Merchant has a US LLC / Non US UBO / no Physical Office In the USA.
This is a question which many founders ask us regularly, especially when they have heavily invested in building a legitimate-looking platform and they have also incorporated their business in the United States of America. However, the reality is that merchant account approvals are not always solely based on whether a company is legally registered in that country.
Banks and payment processors evaluate the entire risk profile of the merchant, and this includes the ownership structure, operational presence, the industry in which the merchant operates, regulatory exposure, compliance requirements, and also the ability to verify that the service is really being offered in the best way.
In this question, we can certainly understand that the merchant operates in the identity protection, identity monitoring, consumer credit insight, and credit reporting sector. While this certainly appears like a standard SaaS subscription business on the surface, many acquiring banks and payment service providers will definitely classify identity monitoring and credit-related services as high risk, and this is because they involve sensitive consumer data, potential regulatory obligations, consumer disputes, recurring billing, and the claims that may be related to credit reports and identity theft protection.
When a website advertises services such as identity monitoring, credit scores, credit repair, credit reports, three-bureau reports, fraud alerts, identity theft protection, or credit-related insights, then almost every underwriter will want to understand exactly how those services are being delivered to the consumers or customers. They may request proof of relationship with data providers, credit bureaus, monitoring partners, compliance frameworks, privacy controls, licensing arrangements, and also consumer protection procedures, and if the merchant cannot provide information about the relationship as per the underwriters’ expectation, then the application will certainly be declined.
It is important for merchants to understand that the relationship proof that is presented by the merchant to the underwriters should be independently verifiable, and then only the approval will become significantly easy. Another major concern is the ownership structure. Many payment service providers become extremely cautious when the ultimate beneficiary owner, that is, the UBO, is not a U.S. resident, even when the company itself is registered in the United States.
This is especially true when the business is targeting U.S. customers and handling sensitive personal information. It also becomes challenging when the merchant claims to provide services which are tied to identity verification or credit data. If we look at it from a risk and compliance perspective, then we can say that banks generally prefer that businesses that are serving U.S. consumers must have meaningful operation ties inside the United States.
And if the business does not have a genuine physical office in the United States, then it can create significant additional challenges as well. A registered agent address, a virtual office, a mail forwarding service, or a co-working address is most of the time not viewed at the same value as a verifiable operational location that has employees, management presence, and active business functions.
Banks and payment service providers often ask themselves a very simple question, and that is, if there are customer complaints or if the regulatory authority enquires about anything, or if there is a mandatory compliance audit that needs to be performed, or even if any kind of dispute arises, then where is the business actually operating from? And who is responsible on the ground? In case the merchant has a company in the U.S. but is not physically present in the United States, then performing all these regulatory obligations becomes extremely challenging for the payment service providers.
The startup status of merchants in this industry also plays a negative role sometimes. A business that has got no processing history, no previous merchant account statements, has not demonstrated any transaction volume, or has got limited evidence of customer traction is generally considered more difficult to underwrite than an established merchant. Underwriters assess risk based on quantifiable data.
Note: Merchants like this usually display concerns like non-US residents who are business owners serving US consumers, those with no physical office in the United States, and newly launched businesses with absolutely no processing history. Such merchants go through enhanced compliance review, but this cannot be done without a physical office in the US. Some of these merchants also lack verifiable agreements with data providers, monitoring partners, or credit bureaus.
The subscription model also carries extended credit risk. The limited traffic, low brand recognition, and no public business footprint are also a challenge. All of this is insufficient evidence of proper business practice, and it creates a challenge in the account approval.
Ultimately, many merchants focus on the fact that they have formed a US LLC. However, it is important to understand it from the underwriter’s perspective.
For Underwriters the important questions are who actually owns the business, where it is actually being operated from, how the services are being delivered, what regulatory obligations do apply to the business, and can the claims made by the website be independently verified? And if something goes wrong, then who will be held responsible and accountable within the jurisdiction where the merchant is offering his services? All of the above-listed factors determine whether an application is approved or declined.
If you are a merchant currently operating in this credit repair-related industry and are having challenges in finding low-cost credit card processing in the United States, then you can contact us. We can review your profile and potentially help you find a solution, and if we are not able to find a solution, at least we will be able to give you some insights that will potentially help you to improve the chances of your merchant account approval.