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Why PayPal and Square Are Revoking High-Risk Merchant Accounts (and What Are The Alternative Options?)

Today, most businesses use payment processors like PayPal and Square for online and on-premise payments. But these services are not available to all businesses, and in particular high-risk businesses. Both PayPal and Square have extensive lists of activities for which they will not process payments, and violations of these terms can result in bans from their services.

Some payment providers recognize, however, that just because a business officially falls within a high-risk category doesn’t mean it can’t be a valuable partner. They have decided the risk-benefit analysis weighs in favor of offering services to these businesses. 

Below we discuss some of the payment processing options available for high-risk businesses, companies banned from other service providers, or just those looking for an alternative to the giants of the industry.

Is your business high-risk?

The list of factors contributing to whether a business is high-risk is extensive, but in general, these factors can be divided into two categories: financial and health/safety.

Financial issues common among high-risk businesses include:

  • High levels of chargebacks
  • Substantial numbers of refunds or returns
  • Unusual levels of credit card fraud, including card-not-present fraud
  • Bad credit histories
  • History of late payments
  • Use of uncollateralized debt

Health and safety issues associated with high-risk businesses include high numbers or accidents (fatal or non-fatal) or exposure to dangerous chemicals, equipment or working conditions.

Understandably, the financial high-risk categories pose the most issues for credit issuers and payment processors. High-risk businesses often find that banks will simply not work with them, or if they do, they charge noticeably higher transaction costs than for other companies.

Are you at risk of violating PayPal’s or Square’s acceptable use policy?

Even if your business is not high-risk, you may have difficulties using Square or Paypal if your business is within one of the areas excluded under their acceptable use policies. While it is not surprising that these platforms refuse to service illegal activities, they also exclude many businesses in legal but controversial areas: narcotics and drug paraphernalia; adult entertainment, products and services; weapons; risky financial offerings; gambling and more. 

All of these areas are known to have a high level of chargebacks, making payment processing riskier.

PayPal, for example, will not provide payment processing services for businesses involved in the following areas (as well as many others):

  • Sale of cigarettes;
  • Sale of items that “encourage, promote, facilitate or instruct others to engage in illegal activity”;
  • Sale of items that hate or intolerance (think Proud Boys t-shirts);
  • Sale of “obscene” items;
  • Sale of specific sexually oriented materials;
  • Sale of firearms or certain types of knives.

As you can see, it is not always easy to tell if a business falls within one of these categories. Obscenity, for example, has always been subject to a wide range of interpretations. Remember the classic Supreme Court case, Jacobellis v. Ohio, where Justice Potter Stewart, after refusing to define obscenity strictly, famously said “I know it when I see it.” 

The vagueness of PayPal’s policy goes beyond obscene materials. The use of the undefined word “certain” concerning sexually oriented materials and knives also potentially leaves vendors on uneasy ground. PayPal also requires pre-approval for transactions in other controversial areas, including alcohol sales, gambling, e-cigarettes, investment transactions and lottery purchases. 

PayPal’s policies are somewhat ironic given their decision to begin working with cryptocurrency last year. Although it is becoming increasingly popular and more widely accepted, cryptocurrency remains a highly volatile and unpredictable area, subject to wide value swings based on nothing more than a tweet. 

Within less than a year, Tesla went from acquiring large amounts of Bitcoin and saying it would accept cryptocurrency payments to reversing directions and stating it would not accept cryptocurrency until Bitcoin was less of a burden on the environment. 

Square’s list of unapproved activities is even more extensive and sweeps in less controversial but more risky businesses and activities such as:

  • Transactions related to buyer or membership clubs (think Sam’s Club or Costco)
  • Credit counseling
  • Sports betting, including fantasy football
  • Infomercial sales
  • Internet or mail order pharmaceuticals
  • Bill payment services
  • Gas stations
  • Occult materials
  • Bankruptcy attorneys

Even the exclusion of illegal activities is less than clear. For instance, recreational marijuana is finding increasing acceptance, with more and more states passing laws legalizing its use. However, it is still a violation of federal law to sell marijuana. So, if your business sells marijuana-related products, perhaps even including widely accepted derivatives like CBD oil, you will probably not find a payment partner in PayPal or Square.

You can see that it can be quite easy for legal, legitimate businesses to be ineligible for PayPal or Square payment processing services. What is a high-risk business to do? 

What are the options for high-risk businesses?

There are many alternatives to PayPal and Square, although not many of these alternative platforms focus on the concerns of high-risk businesses. But high-risk businesses can still find a suite of cost-effective financial services tailored with them in mind; it just takes finding the right providers.

emerchantbroker (EMB) has an established reputation for working successfully with high-risk businesses. And EMB offers high-risk companies far more than just payment processing services.

The process of applying for a high-risk payment gateway is relatively simple. Approvals can take as little as twenty four hours, ensuring your business is up and running quickly. EMB tries to limit documentation requirements as much as possible during the underwriting process. For your initial application, you must provide just the following:

  • Valid, government-issued identification
  • An employer identification number (EIN) or social security number
  • A merchant account
  • A link to your website showing terms and conditions (security of the site is essential, so ensure your website is sound before applying)
  • Three months of bank statements
  • Three months of payment processing statements (if you have them)

EMB also provides high-risk businesses with a range of additional financial services. These include check processing, ACH business funding, international solutions, and even features for accepting cryptocurrency payments.

EMB also offers chargeback protection services, that help keep a merchant in the know when issues arise with a transaction. A business can’t assess how, if at all, it can avoid future chargebacks if it doesn’t know about the ones currently happening. Moreover, if your business is not aware of chargeback levels, you may unknowingly be in danger of losing your merchant account. 

Get card processing up and running 

Just because you run a high-risk business doesn’t mean that you can’t have access to the full range of financial services available to other companies. Particularly when it comes to the pressing need to accept credit card payments online, there are partners for you that offer secure, cost-effective and user-friendly alternatives to the PayPals and Squares of the world.