Reasons you might be denied for a merchant account

Saturday, January 03, 2015

In today’s modern marketplace, it’s crucial that businesses accept debit and credit card payments. The average amount of cash payments per business decreases every year, with studies showing the average consumer having an 80% preference for using card payments over cash.

In order to offer a streamlined and hassle-free checkout experience, businesses need to be able to accept the most popular forms of payment in addition to considering more recent options like mobile payment services. But, in order to accept these payment options, businesses need a merchant account which allows them to work in tandem with a payment processor who acts as the mediator between the merchant and card issuers.

So, this article will focus on breaking down how these accounts work, why these rejections occur, and what businesses can do to better position themselves to be approved for an account.

What is a merchant account?

A merchant account is a bank account for your business. To open a merchant account, you’ll need a business license and the approval of an acquiring bank. Acquiring banks will work as a third party between your business and your customers’ payments, specifically their electronic payments.

Sometimes, a merchant’s acquiring bank is also their payment processor. In fact, “acquiring bank” and “payment processor” are often used interchangeably, but it’s important to note that not all payment processors offer acquiring bank services but instead work in conjunction with an acquiring bank provider (such as an actual bank).

Why do you need one: Simply put, you can’t accept digital payments without a merchant account. Cards swiped in POS systems have no destination without a payment processor and acquiring bank to process, finalize, and transfer funds.

Without a merchant account, you’ll essentially be operating as a cash only business. While this format may fit certain types of businesses, it’s not feasible for most.

It’s in every business owner’s best interest to make their checkout process as simple and easy for their customers as possible, and being able to accept all major forms of payment plays a huge part in achieving this goal. Therefore, a merchant account is a necessity for today’s modern business.

Why could you be rejected for a merchant account?

Here are some reasons you as a small business owner could be rejected for a merchant account:

You’re on the MATCH list: Essentially, the Mastercard Alert To Control High-Risk (MATCH) merchants list works as a sort of warning list of businesses for acquiring banks and payment processors to be aware of.

Reasons why your business may be recorded on the MATCH list could be due to being seen as a high-risk business, having outstanding bills, unpaid fees, past bankruptcies, or an exceedingly high chargeback ratio.

Tax troubles or liens: Tax liens act similar to a credit report, alerting merchant providers of possible tax issues or a history of tax delinquency. Merchant providers desire consistency, and unresolved tax issues can be a dealbreaker for many merchant providers.

High-risk merchants or prohibited industries: Some industries pose higher security risks than others, and without the proper fraud prevention precautions in place, merchant providers may not want to take the risk.

Examples of high-risk businesses include:

  • Bail/bond services
  • Medical services
  • Casinos/gambling establishments
  • Adult shops
  • Smoke shops (tobacco and other nicotine products)
  • Firearms shops

Poor business reputation: Applying for a merchant account isn’t too different from applying for a job. Think of the times you’ve applied for a job or hosted a job interview. Did you check the applicant’s job references? Did you research their social media or LinkedIn profile? Did you perhaps analyze their work history or contact previous managers?

Merchant providers will do similar actions. If your business has a reputation for bad service, payment issues, or defective products, then merchant providers may not want to team with you. Online reviews are readily available online, so treat your online presence like your business’s resume and strive for it to be polished, uncontroversial, and brimming with consistency.

Poor credit history: Unfavorable credit, whether with your personal or business account, is perhaps the most common reason merchant providers reject submissions. A history of missed, late, or unpaid payments can have merchant providers doubting your ability to work with them efficiently and effectively, and therefore could see you as a small business owner as unreliable and high-risk.

What can you do if you’re rejected?

Ok, so let’s say your application for a merchant account has been rejected. Is there anything you can do? The short answer is yes, so let’s look at some.

Find a high-risk merchant processor: If you’re operating in an industry deemed “high-risk”, then you’ll want to do some research and find payment processors who will be willing to work with you. If it’s not readily obvious on the payment processor's website, then a phone call with a representative is the easiest way to find out. If the only thing holding your business back from achieving a merchant account is operating in a high-risk industry, then odds are in your favor that you’ll eventually find a merchant provider willing to work with you.

Build up a cash reserve: In the event that poor personal credit is keeping you from a merchant account, consider having another owner of your business with stronger credit represent your merchant account submission.

If your business's poor credit is holding you back, or if having another owner to represent your business isn’t an option, then some payment processors may work with you by setting up some guarantees that make them feel safer and more confident teaming up with you. These include implementing stricter fee collection schedules, charging increased premiums or monthly charges, or having you offer a significant cash reserve to act as collateral in the event you don’t make good on your end of the deal.

Improve your business reputation: Always conduct your business with integrity, and strive to leave your customers satisfied and eager to return. Incorporate procedures for your employees to follow that ensures a streamlined, positive, and inviting customer experience.

When a customer interaction goes especially well, encourage them to write a review online. Or, make an online post yourself commemorating a moment that represents your business in a positive light. Always let your customers know that they can come to you with any questions, concerns, or issues. You can accomplish this through messages on online and offline receipts, or simply communicating it face-to-face at checkout.

Committing your business to resolving as many customer issues as possible can go a long way in reducing chargebacks, promoting a healthy online presence, and encouraging merchant services to trust you.

Solve tax problems: Merchant providers will rarely want to work with a business riddled with unresolved tax issues, so before sending out merchant account submissions, clear your business of festering tax complications and consider reaching out to tax experts to assist you, if necessary.

Managing a business can quickly become complicated and overwhelming, especially if you are acting as your own payroll. From the onset, it’s a good idea to establish a dedicated payroll department or work with a payroll solution to ensure you don’t fall behind in tax ordinances and to keep your business compliant.

Closing thoughts

Securing a merchant account is crucial for the majority of businesses in the modern marketplace. Before submitting applications, it’s worth doing everything you can on your end to make your business an attractive investment to merchant providers.

Additionally, it’s a good idea to research acquiring banks and payment processors to get a good idea of the types of industries they accept, their merchant expectations, and any extenuating allowances they might permit. Speaking with a payment processor’s representative can go a long way in informing you on what you need to work on before submitting applications. Remember, payment processors want to accept applications and work with businesses, so reach out to them for assistance to strengthen your merchant account applications.

Interested in opening a merchant account?

Heartland can help.

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at