High Risk Merchant Account and Payment Processing

High Risk Merchant Account Credit Card Processing

Everything you need to know about high risk merchant account credit card processing. The ultimate guide to finding a reliable merchant account for your high risk business.

What is a high-risk merchant account?

Generally, there are multiple reasons why a business would need a high-risk merchant account. The key to understanding what is a high-risk merchant account relies on the answer on what we define as a high risk business. In this article we will break them into the important parts.

First – industry type

There are certain industries acquiring banks and underwriting teams categorize as high risk in the first place. Reasons are usually elevated chargeback ratios, increased risk of fraud, complexity in monitoring transactions for certain business types, on-going industry compliance (which banks try to avoid), and most of all – reputational risk. We will explore every reason here in detail.

Reputational Risk

Believe it or not, many industries, such as Firearms for example, are restricted by processing banks only because the bank does not want to hurt its reputation. This happens a lot in accounts that cause political exposure, or potential reputational damage. This is primarily why many acquiring banks and merchant processors choose to disassociate themselves from political parties, firearm businesses and adult shops. They are afraid such businesses may upset other customers or perhaps even the local or federal government. Proactively, they simply choose to deny doing business with such industries.

Merchant Account Compliance

Many processors try to avoid boarding merchants that require ongoing compliance. This is especially true in industries where the law differs per state. Such industries include Vape Shops, Credit Repair companies, Collection Agencies, Money Service Businesses, and other state-level regulated businesses.

Most processors do not have big compliance teams, and following up with each merchant in real time is impossible for them. As laws change per state, many compliance teams do not have the technology and human resources to follow up proactively with every merchant to make sure the merchants are still in compliance. As a result, merchant processors refuse to do business with such industries. Hence, adding more business types to the high-risk merchant account list.

Merchant Account and Payment Processing Fraud

Some industries just happen to have more fraud. E-Commerce payment processing is more popular today than ever before. With increased sales volume, so is the likelihood of online fraud. Many scammers try to use stolen credit cards to make online purchases, causing Chargebacks and merchant losses. Although there are numerous tools to prevent merchant account fraud, some of these tools are not as accessible to small businesses as they should be. Moreover, Chargeback prevention programs such as Verifi and Ethoca usually require an ongoing subscription, which merchants try to avoid.

Elevated Chargebacks

Some industry types tend to have a higher level of chargebacks. These include Cosmetics, Timeshares, Collection Agencies, Software Downloads, Emergency Services (PC Support, Locksmith, Tow service), Travel and Airlines. These industries are a target for increased chargeback for numerous reasons, for example:

Cosmetics, Timeshares and Software Downloads chargebacks usually caused by buyer’s remorse. Some customers buy things because of excitement (impulsive buyers), before they made research on the product. Such purchases at times have a strict refund policy. When the customer tries to return the item or service and finds out that refund isn’t an option, they tend to call their bank to dispute the charge.

On the other hand, travel related businesses, such as airlines, hotels and tour operators, get disputes because of scheduling issue, cancelled bookings (whether because of provider or customer) or trip delays.

Lastly, emergency industries, such as Towing service, Locksmith & PC Support, tend to have an elevated level of Chargebacks simply because clients feel taken advantage of. For example, one town requires all Tow Truck drivers that tow vehicles for the city to accept credit cards. Some of these customers had their car towed because they parked illegally. When they pay with a credit card, some of them feel they can get their money back from their bank if they call in to dispute the transaction.

Although a majority of these disputes are ruled in favor of the merchant, they still cause an elevated Chargeback ratio the merchant needs to monitor. This is mandatory to make sure the ratio stays well below the 1% Visa threshold.

Apply

High Risk Merchant Account for GNF Match List

Stands for Group Negative File, the GNF is an internal terminated merchant list for all Fiserv (previously First Data) terminated merchants, that Fiserv underwriting team approved. Fiserv is one of the largest processing platforms in the world. It probably has the largest network of Retail ISO’s in the USA. Retail ISO’s are Independent Sales Organizations that outsource their underwriting to Fiserv. They simply focus on sales, and let Fiserv manage the risk and underwriting for their portfolio.

Since there are so many Fiserv retail ISO’s in the USA, the company has created a GNF list to monitor any terminated merchants they do not want on their books. This helps Fiserv quickly underwrite new accounts and provide an approval or decline response for certain accounts that have history with Fiserv.

Being on the GNF list doesn’t necessarily mean you’re suspected of fraud. There are a number of other reasons you can end up on this list. For example, if you owe money in fees or ignored the Fiserv terms and conditions (knowingly or not).

TMF (Terminated Merchant File) Match List

The TMF Match list is essentially the blacklist of merchant accounts. Created by MasterCard, this list is the one place you do not want to be at if you’re looking to accept credit cards. Merchants that end up on this list are typically suspected of fraud. Any US processor can put a merchant on this list, for a valid reason. Such reasons may be proven or suspected fraud, false or misleading advertisements, excessive chargebacks, identity theft and money laundering. When a merchant is on this list, no merchant processor in the USA is able to process payments for such merchant. Few exceptions are made to this rule, but generally, TMF is a no-go zone for most processors.

There are many merchants that believe they are on this list accidentally. The only entity that can take a merchant off the list, is the entity that put you on the list. The easiest way to resolve this issue is by contacting the original processor that placed you on the list.

In our experience we have seen many cases that merchants were suspected of identity theft, when in fact they simply couldn’t pass the Social Security verification and ended up on the TMF list. Working with the merchant and the previous processor hand in hand assisted us in resolving these situations on a timely manner.

Bad Credit / Poor Financial History

Every merchant account has a risk factor for the payment processor. Bad Credit or poor financial history may contribute to your approval decision, especially if your tickets are large, volume is high, and your history is weak or non-existent. If your business is retail, with card-present environment, and straightforward sales, most likely even if your credit is struggling, you will be able to obtain a merchant account easily.

