For years, banks have uniformly rejected and hassled high risk merchant accounts, even those that yield large profits. In fact, some banks have decided to stop serving entire industries. However, a clarification in banking guidelines has reassured banks that they can and should be in business with high risk merchants. If banks can create and enforce strong compliance programs, they can keep a portfolio full of high risk clients.
Rewriting the Rules
Many entrepreneurs and investors are concerned that their businesses will be rejected by traditional lenders and have turned to alternative lenders for loans. Some bank officials are concerned that the proliferation of high risk industries will mean a major loss of profits in the coming years. As a result, many financial institutions are focusing on taking the risk out of high risk industries through monitoring systems.
Steps for Defending a BSA Decision
To start a solid compliance program, apply the BSA/AML risk assessment. The assessment must be complete and updated regularly. Ensure the risk assessment clearly defines the levels of risk in the customer portfolio, as well as the risk appetite set by the board. Afterwards, the board defines the guidelines for the customer’s account.
There should also be a process to determine the high risk activities that merchants participate in. Plus institutions should gather information about merchants to evaluate the risks before forming a partnership. After this initial assessment, a comprehensive plan for monitoring merchants should be established.
Use BSA Software
There is a variety of BSA monitoring software available to monitor merchant transactions. Develop a clear understanding of how the software works and perform regular data and model validation. Banks must document any potential suspicious transactions. Ultimately, there is no reason for banks to deny high risk merchant accounts. If banks stick to a BSA compliance program, they can have successful relationships with high risk merchants.
High risk businesses are extremely lucrative, but many financial institutions forego them because of the strict guidelines associated with monitoring these merchants. eMerchantBroker.com specializes in forming profitable relationships with high risk merchants. Our agents will protect your transactions and increase your profits. Start your merchant account today.