Why Are Ecommerce Merchant Accounts Considered High Risk?

You’re not alone if you’ve ever applied for payment processing services for your merchant account. Merchant banking services reached a staggering market size of more than 12 billion USD in 2022. As consumers continue to patronize e-commerce sites and use remote payments, these numbers will continue to rise.

That’s why finding a trustworthy high-risk merchant services provider.

Sounds easy, right?

Sadly, it is not

However, suppose you’ve applied for and been denied payment processing payment gateway services from a merchant account provider. In that case, you’re probably wondering why — especially if your business is successful and your credit score is good. Unfortunately, payment processors look at various factors before approving an account, and many of these factors may be completely out of your control.

Table of contents

• Is your business in a high-risk industry?
• Two major risks: chargebacks and CNP transactions
• CNP transactions
• Why was your business denied payment services?
  • Your personal credit history isn’t good
  • You have an unusually high transaction volume
  • You have a startup or small business
  • Your business has tax liens
  • Your business or industry has a less-than-good reputation
• What is underwriting?
• Benefits of merchant account services
  • Credit card payments
  • Mobile app and electronic payments
  • Better security
  • Enhanced tracking tools
  • Invoicing solutions
  • Higher level of professionalism

One of the primary reasons why business owners get denied merchant services is because of one thing: their industry.

Simply put, certain industries are designated high-risk by the banks and financial institutions that issue credit cards.

Because of risk concerns, many types of businesses and industries are automatically ruled too high-risk for payment processing services, no matter how successful they are.

Even if you’ve been denied before, Zenti can help you get low-cost payment processing solutions for your high-risk business. With Zenti, you’ll be able to accept all major credit and debit cards, plus a convenient mobile app and e-check payments so your customers can pay wherever they are. Plus, Zenti offers secure tools to help you streamline your business accounts and invoicing, so you can spend time on your business, not on bookkeeping.

Is your business in a high-risk industry?

When looking at this list, you might wonder why so many successful industries are included, especially since many of them have a proven financial track record. The answer has to do with inherent risk factors in certain businesses and industries. Because of these risks, banks and financial institutions try to avoid working with these industries at all costs, even if it means turning down an otherwise lucrative account.

Two major risks: chargebacks and CNP transactions

For banks and credit card companies, there are two sides to the risk coin when it comes to merchant services: chargebacks and card-not-present transactions. Here’s a look at why your business might be denied merchant services because of these two major risk issues.

Chargebacks

Chargebacks occur when a customer disputes a credit card charge and requests a refund. Too many chargebacks can create havoc with a merchant account, impacting revenues and damaging a merchant’s financial reputation.

Excessive chargebacks are a prime reason why merchants are denied payment processing services. The reason is simple: Everyone in the payment chain (except for the customer) loses money in a chargeback. This includes the merchant, the credit card company, and the bank that issues and finances the card. If a merchant has a high chargeback rate, they’ll also be stuck with high chargeback fees and the loss of the sale. And if these chargebacks continue, the merchant may incur even higher chargeback fees than before.

High chargebacks are the bane of certain businesses, including those belonging to adult entertainment and CBD industries. The reason is the perceived social stigma attached to those products and services. For example, these particular industries, along with others, have an unusually high rate of “friendly fraud.” This can happen when a customer makes a purchase, and the bill is accidentally seen by a spouse, close relative, employer, or significant other. Rather than get caught, the customer may pretend that they didn’t make the charge at all, call the credit card company to claim that a fraudulent charge was made, and request a refund.

While friendly fraud charges aren’t usually transacted with malicious intent, they might as well be because their impact on businesses can be staggering. A recent NASDAQ report shows that friendly fraud created a loss of more than 32 billion USD in 2021. And by 2023, analysts believe that friendly fraud will be involved in 61 percent of all chargeback transactions.

Chargebacks can’t be eliminated, but they can be greatly mitigated by using an expert high-risk merchant account provider. As high-risk account specialists, Zenti excels in getting high-risk businesses approved for debit card and credit card payments and digital and electronic payment methods. Thanks to our partnerships with credit card processors, we can offer high-risk credit card processing services to all businesses without charging the higher fees normally associated with high-risk accounts. With our suite of payment processing tools, you’ll be able to track and monitor your transactions. And with our management tools, you’ll be able to better control unnecessary chargebacks and high return rates.

