Why was my high-risk merchant account not approved?

If you’re a business owner, you know exactly how crucial it is to keep your customers happy. One of the primary ways you can do this is by offering them a full roster of convenient, user-friendly payment options, including digital payment methods and a variety of credit cards.

Unfortunately, and through no fault of their own, many business owners can’t offer these valuable payment processing services. This is entirely due to the industry they’re in, and it has nothing to do with their sales record or success level. In fact, some of the nation’s most popular industries are automatically designated as “high-risk” by banks, credit card companies, and financial institutions, no matter how healthy their bank accounts are.

If you’ve applied for high-risk merchant account services and been denied, Zenti can help. Zenti specializes in helping businesses get high-risk merchant account instant approval, even if they’ve been denied before. With Zenti as your merchant account provider, you’ll be able to offer customers a wide range of credit and debit card options, plus a convenient mobile app and e-check payments at affordable monthly fees that won’t impact your revenues.

High-risk list of industries

What puts a business or industry on the high-risk list? It can happen for various reasons, all of them having to do with real or perceived credit risk. These reasons often have nothing to do with sales or success but are instead influenced by risk patterns and behaviors typically associated with payment transactions within those industries.

Here’s a list of popular, successful industries that are typically considered high-risk:

• Neutraceuticals

• CBD products

• E-cigarettes

• Adult entertainment websites

• Online dating sites

• Property management

• Document preparation services

• Gun retailers

• Multi-level marketing companies

• Antiques and collectibles

• Travel agencies

• Online gambling and gaming sites

• Fantasy sports

• Payday lending services

• Health products

• Beauty retailers

When you look at the list, it seems incomprehensible, considering that these are all highly successful, financially viable industries with proven track records. However, sales and revenue success, coupled with an excellent credit history or credit score, may not be enough when you’re faced with a merchant account application, especially when the bank home in on risk factors that you weren’t even aware of.

Chargeback risks

Banks and financial institutions, like all businesses, are there to make money. And when it comes to approving industries for payment processing services, if they see patterns of customer behavior that will impact their revenues, they’ll shy away from working with those industries.

Payment processing involves a long domino chain of participants, beginning with the customer who hands the card to the merchant. From there, the payment processing goes through many interesting financial entities before finally ending up with the acquiring bank (the merchant’s bank). And along this varied route, the payment may encounter a single obstacle that can disrupt the entire transaction: a chargeback.

Chargebacks happen when customers dispute a credit card charge and request a refund from the card issuer or bank. Chargebacks typically occur because:

• The item never arrived.

• There was a mistake in the order.

• The item arrived damaged.

• The customer was dissatisfied.

• The charge was fraudulent.

Chargebacks increase by a whopping 41% every two years. Globally, chargeback volume reached 615 million USD in 2021. And with numbers like these, merchants and banks suffer significant revenue losses.

Chargebacks are an everyday part of business, but some industries fall victim to extremely high chargeback rates. For example, e-commerce stores are prone to chargebacks and high return rates because of a variety of factors, including delivery issues such as lost/damaged items or errors in shipping. Likewise, customers prefer seeing and handling items in person, so the e-commerce experience can sometimes leave them with unrealistic expectations and general dissatisfaction.

Likewise, industries such as adult entertainment, cannabis, online gaming, and online dating can also suffer high chargeback ratios due to specific customer behaviors. For example, a customer may not want it known that they purchase adult entertainment or participate in online gaming. If a significant other happens to see the bank statement, that customer may deny and subsequently refute the charge, claiming that it was fraudulent. This scenario is known as “friendly fraud,” but there’s nothing friendly about its impact. According to NASDAQ, more than 32 billion chargebacks in 2021 involved friendly fraud, and experts predict that friendly fraud could account for 61% of chargebacks by 2023.

In addition to chargebacks, another high-risk behavior can negatively influence merchant account providers: card-not-present transactions.

The risks of CNP sales

Card-not-present (CNP) transactions are the norm for many retailers, including e-commerce businesses and companies that operate both online and brick-and-mortar stores. As the name implies, a CNP transaction occurs when the customer doesn’t physically present a credit card to be swiped or punched in during a transaction. CNP transactions are typically done remotely, where the customer enters a credit card number on a website or gives it to a sales assistant via phone.

CNP transactions can be fraught with risks for both large and small businesses. That’s why it’s crucial for companies to use payment processing software that’s encrypted and protected by the latest security protocols, ensuring that payments and customer data are protected. Nevertheless, banks and card issuers are still wary of industries that rely heavily on CNP sales, and with good reason. According to industry analysts, almost 80% of fraudulent transactions in the U.S. involve CNP payments.

In addition to high rates of chargebacks and CNP transactions, here are several more common reasons why businesses don’t get approved for a merchant account:

High level of fraud in their industry

Unfortunately, some industries are more prone to fraudulent activity. In particular, adult entertainment and nightclubs seem to attract fraudsters like a magnet. Likewise, travel and tourism, gaming, and online dating sites can also attract many scammers.

Unusually high transaction rates

High sales volume is generally a good thing — but when it comes to getting payment processing approval, it can actually work against you. If your company reports unusually high transaction rates for a given period, financial institutions may see it as a red flag and deny your application.

