Why High Risk Merchant Accounts Are Misunderstood

Oct 23, 2014

The Federal Deposit Insurance Corp (FDIC) announced recently that it has withdrawn its list of merchant types that should be handled with caution, which included businesses they labeled as “high risk.” These businesses included payday lenders, adult entertainment businesses, debt consolidation firms, and others. The FDIC released the list in 2011, stating that these types of businesses required heightened scrutiny by banks before processing their transactions. Republicans have accused the FDIC of issuing a hit list of high risk merchant accounts that encourages banks to decline to do business with these merchant categories, even if they are legitimate businesses. The FDIC now claims that the list may have been misinterpreted by financial institutions.

The Justice Department has subpoenaed more than 50 payment processors and banks as a part of “Operation Choke Point,” an initiative dedicated to keeping fraudulent merchants from exploiting the FDIC system. This move by the FDIC is the latest development in the state and national war to keep certain businesses away from the payment system. Even though the FDIC has withdrawn its list, the organization still encourages banks and payment processors to still weigh their risks when dealing with third-party payment processors.

Although the FDIC has removed its list of merchants it classified as “high risk,” banks still have the right to scrutinize high risk merchant accounts the same as before. While this may open the door for a few more merchant accounts to access bank payment processing, the majority of legitimate businesses listed will still be met with apprehension, and strict guidelines, by banks and traditional payment processors. Owners of high risk businesses should stick with reputable third-party payment processors that know how to navigate the high risk industry, protect their client transactions, and increase their revenue through strategic payment processing.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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