What makes you a High-Risk Merchant?
What Makes you a High-Risk Merchant?
When you apply for merchant account the payment processor is required to identify the risk level. This is done because every financial institution must take steps to mitigate the risk.
There are 3 types of industries as per the risk perspective
Low-Risk IndustryMid Risk IndustryHigh-Risk Industry
The most difficult merchant account applications are from the High-Risk Industries.
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Why financial institutions term some Merchants as High-Risk Merchants?
When you apply for merchant account other bank or a payment service provider the underwriting team at this financial institution run various tests to identify the level of risk involved in onboarding a merchant like you. The underwriting team is the core team which is responsible to only onboard the merchants which are bringing in maximum profit. Any Merchant that may attract Returns, Charge-backs or Penalties are not of interest to this team.
Depending upon multiple factors your account may be called a High-Risk Merchant Account. The underwriting team performs various tests by utilizing highly efficient tools which literally scrub the entire Internet to find even the smallest issues with the merchant profile. The online test which the underwriting performs check a huge number of endpoints to rule out the possibility of underwriting or nonprofitable Merchant.
Let’s look at some of the parameters that are always looked at by the underwriting team before saying yes to your merchant account.
Some Bad connections – Bad Endpoints Connectivity.
The underwriting team utilizes all the information available on the application form and the KYC documents submitted by you. The information which you fill in the application form is scrubbed on the Internet and is also passed through multiple online and offline tools to identify if there’s anything wrong.
For example, if you are a Tech Support Merchant and you have listed a phone number on the application which is also listed on an online scam report at a review website then be rest assured you’re not getting approved. The email address which you put on the application form. Every information is checked Name, Email, Phone, Address, Toll-Free number, Website, Content of the site and also Security parameters of the website. They don’t like to underwrite a merchant whose website was hacked and there is a screen grab of the defaced website somewhere on the internet.
The KYC documents or know your customer documents that the merchant shares with the application form should legit. You should never fake or forge the documents. We advise you to understand that the underwriters are extremely educated people with a strong mindset and in depth risk identification skills. If you edit a KYC document and send it to the underwriter thinking that you will be approved then you just dreaming it’s not going to happen tomorrow or day after. As a matter of fact, it is not gonna happen ever in the next few hundred years.(Lol)
Before applying for merchant account make sure that your website and your contact details do not have any negative reputation on the Internet. You also need to look at the application form couple of times before filling it. You do not want your application to be turned down just because of some small errors. If there is a challenge which you are experiencing with one of the KYC documents please do not hesitate to talk to the merchant account provider. There may be a second document that might be considered. For example, if you have challenges getting a utility bill for your residence address maybe the underwriting team would be comfortable with the personal banking statement of yours where your residential address is clearly mentioned. The more you communicate in a decent fashion with the payment processing company the better relationship you will develop.
Your Industry has High Return ratio.
The industry type which you a part of can also be considered High Risk. This is done because of two major reasons
The historical data of transactions in this industry may be reflecting a high returns or chargeback ratio than other industries.The product or service that you are selling might not be legally accepted in the country or state why you are applying for the merchant account.
For example, Electronic cigarette sales are restricted in a couple of States but they might not be restricted in other states. The card scheme creates guidelines but he payment service providers have to follow card scheme’s guidelines and the local laws as well. What might be legal to sell in Amsterdam might not be legal to sell a New York city
Startup Vs Experienced Merchants
The age of your business can also create a concern for the underwriters. If you are brand new company then the possibility of considering you as a High-Risk Merchant is higher. This is because the possibility of a start-up merchant failing to run a business is higher than an experienced Merchant. The Banks and the PSPs or any Financial Institutions are seasoned businesses and they do not want to burn their hands. They are always interested in working with someone who brings more money and a attracts the least amount of risk.
If you are startup Merchant and you are applying for a merchant account then we strongly recommend you to create a proper business plan that discusses your short term and long term goals. You should also discuss the investment methodology which you are implementing in your company. Display a real picture of your sales and marketing strategy. A proper business plan should be at least 7 to 12 pages. A small effort of yours to create a business plan for your company may create a great impact in the minds of the underwriters. This creates an image a new company that has a great vision.
Bad or No Credit
Most of the good banks and top ranking PSPs would like to work only with merchants with good credit scores. A good credit score means that in a scenario where the merchant experiences a huge number of return on chargebacks then his personal credit will help to retain the business for a long time. A merchant with good credit score can overcome many financial challenges. Remember it’s always the financial institution or the payment service provider taking the risk when it comes to payment processing but they still want to play safe by betting on the strongest horse.
Suggestions in case if you don’t have a good credit score
We strongly recommend you to work for a couple of months to increase your credit score before applying for a merchant account. We all know that if you work systematically and take the right steps towards fixing your credit you will definitely see an improvement in 3-4 months. If you still want to apply for a merchant account despite knowing for the fact that your credit score is bad or very bad we strongly recommend you to go to and aggregated merchant account provider or an Offshore merchant account provider. The rates can be higher but the possibility of getting a yes can be a lot higher than the domestic payment processor.
History Threatening the Future
We all want to remember the history that is good and forget that is bad. Unfortunately, the underwriting team is more interested in identifying all negative historical instances. The moment the underwriting team identifies that the applicant or the company has been involved in fraud, Transaction laundering, Money laundering or any other criminal offense then you know what they will do. At the end of the day, it totally depends upon the underwriter’s point of view if they want to take the risk of onboarding you or not.
Suggestions – Apply for an Offshore Merchant Account. They might not have such an intense access to the local investigation tools that a Domestic merchant account provider may have.
Listed on Match List of a TMF Created
Sometimes people ignore the refund requests that appear on low-risk merchant account and don’t respond. This results in closure of the account and the merchant getting reported to the Card Scheme. This may be catastrophic if the merchant gets listed on the match list or a TMF(Terminated Merchant File is created). What does that mean?
Well, you are locked for few years and no legit processor will work with you.
In case if you applying for merchant account make sure that you clear all the dues of your previous payment processing companies. Even if the dispute is for $10. Please pay them this will help you in long term.
Feel free to connect with us if you have any questions. We will be glad to assist you.