10 Reasons Why Merchant Account Applications Get Denied

Applying for a merchant account is exciting, as it’s a crucial step for accepting payments and processing credit cards. But some merchant account applications get rejected, which can be frustrating and confusing for businesses.

Whether you’re applying for a new merchant account and want to ensure it gets approved, or you’ve submitted a merchant account application that’s already been denied, this guide is for you.

We’ll break down the top ten most common reasons why merchant account applications get rejected so you can prevent this from happening or make sense of a previous denial. 

1. Poor Personal Credit Score

Every new merchant account application goes through an underwriting process by the bank. It’s the underwriter’s job to assess how risky a business is, which includes the applicant—you.

If you have a poor credit history or lack sufficient credit history, it’s possible that a processor will decline your new merchant account application. 

Your personal credit is an important factor during the application process because of the way credit card processing works. The acquiring bank pays you before they actually collect any money from the customer who paid with a credit card. Poor credit is a red flag for banks, as it could be a sign that they’ll have trouble collecting the funds back from you for chargebacks and fraudulent charges. 

How to Fix and Prevent This: Have a business partner, spouse, or family member with a high credit score cosign the application. If you’re in the early stages of starting a business, you can take steps to increase your personal credit score before applying for a merchant account. 

2. Business Type or Industry

There are certain businesses that most processors associate with high risk. These high-risk industries typically have higher chargeback rates or greater chances of fraud. The business itself might also have high liability issues, which can be problematic for processors if they need to collect money from you down the road. 

Some examples of high-risk businesses and industries include:

• Tobacco and CBD
• Gambling and Casino
• Firearms and Ammo
• Telemarketing
• Crypto
• Adult

We have a complete guide on high-risk credit card processing with a more extensive list of industries in the high-risk category. 

How to Fix and Prevent This: Assess whether or not your business is considered high-risk by payment processors. Be transparent about your products and service offerings, and the processor can likely tell you whether or not they accept applications in that industry before you apply. Otherwise, you can apply specifically for a high-risk merchant account with a processor that specializes in high-risk payment acceptance. 

3. Active Account Collections

If you have another account that’s gone to collections and hasn’t been settled, it can be a red flag for banks. 

One major problem with active collections is that a judge could issue a court-ordered installment plan against you. The bank sees this as a legal obstacle that could ultimately shorten your cash flow and prevent them from collecting funds from you down the road. 

How to Fix and Prevent This: If possible, settle all of your active collections before you apply for a merchant account. Don’t try to hide your collections history from a processor. Be open, and ask if it will cause your application to get denied. If the answer is yes, you can always apply for a different merchant account that’s more lenient. 

4. Missing Documents

Merchant services processors and acquiring banks are adamant about accuracy. They don’t cut corners when it comes to approving accounts without proper documentation.

So if an application requests specific documents and you fail to submit them, there’s a good chance you’ll get denied. 

Examples of documents that might be required include:

• Articles of Organization
• Articles of Incorporation
• Business License
• Partnership Agreements
• Bank Statements
• Photo ID
• Voided Check
• EIN Letter

Failure to submit the right documents may not automatically lead to a denial. But it will delay the process and could ultimately need a rejection if the documentation isn’t submitted in a timely fashion. 

How to Fix and Prevent This: Thoroughly read through the application requirements before you submit anything. Keep all of your business formation documents, licenses, and statements neatly organized in a location that’s easily accessible. 

5. TMF or MATCH List

The TMF (Terminated Merchant File) or MATCH (Merchant Alert to Control High-Risk) list is a database of businesses that previously had payment processing revoked by a processor or an acquiring bank. 

In simple terms, merchants on this list have been blacklisted for doing something wrong. 

This can range from participating in fraud to laundering money or simply having too many chargebacks. Failing to pay your fees or otherwise violating payment processing rules will also land you on this list.

TMF or MATCH is almost always an automatic rejection, and you aren’t notified if you’re added to this list until you’ve applied for another merchant account.