This is not the case for online businesses, high volume accounts or high-ticket items. A merchant account provider may choose to decline a merchant account based on someone’s personal credit history. This is generally because of the risk associated with the merchant account processing volume.

How high-risk merchant processors differ from regular processors?

Being a high-risk merchant account processor requires creativity, ongoing compliance and monitoring and human resources to review processing activity periodically. Generally, below you would find the main differences between a regular processor and a high-risk merchant account processor.

Average monthly sales volume of over $20,000.00 – When applying for a high-risk merchant account, expect the underwriters to request background documents. These documents may include any of the following;
ID
Voided Check or Bank Letter
Articles of Incorporation / Organization
EIN
Recent Bank Statements (Personal and/or Business)
Recent Processing Statements (if you processed with more than one processor, they will probably request to see all recent statements from all processors)
Business License
Any documents that are unique to your industry type (this may be surety bond, supplier invoices, fulfillment agreements or other industry related documents).
Business Plan
Financial Statements (Balance Sheets, Profit & Loss)
Tax Returns (whether business or personal).

High Risk Merchant Account Reserves – Many high-risk processors mitigate their risk by implementing a merchant reserve. There are multiple types of reserve accounts, the most common is a percentage held back from sales revenue.
High Risk Merchant Account Reserves – this is the most common form of reserves most processors prefer to use. Generally, it is an uncapped reserve volume. A commonly held back percentage is 10% for Credit Repair or Collection Agencies for example. When the merchant starts processing, the processor will hold back the agreed percentage. Generally, after a few months of processing the merchant can request some of their reserve money back. You can write to risk department requesting a partial (or full) reserve release. For the most part, if your account is in good standing and your chargeback ratio is below 1%, the processor will approve such reserve release.
Capped Reserve – Similar to the above held back percentage, this reserve is capped. For example, a processor may approve an account with 10% reserve up to $20k. Meaning that once the reserve has reached $20k then the processor will not hold back any more money and the merchant will have 0% reserve moving forward. Under this program, usually the merchant will have to lock up the capped reserve for the life of the merchant account. Although, many processors are willing to re-negotiate capped reserved after 6-12 months.
Upfront Reserves – although less common, this reserve is when the merchant pre-funds the reserve before they can process any payments. The terms of the upfront reserves will be provided on the reserve addendum.

Real Underwriting – Unlike regular merchant accounts, high risk merchant account approvals are done manually. The underwriter carefully reviews all your submitted documents. Additionally, credit checks and background checks are done. Sometimes, the underwriter may use an online audit such as G2 risk monitoring. Once the underwriter understands your business and the risk associated with your account, he can prepare the approval information. This process takes a few days. Some underwriters take 1-2 days while other may take 2-3 weeks. It usually depends on the industry type, the volume, and the history. The more complex the account is, the longer the application approval will take.

Processing Volume Caps – Any merchant account generally has a cap (high risk or not), however, with low risk accounts this cap is often overlooked. With high-risk merchant accounts, usually the monthly volume limit will be mentioned upon approval. Merchant is expected to stay within the processing parameters. Generally, merchant is allowed to request a higher volume limit after 60-90 days. It is solely in the high-risk merchant processor discretion to approve or deny such request.

Load Balancing – Many times a high-risk merchants may need more than one MID because of processing volume limits. A high-risk merchant account provider will generally be able to provide a load balancing gateway, allowing the merchant to process payments on multiple merchant accounts simultaneously.

3D Secure – Although uncommon, some high-risk processors require e-commerce merchants to use 3D Secure to reduce Chargebacks and Disputes. This helps bring down Chargeback ratio by adding an additional layer of authentication to the card holder during the transaction process.

Funding Times – While most regular merchants get paid the next day, some high-risk merchants may have to wait 2-3 business days for their money. This time allows for less risk exposure for the merchant processor and additional time to review transactional data.

Processing Method Limits – This is usually more common in retail high risk accounts, such as Vape Shops and Firearms. A merchant processor may disable the ability of entering cards manually, to avoid compliance issues.

Tender Type Selection – Common for Collection Agencies and MSB’s – a high risk merchant account processor may disable “Credit” as a tender type and may only allow a merchant to process “Debit” cards. This is usually done to maintain ongoing merchant account compliance.

How to get a high-risk merchant account for your business?

First, research a payment processor that specializes in your high-risk industry type. Not every high-risk merchant processor supports all high-risk industries. So, the key to expediting the process is to find a processor that works with your industry type.

Fill out the paperwork

Once you located a payment processor that works with your industry, submit a merchant application. Make sure you’re open and honest when filling the documents. Underwriting team has many tools to verify the information you enter. Providing wrong information (intentionally or not) may result in a rejected (declined) application.

Stable Bank Balances

Make sure you have enough cash in the bank. It is recommended to have at least 30% of your requested monthly volume, available in your bank account. Submitting new accounts with $0 balances will not get you closer to an approval.

Compile Supporting Documents

After you submit your application, underwriting will send you a list of requested documents. It is recommended that you get everything required. Send complete documents. Do not send blurry documents you cannot read. Try not to send blacked out pages or photos you must piece together to understand everything. The way you submit the documents shows many underwriters how organized (or not) you are. If you cannot read it, the underwriter can’t either. We always recommend to send everything in scanned PDF copies, which is the easiest way to read submitted documents.

Be ready to make changes

Many times, an underwriter will provide a conditional approval. This may require you to make changes to your website, communication with your clients, modification to your agreement, terms and conditions or other policies. Rely on the processor expertise to ensure your account stays in compliance and have stable processing.