Getting Approval for Nightclub Merchant Accounts

If you’re the owner or manager of a nightclub or bar, you already know that you’re in a highly competitive industry. In order to compete, you have to offer your customers the best, most satisfying experience — which includes easy, streamlined payment options. Yet surprisingly, a vast number of nightclubs across the country can’t get access to basic payment processing services. This is because merchant accounts for nightclubs are typically denied approval, regardless of how successful the nightclub or bar might be.

If you’ve been denied approval for a nightclub merchant account, you’re not alone. There’s a long list of industries that are considered “high-risk” by the financial institutions that underwrite payment processors.

Here’s a partial list of these so-called “high-risk” industries:

• Nightclubs and bars
• Adult entertainment products and venues
• Subscription services
• Cannabis
• Online dating
• Nutraceutical products
• Property management
• Fantasy sports
• Travel and tourism
• Independent health and beauty
• Guns and ammunition
• Pawnshops
• Pay-day lending
• Collectibles/antiques
• Online gambling

These are all booming industries that make a major national and global economic impact, yet they’re still considered high-risk for merchant services approval.

The good news is, Zenti can help you get approval for a nightclub merchant account, so you’ll be able to provide a full range of payment options for your patrons. With Zenti, you’ll be able to take credit card, debit card, e-check, and mobile app payment methods. Plus, Zenti offers a variety of nightclub merchant account processing tools, including payment tracking and automated billing, to help you streamline your business.

Merchant accounts for nightclubs

Nightclubs and bars have always been considered a risky funding proposition for financial underwriters and merchant account processors. Their traditionally high closure rates were an industry liability even before the pandemic. What’s more, nightclubs are considered part of adult entertainment, which puts them in a high-risk industry for financial underwriting.

If you’ve already applied for payment processing, you might have been accepted by an online processor such as Paypal, Stripe, or Square, only to have your account canceled during the first credit card transaction. These popular online processors may accept your account at first and then drop it immediately as soon as they discover that you’re in a high-risk industry. Typically, these payment processors won’t offer merchant accounts for nightclubs, no matter how successful you might be.

Here are some of the reasons why nightclubs are considered high-risk:

Chargebacks

In addition to being a huge headache for nightclub owners, chargebacks are also a prime reason for payment processing denial. Chargebacks occur when a purchaser, for any reason, contacts the credit card company for a refund. Chargebacks are problematic for every business owner, but for various reasons, nightclubs and bars have a higher than normal chargeback ratio, which cuts into profits — not only for the owners but also for payment gateway processors.   

While many chargebacks are legitimate and simply reflect customer dissatisfaction, the growing number of “friendly fraud” chargebacks is rapidly becoming a financial epidemic in the US.

“Friendly fraud” refers to a chargeback in which a customer claims the charge is unauthorized but actually knew about the purchase. In many cases, customers commit friendly fraud without malicious intent. Sometimes they choose to contact the credit card company directly instead of getting reimbursement from the vendor. Other times, they cancel a service, such as a subscription, because they didn’t realize what they were paying for or how high the costs would be.

In the nightclub industry, friendly fraud often occurs when charges show up on a bill and a customer’s spouse, significant other, or employer inadvertently sees them. To avoid getting caught out, the customer will then deny the charges, call the credit card company, and claim that they’re unauthorized. This scenario is a common reason why adult entertainment industry venues are denied payment processing services, and why it’s so difficult to get merchant accounts for nightclubs. To give you an idea of its economic impact, experts predict that by 2023, one out of ten chargebacks will involve cases of friendly fraud.

Merchant accounts for nightclubs are typically plagued with large numbers of chargebacks. Later on, we’ll discuss how Zenti can help you prevent chargebacks and mitigate fraud risks to your nightclub merchant account.