How to Fix and Prevent This: The only way to get removed from a blacklist is by reaching out to the processor that put you there. See if you can rectify the situation by paying what you owe or if there’s anything else that will put you in good standing. If not, you’ll either need to wait five years until you’re removed or find a merchant account provider that accepts businesses on a TMF or MATCH list. 

6. Excessive Chargeback Rates

Processing banks monitor chargeback rates and decline rates of merchants. This is required by the major credit card networks, including Visa, Mastercard, American Express, and Discover. 

Typically, the maximum chargeback threshold is 1%, and the maximum decline rate is 10%. 

If you have a merchant account history that exceeds these thresholds, there’s a chance that a new merchant account provider may not want to work with you—resulting in an application rejection. 

How to Fix and Prevent This: If you have a poor history of chargebacks or declines, be prepared to explain your situation during the application process. Be open about what happened, and assure the processor that you’ve taken steps to ensure this won’t happen again in the future. Be specific about changes to your policies and processes. 

7. Estimated Sales Volume

One often overlooked part of a merchant account application is the expected sales volume. It’s also common for merchant account applications to request your average ticket size. Some businesses just quickly fill in a number and move on to the next question. 

If you rush through these questions and provide estimates that are inaccurate, you could get rejected. Again, merchant processors want to dot all of their i’s and cross all of their t’s. 

The estimate doesn’t have to be perfect. But if it falls outside what’s considered “normal” for your industry and business size, it’s a red flag for the underwriters. Major inconsistencies could be a sign of criminal activity or something suspicious.  

Not only should your estimated sales volume and average ticket size align with your industry, but those two numbers should also align with each other. 

How to Fix and Prevent This: Provide statements and receipts to back up your estimates, and make sure your average ticket size is also accurately reflected on the application. For example, let’s say you’re running a food truck. If you say that your average ticket size is $2,500, this will raise some eyebrows in the underwriting department. But if you explain that half of your business is an event catering service, and you provide receipts to back up this claim, it decreases the chances that you’ll get rejected. 

8. Tax Liens

Tax liens against yourself of your business can also be a red flag during the merchant account application underwriting process. This falls into the same bucket as having a bad credit because it’s a sign that the bank could struggle to collect money from you if something goes wrong. 

Banks don’t want to deal with any headaches, so they’ll just deny the application. 

How to Fix and Prevent This Try to settle any tax delinquencies before you apply for a merchant account. A clean personal finance and tax history decreases the chances of a rejection.

9. Wrong Processor

Blindly applying for the first merchant services provider you find is not a good idea. Not all payment processors are equal, and some either only work with specific types of businesses or won’t work with certain industries.

For example, maybe 80% of your customer base is located internationally. If you’re applying for an account at a small regional bank, they may not want to deal with those types of transactions. 

Or maybe you’re selling niche-specific and high-ticket items online, like saunas or tanning beds. Not every processor handles this type of processing. 

How to Fix and Prevent This: Only fill out merchant account applications with processors that align with your business type and industry. Verify this information with a sales rep before you apply. 

10. Poor Online Reputation

Beyond your financial records, tax history, and credit score, some underwriters will also run a business search on your name and your business name. 

Poor reviews or a sketchy website might lead to a rejection. 

If you have hundreds of customers complaining that you’ve scammed them, ripped them off, or done anything unethical, acquiring banks won’t want to work with you. 

How to Fix and Prevent This: Clean up your online reputation before you apply. Make sure your website is secure and professional, and don’t make any unethical marketing claims that you can’t back up. Always stay on top of your reputation by encouraging your customers to leave reviews and address any negative feedback to keep your customers happy. 

Final Thoughts

The vast majority of merchant account application rejections are preventable. 

If you’ve already been rejected, follow the tips in this guide for fixing the problems before you apply again. And if you’re getting ready to apply for a merchant account, use this resource as a checklist to avoid issues before you submit an application.