How Risk is Considered

When deciding whether or not to approve a business, a merchant account provider will consider the level of risk the business portrays.  Credit risk in this sense, refers to how much risk the merchant has to receive customer disputes and charge backs.  Most charge backs are initated by the cardholder as a result of the customer being unsatisfied with their purchase, or the charge being made without the cardholders authorization.  Ocassionally, charge backs come from the card-issuing bank.  Either way, the merchant is expected to provide proof (signed receipts or other documents that prove the charge is legitimate) and the bank will determine whether the customer or merchant's position is more valid.

Don't rule out the possibility of getting approved for a merchant account, just because you are a fairly new business, however.  Other factors are taken into consideration when merchant account providers evaluate the risk of accepting an applicant. 

How Providers Evaluate Businesses for Risk

Merchant account providers look at many aspects when determining how much risk is involved in allowing a business to have a merchant account with their company.  They consider what industry the business applicant falls in, the history of the business and whatever information they are able to determine about the owners of the business as well as the daily operations of the business.

Some industries are naturally higher risks to banks than others.  Businesses with face-to-face credit card transactions are seen as lower risk than those that operate with a non-swipe environment (such as a web site).  The reason for the different risk level is because when a credit card is physically swiped, the merchant is supposed to verify that the signatures match, while that can't be verified when the sale transaction occurs online or by phone. 

Custom-made product businesses tend to have a higher charge back percentage than other businesses.  While a customer is waiting for their order to be created and delivered, sometimes they have buyer's remorse and might attempt to recover their money with a charge back.  Additionally, businesses that charge against future services (gym memberships, magazine subscriptions, etc), see higher charge backs than other businesses for the same reason that custom made product businesses do.

The length of time a business has been in operation makes a difference as to whether or not the business is approved for a merchant account, as well as how long a business has been paying vendors, leases or mortgages.  It gives history and a sense of stability.  Sometimes merchant account providers will check the business owner's personal credit history since it predicts how the person might run their business. 

What to Do if You're Turned Down for a Merchant Account

Not all businesses will gain approval for a merchant account with the first provider they try.  If you've been turned down, you may consider trying another provider before you rule out your ability to accept credit cards.  If you are still denied, there is another option for accepting credit cards.

If your business operates online, you can often be approved for a third party payment processor.  These companies have higher approval rates and are designed to work with small internet-based businesses so you have a greater chance of being accepted.