CNP transactions

The flip side of the high-risk coin involves card-not-present (CNP) transactions, which occur when customers pay for items remotely. The credit or debit card isn’t physically presented to the merchant in a CNP transaction. Instead, the numbers are entered online or shared over the phone. CNP transactions are necessary for e-commerce businesses. Still, they pose various fraud-related risks because the merchant never handles the card and can’t visually check it for red flags. Because of this, businesses that depend heavily on CNP transactions are typically designated as high-risk.

Why was your business denied payment services?

In addition to high rates of chargebacks and CNP transactions, there are other reasons why you might be denied merchant services, including:

Your personal credit history isn’t good

As far as your credit is concerned, a merchant services account application is similar to a loan application. Even if your business is successful, if your personal or business credit history is less than stellar, you may be denied merchant account services.

Low credit scores can certainly play a part in merchant services denial, just as they can determine whether or not you’ll get approved for a business loan. Fortunately, if you have poor credit, you can avail yourself of one of the many credit repair programs that offer software to help you build up your business and personal credit scores.

You have an unusually high transaction volume

A high sales volume may seem like a good thing, but a high transaction volume can put you on the high-risk list, especially if you process more than 20,000 USD in monthly payments or if your average transactions are 500 USD or more.

You have a startup or small business

Sometimes startups can have difficulty getting approved for merchant services because they haven’t yet built up a viable financial track record for their business. And in much the same way, a small business owner might also have trouble getting payment processing, especially if the business has a low transaction volume.

Additionally, startups and small businesses can also be prone to payment fraud issues, especially if they don’t have enough money to invest in reliable, next-generation tech support and cyber-security tools.

Your business has tax liens

If you owe taxes on your business, the IRS will impose tax liens on it until the delinquent taxes are paid off. You have a good chance of being on the high-risk list during this time.

Your business or industry has a less-than-good reputation

Your business track record acts as a character witness for your company, and if banks see some red flags on your performance history, you may end up on their blacklist.

And speaking of blacklisting…

You’re on the MATCH list.

Formerly known as the Terminated Merchant File (TMF), the Member Alert to Control High-Risk Merchants list, commonly called the MATCH list, is a merchant blacklist that banks and financial institutions use to identify merchants considered to be high-risk for financial services.

When a merchant applies for payment processing services, banks go to the MATCH list to find out whether the applicant has been denied in the past — and if so, why. This way, they can analyze the risks of taking on the merchant account. If a merchant is considered high-risk, they’re essentially blacklisted by their presence on the list. And unfortunately, if your business is in a high-risk industry, or is prone to any of the high-risk behaviors or circumstances we’ve discussed, there’s a good chance it’s on the MATCH list.

Can you ever get off the MATCH list? Banks and credit card companies can remove merchants from the MATCH database, but this can be tricky. This is especially difficult because some credit card companies, including Mastercard, don’t usually deal with merchants directly in these cases. However, the good news is that you can work around all of these obstacles — including the MATCH list — by working with a high-risk payment processor. And Zenti has the expertise to help your high-risk account get approved for a full roster of credit card processing services without having to pay higher processing fees.

There’s no question that, when it comes to getting approved for credit card processing services, low-risk merchant accounts have a much easier time. And if you’re wondering why credit card companies are so concerned with even the slightest risks, it all comes back to underwriting.

What is underwriting?

Underwriting is simply another term for financial backing. Banks and financial institutions provide underwriting, or backing, for credit card companies. That way, these companies can survive the onslaught of chargebacks, returns, and fraudulent purchases that they go through each year. Without underwriting, there would be no credit cards — but the banks have to see a substantial return on their investment. And to ensure that they get this return, banks and credit card companies will typically refuse to work with high-risk industries.

Benefits of merchant account services

Now that we’ve discussed the obstacles, it’s time for some good news: If you have a high-risk business, you can get approved for merchant account services by working with a top-notch high-risk payment processing provider. And with these vital services, you’ll be able to provide a host of conveniences for your customers, including:

Credit card payments

Credit and debit cards are today’s consumers’ most popular payment methods. With payment processing, you’ll be able to accept all major credit and debit cards, including Mastercard, VISA, American Express, and Discover.