Documentation, licensing, or tax problems.

It’s crucial to provide all your business information with pinpoint accuracy and be completely transparent about all financial transactions. Toward that end, you’ll want to stay completely up-to-date on sales volume and chargeback reports.

Likewise, you’ll need to show payment processors that you’re fully and legitimately licensed for your business.

Being on the MATCH list

Making the MATCH list is decidedly not an achievement. Previously known as the Terminated Merchant File (TMF), the Member Alert to Control High-Risk Merchants (MATCH) list is essentially a merchant blocklist and contains the names of merchants that are considered high-risk for banks and payment processors. If you make a list, you may have difficulty getting payment processing services without expert help.

Poor credit history

If you have poor personal credit, it can take years to rebuild it so it won’t impact your business. Even with poor credit, however, you can still get high-risk payment processing if you use the right processing service. And best of all, it doesn’t have to be outrageously expensive.

High-risk payment processors are notorious for charging high credit card processing fees, but Zenti can help you get a full roster of credit, debit, digital, and electronic payment options at low monthly rates you can afford, even if you have a bad credit history. As high-risk specialists, we’ll help you navigate the application and approval process and provide you with the tools you need to seamlessly manage payments and invoicing each month.

Low-risk vs. high-risk businesses: What’s the difference?

Is there really that big a difference between low-risk and high-risk merchant services? Unfortunately, the answer is a resounding “yes.” With a low-risk merchant account, business owners not only get instant approval but also pay substantially less for merchant account services. Again, it all comes back to that one word: risk. Because of risk levels, either real or perceived, banks, financial institutions, and credit card companies would rather avoid working with high-risk industries.

What constitutes a low-risk merchant account? Here are some common denominators:

• Lower transaction volume (usually less than 20,000 USD a month)

• Fewer CNP transactions

• Lower chargeback rates

• Average sales transactions of less than 500 USD

• They belong to low-risk industries

If you’re wondering why banks are so concerned with risk, it all comes down to underwriting.

Why does underwriting matter?

Credit card companies get their financial backing from banks and financial institutions. This process is called underwriting, meaning that the bank or financial firm has its back whenever payments are lost or defaulted. Through underwriting, credit card companies can continue to survive, but it’s also the reason why they can’t take on high-risk accounts. With every bad transaction, everyone loses money, from the merchant all the way up to the credit card issuer and underwriting bank. And the more bad transactions you have as a merchant, the higher your fees will be because these fees are used to cover those losses.

Zenti can help you lower your chargeback rates and give you added security through payment processing protected by payment card industry (PCI) compliance. With PCI protection, you’ll have fewer bad transactions and be able to access tools that can help you keep card data security for your customers.

Benefits of a high-risk merchant account

Getting approved for a high-risk merchant account doesn’t have to be an insurmountable obstacle, especially if you have expert help. With that in mind, here are some of the benefits that a high-risk merchant account can bring to your business:

Credit card payments

Credit and debit cards continue to be the payment method of choice for today’s customers. With a high-risk merchant account, you’ll be able to process Mastercard, VISA, American Express, and Discover cards, as well as all types of digital payments.

Digital and mobile app payments

As any successful business owner knows, it’s absolutely essential to be able to offer your customers a full slate of payment options, including mobile apps and electronic payment methods. According to recent statistics, more than 44% of global transactions are now being made via mobile apps, and you don’t want your business to be left out in the cold as these mobile app usage numbers continue to rise.

Tracking tools

With a payment processing service, you’ll have access to real-time payment tracking, from the point of sale on to the final processing. In addition, you’ll have access to management tools that can help you monitor and streamline your financial operations and monthly bookkeeping.

Enhanced security

Expert merchant account services like Zenti use PCI-compliant processors that implement next-gen encryption and other cyber-security protections to protect your customers’ data from fraud and identity theft.

Greater credibility

As a business, everything hinges on your professional image, and you can’t afford to run your 21st-century company with 20th-century equipment. With merchant account services, you’ll be able to present a more up-to-date, professional image, which will help you gain more credibility, trust, and loyalty from your customers.

Getting approved for a merchant account

No matter how high-risk your industry is, you can take steps to mitigate the risks and improve your chances of getting payment processing approval. Here are some tips to help you get started:

Work on lowering your chargeback rates

To lower return rates, be sure to provide plenty of descriptions and photos on your web pages and state your return policy clearly.

Communicate with your customers

You can sometimes deflect returns by talking to your customers, offering replacement products, and providing stellar customer service.

Choose a good merchant account provider.

A top-notch merchant account provider can give you the expert advice you need to get approved for payment processing services. And if you’re tired of missing out on valuable merchant services for your high-risk business, Zenti is here to help.

As a leading high-risk merchant account provider, we can help you get approved for a full suite of payment processing options, including major credit and debit cards, plus a mobile app and e-check payments, all at affordable monthly rates. In addition, we’ll give you the tools you need to streamline your monthly invoicing, manage your transactions, and protect your customers’ data.

Ready to boost revenues and improve customer loyalty? Contact Zenti to find out how our roster of payment processing services can take your high-risk business to the next level of success.