grow our company.
4. Poor Customer Service
We pride ourselves in having the best customer service in the industry. We actually get more excited when our members send us thank you emails applauding us for our service than when we just save someone money. We take great care in hiring the right people here at Payment Depot and our support team is encouraged to spend the time to really get to know our members. We don’t use scripts and our member support and tech teams are instructed to take as much time as needed to solve a problem for a member. When you call Payment Depot, you can actually talk to a real person because we hate automated phone systems as much as you do. We have many members who have had such a great experience with a particular team member in our service department that they contact them directly and we love that!
5. High Fees
With Interchange + 0% pricing, you can’t get any cheaper than that. We have actually had members who have left us because a salesman offered them a deal that sounded too good to be true only to come back a month or two later when they realized that they were paying way more than what they were promised. Sadly this happens too often in this industry. If someone actually offers a better deal than we are offering, we will be the first ones to tell you to take it. Our model is simple and for most businesses you will save a lot of money, but if there is a better deal for your business, we want you to take it. We only want happy members who see the value in what we offer.
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!
Quick FAQs about Why Your Merchant Account May Be Denied
Q: What are the common reasons a merchant account application might be denied?
Common reasons for merchant account denial include poor personal credit, being classified as a high-risk business, inconsistencies in processing volume, being listed on the MATCH (Mastercard Alert to Control High-Risk Merchants) list, tax liens, and a negative business reputation.
Q: How does personal credit affect merchant account approval?
Personal credit is a significant factor in merchant account approval. A history of unpaid debts or late payments can lead to denial. To improve your chances, consider involving a business partner with better credit or providing a personal guarantee.
Q: What industries are considered high-risk for merchant accounts?
High-risk industries often involve higher chances of chargebacks and fraud. These include adult entertainment, tobacco, firearms, gambling, travel, hospitality, medical, legal, and financial services. It’s crucial to find payment processors that specialize in these industries.
Q: What is the MATCH list, and how can it affect my merchant account application?
The MATCH list is a database used by merchant account providers to identify businesses that have had accounts terminated due to high risk. Being on this list can significantly hinder your ability to open a new merchant account unless you resolve the issues that led to the listing.
Q: Can tax liens prevent me from getting a merchant account?
Yes, tax liens indicate financial instability and can be a red flag for merchant account providers. It’s advisable to settle any tax issues before applying for a merchant account to improve your chances of approval.
Q: How can I address a poor business reputation when applying for a merchant account?
Ensure that your business practices are transparent and ethical. Encourage positive reviews from satisfied customers and address any negative feedback promptly to maintain a favorable reputation.
Q: What steps can I take if my merchant account application is denied due to high processing volume inconsistencies?
Be honest about your sales and processing volume when applying. If your processing volume is genuinely higher than the industry average, provide detailed explanations and supporting documents to the provider.
Q: Are there merchant account providers that work with businesses on the MATCH list?
Yes, some providers specialize in working with businesses listed on the MATCH list. However, you may face higher fees and stricter terms. It’s also possible to wait for automatic removal from the list, which occurs after five years.
Q: How can I improve my credit score for better chances of merchant account approval?
Regularly check your credit report for errors, pay bills on time, reduce outstanding debt, and consider credit counseling if necessary. These steps can help improve your credit score over time.
Q: What should I do if I need immediate processing capabilities but can’t get a merchant account?
Consider working with a payment aggregator or a high-risk merchant account provider as interim solutions. These options might come with higher fees but can provide the necessary processing capabilities while you work on improving your eligibility for a traditional merchant account.
