Why Does My Business Not Qualify for a Credit Card Processing Services?

There are many small businesses that have tried, unsuccessfully, to get a credit card processing account. Often, when you are turned down for a merchant account you will find that the credit card processing company will not tell you why they said no. Being told that you cannot have a merchant account can feel like being told that your business is destined to fail, but there are usually workarounds.

High Risk Businesses

One of the main reasons that you might get turned down for a credit card processing account is that your business is ‘high risk’. The definition of ‘high risk’ can be quite broad. Visa and MasterCard have different rules, and even within those companies there may be different rules from region to region. In general, however there are some industries that are classed as high risk almost everywhere, including:

  • Adult entertainment
  • Affiliate marketing
  • Gaming
  • Pharmaceuticals
  • Tobacco
  • Nutraceuticals
  • Outbound telemarketing

If you want to run something like an online pharmacy, or run an affiliate marketing site, then you should expect to have an uphill battle.

If you run a gaming website that is legal in the area where your target audience is, you might find it frustrating to be told that certain payment processors do not want to work with you because in your eyes you are doing nothing wrong. The payment processors need to be cautious, however, because they have to worry about more than one small corner of the market, and they have to consider other issues such as fraud and chargebacks. There are some industries that have more chargebacks than others, and payment processors would prefer to be dealing with companies that have a low chargeback rate and a low rate of declined transactions.

Low Trading Volumes

Payment processors also look preferentially on people who are able to send them a lot of business. They have minimum transaction volume requirements, and if you are a new business or a very small one, then you may not meet those requirements, and therefore you will be automatically declined.

Increasing Your Chance of Acceptance

Credit card processing companies take on some risk when they agree to handle payments for their clients. It is therefore important that businesses try to work with the companies and show the nature of their business as clearly as possible. It is not enough to just fill out the application form and hope for the best. The payment processor will ask for paperwork, and if you want to have your application accepted then it’s a good idea to make a good faith effort to supply that paperwork in exactly the form requested.

There is no guarantee that supplying the paperwork will net you an account. However, you increase your chances of getting one if you do qualify. Take, for example, the difference between sending a list of transaction activity instead of a properly drawn up list of accounts. When you send transaction activities, you create work for the merchant processor because they will have to sift through all of that information to figure out the monthly volume, the average amount of each transaction, and if you already have a payment processor, the amount of declines and chargebacks. Why should they have to do that work, when they can dismiss your application as being incomplete? If your transaction volume makes you look borderline as a potential client, then they would not be making an unwise business decision to not put in the work to qualify you as an applicant. It would be reasonable for them to fear that you are attempting to hide something about your activities.

Your Personal Credit History Matters Too

If you have a relatively new business, then some merchant account providers may ask that you supply your personal details so that they can credit check you. If you have no credit history, or a poor history, then this could reflect poorly on your application.

There are processors out there that will work with people who are in high risk industries, people with poor credit histories, or smaller companies that have lower transaction volumes. It is a good idea to shop around and try to find one of those companies, and then set up an account with them. You may have to pay higher rates in the short term and accept some limitations on your account, but you can use that account to build up your company’s history and to build up a credit rating too. As your business grows you can start looking for other payment providers.

Sometimes you can upgrade within the same company to an account with fewer restrictions or better rates. Sometimes you may need to move on to a merchant account for high risk businesses. Take your time and shop around once you are sure that you are likely to qualify for an account. Try not to change payment processors too often during the early stages of your business, because having that long history of a well-managed account could make it easier for you to get good rates with a new provider.

If you do have a lot of declined transactions or chargebacks, then you should review your internal processes before you start looking for a merchant processing service. It may be that requiring photo ID from customers or asking customers to call to verify their identity could help you to reduce the amount of potential fraudulent transactions. If your chargebacks are the result of slow delivery or product quality (Something that can happen with drop shippers and affiliate marketing) then you may want to consider your suppliers and affiliates more carefully.  In high risk businesses you can never completely eliminate the possibility of fraud or chargebacks and suspicious activity, but if you are proactive about stamping it out then you will be able to reduce the risk and stand out as a potential client to more merchant services companies, and hopefully find one that is willing to work with your business in the long term.