Security problems

Adult entertainment venues, nightclubs, and bars have always been prone to security woes. Historically, they tend to be targeted by the criminal elements of society. And likewise, the nightclub industry, unfortunately, has its share of bad actors who are running the clubs for criminal intent. This makes financial institutions shy away from backing nightclubs and bars, no matter how successful they are. And even though the vast majority of nightclubs and bars are legitimate, they might still suffer from the same reputation as their shadier counterparts. And speaking of reputation…

Reputation and social stigmas

No matter how legitimate (or lucrative) they might be, adult entertainment industries have always been stigmatized as “underground” industries. While this is especially true for strip clubs and gentlemen’s clubs, even traditional nightclubs and bars fall into this category, primarily because they serve alcohol. Although we’re living in the 21^st century, financial institutions are still reluctant to underwrite industries that fall in this “underground nightlife” category. These industries might involve controversial (albeit legal) products, like cannabis or guns. Or they might involve adult behaviors that are stigmatized by society as a whole. Whatever the reason, banks and financial institutions don’t want to risk their reputations by being associated with these industries.

What is underwriting?

We keep mentioning the word “underwriting,” so now’s the time to explain exactly what this means. The term “underwriting” simply refers to financial backing. Merchant account processors are underwritten, or backed, by banks and major financial institutions. It’s comparable to getting a loan from a bank. If the bank sees you as high-risk, they won’t want to back you because they’re afraid they won’t get their money back. In much the same way, payment processors don’t want to accept merchant accounts for nightclubs and other high-risk venues because the high rate of chargebacks, plus other factors, result in major profit loss, not only for the credit card processors but also for the financial institutions that back them.

Getting nightclub merchant account approval

After all this, is there any way to get merchant account approval for your nightclub? The answer is yes — but first and foremost, it’s crucial to get the help of a high-risk merchant account specialist. You can prepare beforehand, however, by following a few strategies:

Maintain a healthy bank account

Financial underwriters like to see a healthy bank balance, so try to keep as much cash as possible in your savings and checking accounts.

Keep your paperwork and documents

When you apply for payment processing services, you may be asked to provide bank statements from as long as half a year ago. In addition, you’ll probably be asked to provide tax returns going back several years. You can prepare for this by holding on to all your business-related paperwork and recovering past statements online, so you’ll have them ready.                                 

Reduce your chargebacks

For nightclub merchant accounts, there are two vital ways you can prevent chargebacks:

• Provide full disclosure of prices and fees: In the nightclub industry, one of the prime reasons for customer dissatisfaction is sticker shock. When extra charges — such as fees and cover charges — appear on a bill, patrons sometimes claim that they didn’t know about these charges, and they might refuse to pay them. The best way to prevent this scenario is to provide full disclosure of all cover charges and extra fees as soon as a customer enters your club. Make sure to print this information on your menus and drink lists, and if necessary, instruct your staff to tell customers about any extra charges beforehand.
• Use discretion when billing: Lack of billing discretion is one of the classic reasons for chargebacks in the adult entertainment industry. This can be easily prevented if you use a different name — one that doesn’t associate you with the nightclub industry — for your bills and invoices. This way, if someone else sees the bills, your patrons can keep their activities private.

Zenti offers a number of tools that can help you decrease damaging chargebacks. These include our Address Verification Service, which tracks and matches billing addresses to points of sale in every transaction. We also provide credit card security code tracking, plus 3-D Secure Protocol, which validates identity on each transaction, over a variety of platforms.

Advantages of merchant accounts for nightclubs

Is it worthwhile getting a merchant account for your nightclub business? Decidedly yes. Just for starters, consumers prefer using credit cards more than any other type of payment. Once you’re approved for credit card processing, you’ll start seeing a positive impact on your business right away.

Here’s a look at how a nightclub merchant account with credit card payments can boost your business.

Multiple payment options

A gateway payment provider enables you to provide a variety of payment options for your customers, including credit cards, debit cards, e-checks,  mobile app payments, and other types of contactless payments. In addition, you’ll be able to take foreign currencies via automated payment transactions.