Mobile app and electronic payments

If you want to bring your business into the 21st century, you’ll need to have the ability to take remote payments, including mobile apps and e-check transactions. By offering remote payments to your customers, you’ll be able to expand your business dramatically with online sales.

Better security

As a high-risk merchant account specialist, Zenti only works with PCI-compliant payment processors who utilize next-generation encryption plus cyber-security protocols to keep customer and merchant data secure.

Enhanced tracking tools

Zenti offers tools that enable you to track every transaction, from the point of sale to its final processing. With tracking, you can manage and monitor your transactions and be on top of the situation in case there’s a missing payment, chargeback, or customer dispute.

Invoicing solutions

Zenti’s invoicing tools can help you streamline your bookkeeping with user-friendly monthly invoices that your customers will appreciate.

Higher level of professionalism

First impressions can make or break a business, and if you can’t offer modern, up-to-date payment methods, there’s a good chance you’ll lose customers. With high-risk payment processing solutions, you’ll be able to provide your customers with the latest payment options, including digital and electronic payments. This can enhance your credibility and reputation, boost sales, and increase customer retention and loyalty.

If you own a high-risk business, Zenti can help you get a full roster of payment processing services without paying higher fees. Contact Zenti to find out how we can help you get the merchant account services your high-risk business needs at rates that you can afford.

Ecommerce merchant accounts are considered high risk for a few reasons. First, ecommerce transactions involve the exchange of sensitive financial information, such as credit card numbers and bank account details, which can make them more vulnerable to fraud. This increased risk of fraud makes ecommerce merchants a higher risk for credit card processors and banks, which may charge higher fees or require additional security measures to mitigate the risk.

In addition to the risk of fraud, ecommerce merchants also face other risks that can make them a higher risk for credit card processors. For example, ecommerce merchants may operate in industries that are considered high risk, such as online gaming, adult entertainment, or pharmaceuticals, which can make them more difficult to place with a merchant account provider. Ecommerce merchants may also have a high volume of chargebacks, which can be costly for the merchant and the credit card processor.

Overall, the combination of fraud risk, industry risk, and chargeback risk can make ecommerce merchant accounts more challenging to place and can result in higher fees and more stringent security requirements.

Ecommerce merchants often have to deal with a higher volume of transactions compared to brick-and-mortar businesses, which can increase the risk of fraud. This is because online transactions involve the exchange of sensitive financial information, such as credit card numbers and bank account details, which can be vulnerable to hackers and other types of cybercrime. In addition, ecommerce merchants may not have the same level of control over the transaction as a brick-and-mortar business, which can make it more difficult to detect and prevent fraudulent activity.

Another factor that can contribute to the perceived risk of ecommerce merchant accounts is the industry in which the merchant operates. Some industries, such as online gaming, adult entertainment, and pharmaceuticals, are considered high risk due to the nature of their products or services. These industries may be more prone to fraud or other types of illegal activity, which can make them more difficult to place with a merchant account provider.

Chargebacks are another risk factor for ecommerce merchants. Chargebacks occur when a customer disputes a charge on their credit card and requests a refund. Ecommerce merchants may be more prone to chargebacks due to the lack of face-to-face interaction, which can make it more difficult to resolve disputes or address customer concerns. In addition, ecommerce merchants may have a higher volume of chargebacks due to the nature of their products or services, such as returns or shipping issues. Chargebacks can be costly for both the merchant and the credit card processor, as they can result in fees and lost revenue.

Overall, ecommerce merchant accounts are considered high risk due to the increased risk of fraud, the potential for chargebacks, and the potential for operating in a high-risk industry. As a result, ecommerce merchants may face higher fees and more stringent security requirements when setting up a merchant account. It is important for ecommerce merchants to understand these risks and take steps to mitigate them, such as implementing strong security measures and providing excellent customer service to reduce the likelihood of chargebacks. By taking these steps, ecommerce merchants can increase the chances of being approved for a merchant account and reduce the risk of facing challenges as a high-risk merchant.