No business can run properly without partnering with a financial institution to create a merchant account.  All payments taken by a business are processed through a merchant account and after the processing fees are deducted, the money goes to the business checking account.  For most businesses, finding a financial institution or bank to set up a merchant account is not an issue.  However, banking institutions do not like to expose themselves to any type of real or perceived risk, which makes it more difficult for some businesses to get a merchant account.

If you are struggling to get a merchant account from a tier-one bank or financial institution, that does not mean there is anything wrong with your business.  These institutions are simply more comfortable working with businesses that use traditional business models and they have been slow to adapt to helping businesses that use more modern business methods including accepting exclusively online payments.  Many banking institutions are also averse to working with industries they consider taboo, despite cultural shifts and changing laws that make these industries less taboo to the public.

If you have a tech startup, cannabis business, or credit repair business, you may be wondering, how can I get a merchant account for my business?  Fortunately, there are payment processors willing to work with businesses that are considered hard to place merchant accounts.  In this guide, we will discuss what makes a business a hard to place account and what these businesses can do to obtain and keep their merchant accounts.

Businesses that have not been able to get a merchant account from traditional banking or financial institutions in the Chicago, IL area can talk to our professionals at First MCS about our hard to place merchant account services.

What Makes a Business a Hard to Place Merchant Account?

There are several factors that determine if a business is considered a hard to place account that fit into two main categories: financial health including chargeback ratio, average ticket sales, and payment types accepted, and reputational risk for industries considered taboo.

The following is a complete list of factors used to determine if a business is a hard to place merchant account:

Industry

For some businesses, their industry alone can put them into the hard to place merchant account territory.  This may be due to concerns about the risk to the reputation of banking institutions such as with businesses in the alcohol, cannabis, and firearms industry or due to financial concerns with businesses that have high average transactions or seasonal revenue.  Some industries are also subject to heavy government regulations which can be off-putting to banking and financial institutions.

Payment Processing History

Banking and financial institutions will review your payment processing history to see your chargeback ratio, refund ratio, and how fast your payments are processed.  They will also evaluate the types of payments you accept including credit and debit card payments as well as payments from internationally issued cards.  Banks are less likely to work with businesses that have too high of a chargeback or refund ratio and businesses that accept payments from internationally issued cards.

Chargeback History

A chargeback is when a charge is reversed at the request of a customer and credited back to the customer’s card from a business account.  Banking institutions consider frequent chargebacks a sign of poor business practices or fraud and will generally not work with businesses that have more than a one percent chargeback ratio.  Payment processors that do work with hard to place merchant accounts may allow a chargeback ratio of up to three percent and help put chargeback mitigation practices in place.

Personal Credit Score

Even though your personal credit score and business credit score may be separate legal entities, banking and financial institutions will still check your personal credit score when determining whether to take on your account.  Businesses may be rejected by these institutions based on personal credit scores.

Bank Statement Activity

Banking and financial institutions will check your bank statement activity to determine if you can properly fund your business and if you have been able to avoid overdrafts.  This can affect how much credit they extend to your business or whether they work with your business at all.

Payment Methods Accepted

When examining your payment processing history, banking institutions will look at what type of payment methods you accept, and which payment methods are used more frequently.  One thing they will assess is the amount of card-present (CP) and card-not-present (CNP) payments you accept.  CNP payments are payments in which the physical card used is not present at the business’s location, such as purchases over the phone, online, through the mail, and payments from mobile wallets.

Banking institutions consider CNP payments to be riskier, but online payments are very common and necessary for a range of different businesses to survive. This is one example in which banking and financial institutions are a bit antiquated in their failure to adapt to modern ways to accept payments.

High Average Transactions

Another thing banking and financial institutions look at is the average amount of your transactions.  If the average transaction of your business is a high amount, these institutions may be hesitant to work with you for a merchant account.

Businesses Commonly Considered Hard to Place

The following types of businesses are likely to be considered hard to place merchant accounts based on the factors discussed above:

• SEO and tech support
• Startups
• Gentlemen’s clubs and adult stores
• Firearms merchants
• Collection agencies
• Credit repair
• Travel agencies
• Cannabis businesses
• Tobacco and vape businesses
• Alcohol industry
• Nutraceuticals and supplements

Benefits of Hard to Place Merchant Accounts

Banking and financial institutions may choose not to work with your business due to one of the factors in the previous section.  Once again, this does not mean that there is anything inherently wrong with your business.  Businesses that fall under this category can work with payment processors that are willing to take on businesses that are considered hard to place merchant accounts.