Payment tracking

With merchant account services, every payment is tracked from the point of sale and checkout through the final payment approval and transfer, so you don’t have to worry about it. You’ll also have access to point of sales systems and full-service merchant processing tools with next-gen functionality. And if you do want to monitor an e-check or credit card payment, you’ll have instant access to the entire tracking process, thanks to this state-of-the-art connectivity.

Convenient payment processing tools

You obviously didn’t go into the nightclub business to become a banker, but it might seem that way when you’ve got a lot of bookkeeping to do. With a merchant account, everything is automated, including customer invoices and billing, so you’ll be free of tedious bookkeeping and paperwork.

Payment security

You’ve probably spent a few sleepless nights worrying about dealing with fraudulent payments. A merchant services provider operates with the latest-and-greatest next-gen cybersecurity, including coding and encryption, so you won’t have to worry about payment security.

E-checks

If you’ve ever had to chase down customers who sent bad checks, you know what a headache it is. In addition to credit card options, a merchant account system provides e-check processing as well, which can mitigate the occurrence of bounced checks.

Choosing a high-risk payment processing specialist

First and foremost, before choosing a high-risk merchant account provider, you’ll need to make sure that the company works with your industry. Some high-risk payment processors only work with specific industries, such as e-cigarettes or cannabis. If you do find a gateway payment processor who works with adult entertainment, they might not work with nightclubs or bars, so be sure to ask.

Not all high-risk payment processors are the same. Some charge higher rates than others, but might not provide adequate services. Likewise, some payment processors only offer limited services to high-risk merchant accounts and may not provide a full roster of payment methods.

Here’s what to look for:

Affordable rates

There’s no getting around it. A high-risk merchant account processor is going to charge higher processing fees (including per-transaction fees and monthly fees) than a traditional payment processor. It’s unavoidable because these high-risk merchant processing companies incur a greater risk and need to cover themselves in case of profit loss. However, these higher fees don’t need to be extortionate. This might be a red flag if a high-risk merchant account processor is charging extremely high rates.

Fair pricing and disclosure

A reputable high-risk merchant account processor will be open and above board to its merchants, disclosing all fees and explaining why they’re implemented. In addition, pricing should be consistent. For example, the fees charged for credit card payment options should all be the same, whether you’re using VISA, Mastercard, American Express, or Discover. If a high-risk payment processor charges varying fees for different credit cards, consider taking your business elsewhere.

Zenti offers affordable rates for its high-risk merchant accounts, with full disclosure so you’ll always know exactly how much you’re paying. Plus, we have the same rates across the board for VISA, Mastercard, American Express, and Discover.

Multiple payment methods

A good high-risk merchant account processor should be able to provide a wide variety of automated payment options for your business, including credit cards, debit cards, e-checks, and mobile app payments. Even if you’re in a high-risk industry, if you’ve been accepted for payment processing services, there’s no reason why these services should be limited.

Zenti provides a full roster of automated payment options for your nightclub merchant account business, including credit cards, e-checks, mobile app, and debit card methods. This not only streamlines the process for you, it also makes it easier for your customers to pay quickly and easily.

Secure servers and payment protection

A top-notch high-risk merchant account processor will provide the very best in next-gen security, including encryption and privacy protocols for every transaction.

How Zenti can help your nightclub merchant account

If you own a nightclub business, Zenti can help you get the nightclub merchant account services you need to grow your business. Zenti was one of the very first merchant services providers to offer payment processing to adult entertainment merchants. As the No. 1 high-risk payment gateway for the adult entertainment industry, Zenti understands the unique needs of nightclubs and bar businesses and can help you get approved for an affordable merchant account that will streamline your financial management, attract new customers, and boost your business.

If you’re ready to increase your nightclub revenues through enhanced payment processing, contact us to learn how we can set you up with a full roster of convenient payment processing services for you and your customers.