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Why Processors Close Some High Risk Merchant Accounts

Launching and maintaining a profitable business is riddled with challenges and unpredictability.  If you happen to be a high-risk merchant, the complexities are only multiplied.

Banks are reluctant to provide high-risk merchants with a merchant account for various reasons.  High-risk industries are rampant with fraud, chargebacks, poor reputation, and more. Banks are simply unwilling to take these types of risks.

But what if you are an upstanding, responsible, and ethical business owner? What if you ensure that you are operating legally and delivering your goods and services as promised?

Despite these otherwise legitimate practices, a merchant service processor can and will unilaterally decide to shut down your account, leaving you in a desperate situation and potentially leaving hundreds of thousands of dollars on the table. Once the stream of income is cut off, your business is over.

What drives these processors to decide to shut down your merchant services account?

There are a number of reasons that prompt processors to permanently suspend high-risk merchant accounts. One of the most notorious reasons is having too many chargebacks. If you have too many disputed transactions, this sends a red flag to the processor. To avoid this, it is critical that you maintain your chargebacks no higher than 1% or less of your total charges.

Another reason? Having excessive “forced transactions”. This is also a big “no-no” for processors. Forced transactions are essentially transactions that are keyed manually by the business owner. These types of transactions don’t allow critical electronic information to be captured on the card. This can potentially lead to fraudulent transactions. Thieves can easily take credit card numbers without getting their hands on the card itself.

All businesses are granted an allotted number of forced transactions. To avoid being flagged it is best to stay within those limits. If you are expecting a certain amount of transactions that will need a higher amount, do reach out to your processor and discuss the possibility of negotiating a different amount.

Finally, say you fill out a merchant account application to sell a certain widget or service. Then, once approved, you decide to sell a high-risk widget or service. This will not go over well with the merchant service provider.  It will simply be catastrophic for your business as this will mean automatic termination of your account. Worse, credit card giants Visa and Mastercard will “blacklist” your business, preventing you from opening a merchant account for the foreseeable future.

To protect your business from this type of disaster, make sure you sell the goods and services you indicated on your application. It is simply not worth the risk for the stakes are too high.

In Conclusion

Merchant service providers are not the bad guys in this scenario. All of them want to work with legitimate businesses and want to help them reach their profit goals and succeed. It is a partnership and should be seen as such.

Problems arise when renegade merchants want to skirt their responsibilities, fly under the radar, and just be problematic for merchant providers. Merchant providers don’t want the hassle and the headaches that come with these businesses.

However, if you are an ethically-minded, responsible, and legitimate business owner, it is incredibly important to know the rules and to play by the rules outlined by your merchant service provider. Ask questions, get clarification, and know the parameters in which you must operate to keep your merchant account in good standing.