It may seem like a hard to place merchant account is not as good as the type of merchant account you can get from a banking or financial institution, but this is a misconception.  These types of merchant accounts offer more protection and leniency than merchant accounts from traditional banking institutions.

The following are the main benefits of hard to place merchant accounts:

• More payment methods are acceptable including cryptocurrency
• Advanced chargeback and fraud mitigation services
• Less risk of your account being suddenly terminated
• Higher chargeback and refund ratios
• Customized and detailed underwriting
• Better access to international currencies and markets
• Greater freedom in the products and services you offer
• Less limitation on sales volume and average transaction amounts
• Reliable support from professionals that understand the unique needs of your business

One thing to keep in mind with hard to place merchant accounts is that it may take longer to get an account because the underwriting process is more in-depth than with traditional merchant accounts.  It can take between one and five days for your hard to place merchant account to be ready to go.

Hard to Place Merchant Account Fees

Another misconception about hard to place merchant accounts is that they have higher processing fees than traditional merchant accounts.  Our professionals at First MCS will work with you to understand the needs of your business and set you up with a merchant account that works best for your business and your budget.  We do not provide one-size-fits-all merchant accounts.  Our merchant services are always tailored to your unique needs to help your business grow and prosper.

How to Choose a Hard to Place Merchant Account

All businesses deserve to work with a trusted payment processor that has their best interests in mind.  Fortunately, there are payment processors outside of traditional banking and financial institutions who are ready help businesses with their hard to place merchant accounts.  However, you must make sure that you choose to work with a processor that not only issues hard to place merchant accounts, but also has the expertise to manage and support your account.

When applying for a hard to place merchant account, you will need to submit more documentation than with a traditional merchant account for the underwriting process.  Be prepared for a slightly longer underwriting and approval process and make sure you have all documentation ready to speed up the approval.

The following tips will help you find the right payment processor to take on your hard to place merchant account:

Get Several Price Quotes

There is a limited number of payment processors willing to take on hard to place merchant accounts and some processors may see this as an opportunity to take advantage by charging high processing fees.  When reaching out to processors, ask for quotes before making a decision.  If you already work with one processor and you are looking to switch, ask for a side-by-side analysis of your current rates and the rates offered by the new processor.

Ask About Reserves

Some processors that work with hard to place merchant accounts will require a reserve to be established.  The reserve account will cover chargebacks, fines, and other fees if the account is suddenly closed or terminated.  A processor may require one of the following two types of reserves:

• Rolling reserve: This type of reserve holds a fixed percentage of funds from completed transactions for a period of time before releasing the funds into the business account when there is good processing behavior. The fixed percentage is typically between 5 and 10 percent and the holding time can be between 6 and 18 months.
• Capped reserve: This type of reserve will hold a fixed percentage of settled transactions until the funds reach a predetermined cap amount. Once the cap amount is reached, the money is held in reserve, but no further funds are withheld.

Ask About Thresholds and Ratios for Chargebacks and Refunds

Payment processors that take on hard to place merchant accounts are more flexible when it comes to chargeback thresholds and refund ratios, but they do still have limits in place.  Make sure you ask processors what their thresholds and ratios are and what happens if you cross them.  While traditional banking institutions may automatically terminate an account once a threshold is crossed, payment processors that work with hard to place merchant accounts will not do this.  Instead, they will have a probation period or implement a mitigation plan to resolve the issue.

Ask About International Payments

Traditional banking and financial institutions do not take on merchant accounts that accept international card payments because there is a higher risk of fraud and chargebacks than with domestic card payments.  If you want to be able to accept and process international payments, you need to work with a processor that allows you to do so.  Make sure you ask processors if they accept international card payments.

Review Length of Account

Before entering into an agreement with a payment processor, it is important to understand the length of the agreement as well as the terms and conditions.  Make sure you diligently review the agreement so that you understand the length and terms, including automatic renewal policies and termination fees.

Hard to Place Merchant Accounts from First MCS

If your business cannot get a merchant account from a traditional banking or financial institution because it is a hard to place account, you do not have to worry.  There are payment processors such as First MCS that are willing to take on hard to place merchant accounts.  These merchant accounts will give your business more flexibility and freedom than traditional merchant accounts and allow your business to grow.

Talk to our professionals at First MCS to learn more about how our hard to place merchant services can benefit your business.