5 Reasons Your Merchant Account Application Was Denied

Processors Don't Want To Deny You

Make no mistake: credit card processors want nothing more than to approve your merchant account application. Every person you interact with is trying to activate your account as soon as possible so that they can begin to collect a percentage of your credit card sales. Payment processors get no satisfaction out of denying your application. If anything, they waste more time and money on a failed application than you do.

As a result, it takes a lot for a merchant account provider to tell you that they cannot serve your payment processing needs. It can feel insulting when you get denied—after all, who are they to turn down your business? Providers often make this decision because either they got the wrong impression of your company, or there is a factor that forces them to turn down your application.

To help you spot potential red flags that are forcing processors to deny you, we've compiled the following list of five reasons why your merchant application was denied.

#1 You Have Poor Personal Credit

Credit card processing is a division of the banking industry, where personal credit history matters. In fact, a merchant account is actually considered to be a line for credit by the bank. This is because the bank pays you before the actual money from the sale is collected from your customer. Essentially, the bank fronts you the money and then gets reimbursed when the customer pays their credit card bill. If you have bad credit, it is a signal to a processing bank that they may have trouble collecting from you if there are any problems with your sales, such as chargebacks and fraud.

What You Can Do

If you think your personal credit history is getting you turned down, you may want to consider bringing on a partner with good credit who can apply for the merchant account. You can also offer to put down cash reserve, which provides the bank with collateral against potential sales issues. If neither of these options are available to you, then you might also consider contacting a provider from our list of the best merchant account providers for owners with bad credit. Rates and fees will be higher with a provider that approves bad credit processing, but you can always renegotiate your rates as you credit improves.

#2 Your Business Operates In a High Risk Industry

This is a very common reason for denial. The fact is that some industries attract a large amount of consumer fraud and chargebacks. Credit card processors prefer to avoid processing chargebacks because they leave processors temporarily exposed to financial losses if they are unable to recover the chargeback amount from the business. Additionally, federal regulators are beginning to sanction processors that knowingly or negligently facilitate fraudulent payments.

Several industries such as those related to cannabis, nutritional supplements, weapons, adult entertainment, and others are considered to be high risk due to poorly defined legal precedents on state or federal level. Most banks do not want to risk finding themselves in hot water with regulators, so they simply deny any type of industry that even resembles something with legal questions.

What You Can Do

First, fully disclose what your business sells prior to filling out a merchant account application. Most processors will be able to tell you on your initial call if they can serve your industry. In some cases, simple changes to your product or marketing can change a denial to an approval. Don't be afraid to ask a processor what they need to see to approve you. If you are being told that your business requires a high risk merchant account, check out our picks for the top-rated high risk processors.

#3 Application Contradictions

When you fill out a merchant account application, you are describing your business to total strangers while also making prediction on what your processing will look like. You're also giving those strangers an intimate look at your business's existing financials. When things are not matching up with industry standards, you risk an application denial.

Average Ticket and Monthly Volume

There are two common warning signs that underwriters look for when it comes to your sales figures. One is a discrepancy between your business type and your sales volume. If you claim that you're selling handmade soap part-time and you list your average ticket size as $500 and your monthly sales volume as $300,000, this will raise some eyebrows. The processor will wonder if you are misrepresenting your business type to cover for criminal activity. You can avoid this by being honest about what you sell and ensuring that your business description is as accurate as possible.

Processing Limits

The other common warning sign is to request an unusually high processing limit. If you are starting a brand new business but request a processing limit of $100,000 per month, your processor will question why you want such a high limit. To avoid this, you should work closely with your sales agent to set an appropriate limit that guarantees approval without stifling your cash flow. You can always increase your limit at a later date after you have established a need for it. Our list of the best merchant accounts for high volume merchants is a good starting place if you have a need for high transaction limits.

#4 Your Business Has a Bad Reputation

In addition to a deep dive on your business's financial information, processors will also take a look at your public-facing materials such as websites, advertisements, and social media presence. They do this to compare your public image to the way you represented yourself on your application and to find any negative customer feedback. If your business has a lot of negative reviews from customers, a track record of poor customer service, or an advertising approach that is obviously deceptive, then you could be turned down for an account.

Related: These Are the Top-Rated High-Risk Processors

#5 Your Business Is On the TMF/MATCH List

This is one of the most difficult problem to fix once it happens to you. The credit card processing industry maintains a private blacklist of business owners who have previously had their accounts terminated by a previous merchant account provider. This list is called the Terminated Merchant File (TMF), or Member Alert to Control High-Risk (MATCH) list. Your processor can place you on the TMF unilaterally if it determines that you have engaged in fraud, racked up too many chargebacks, failed to pay merchant account fees, or otherwise committed an egregious violation of payment processing rules. You will likely only find out that you are on this list when you apply for your next merchant account.

What You Can Do

The only way to get off of the TMF list is to contact the processor that put you on it, find out what you did to get placed on it, and ask what you need to do to get taken off. If your previous processor refuses to remove you from the MATCH list, you have two choices: wait five years until you are automatically removed, or work with a high risk merchant account provider that is willing to process for MATCH merchants. If you opt for the latter, our list of the best TMF/MATCH merchant accounts is a great place to start.

Don't Give Up

Whatever the reason for your merchant account denials, you should still be able to open a merchant account as long as your business operates legally. You'll need to be patient as you hunt for options—especially if your business falls within an industry on the very fringe of legality, such as marijuana products or online dating—but there is bound to be at least one credit card processor willing to take a chance on making money with you. The credit card processing industry changes every single day, but it's up to you to make sure that your business is ready when the opportunity appears.