Merchant Account Application Declines May Stem from Bad Credit, Tax Liens, Prohibited Business Types and More.

Applying for a merchant account can be an intimidating process, especially if it is your first time, or if your merchant category code (MCC) is considered high-risk. From the bank’s perspective, a merchant account is essentially a line of credit that allows businesses to accept electronic payments in multiple ways. When your business is new, or fails to meet the banks underwriting criteria, it is important to make sure you are working with a payment processor or member service provider (MSP) who understands how to navigate these challenges and present your business in the best light.

DigiPay Solutions is a top rated MSP with in-house underwriters and risk managers who work closely with an extensive network of partner banks. Because we understand our banks underwriting guidelines we are able to help companies with high chargebacks, low credit, or reputational risk obtain merchant accounts at the best possible rates.

If you have been declined for a merchant account, it is time to consult with experts in high-risk before applying to another bank. They will be able to isolate the reason for the decline, and more importantly, provide sage advice on what to do to prevent further declines. Here are the top 7 reasons why merchant accounts are declined:

1. Unfavorable Personal Credit History or Active Collection Accounts

When you apply for a new merchant account the bank analyzes the application to assess risk using many factors, including personal credit. The most common reasons banks decline a merchant account application for personal credit are:

Bankruptcy – Active bankruptcy will decline immediately. Discharged bankruptcies with a history of re-establishing your credit may be approved.

Poor Credit – If your credit score is low, you will be declined.*

  • * If your personal credit is marginal, you may still be approved with conditions such as an upfront reserve, rolling reserve, providing a cross-corporate guarantee, or agreeing to a delay in deposits.
  • * If your credit score is good, and the other criteria used to calculate risk are low, the account will be approved. Once approved, the bank will use the processing history to assess risk.

Collections – Depending on the reason an account has gone to collections, a bank may deny your application. This is why it is important to be honest and transparent about your credit history with processors.

Lack of Credit History – If you have no credit history it is likely a processor will deny your application for a new merchant account. If you have a partner in the business who has a good credit history, include them on the application.

2. Missing or Insufficient Business Documentation

Payment processing banks and their sponsor banks are OCD about making sure every ‘i’ is dotted and every ‘t’ is crossed. This includes not only your merchant application, but depending on the bank and your MCC, all of the required supporting documents such as bank statements, merchant processing statements for existing businesses, driver’s license, and more. Additionally, if you are an eCommerce merchant, your website will be reviewed by underwriting to ensure it is compliant with their guidelines. Missing documents or issues with your website may result in a decline or a delay in approval. This is why it is important to work with a MSP who is knowledgeable about the banks requirements.

3. Excessive Chargebacks and/or High Decline Rates

The card associations (Visa, Mastercard, Discover, Amex) require processing banks to monitor the chargeback and decline rates of their merchants. The maximum threshold for chargebacks is 1%. The maximum for decline rates is 10%. If you have a history of exceeding these numbers, some merchant account providers may be unwilling to do business with you. Avoiding excessive chargebacks and declines will improve the likelihood of your merchant application being approved. If your merchant processing history is less than pristine, it is important to be candid with the MSP and/or bank and provide explanations. Working with a MSP who knows high-risk and has a strong relationship with partner banks underwriting teams will help to facilitate approval.

4. Tax Liens

Personal or business related tax liens are considered a red flag and will typically stop the application process in its tracks. Resolve liens before starting a merchant account application.

5. Prohibited Business Types

Most merchant processors maintain a list of industries that are prohibited or restricted. Don’t take it personally if you are declined for being a prohibited business type, but do be aware that high-risk business types typically result in higher processing fees charged to the merchant to help cover the risk that is being assumed by the processor.

If you fall into a “high-risk” merchant category code (MCC) and are having trouble getting approved, reach out to a MSP like DigiPay Solutions who understands the nuances of high-risk and who has multiple banking relationships.

6. Sales Volume Exceeds Application or Volumes Disproportionate to Average Ticket

Every merchant account application requires the merchant to apply for their expected volumes based on past processing and expected growth in the near future. While all processors are excited for your business to grow, processing amounts outside of the “norm” for your industry will probably hurt rather than help your odds for getting approved. These volumes can also be red flags once your account is approved and processing.

Make sure to evaluate your business processing amounts based on your recent volumes and based on your expected growth in the next 4-6 months in order to develop a realistic, but optimistic number.

If your statements reflect volumes that do not match to your average ticket size, your application may be declined.

7. Present on the MATCH list

The TMF Match List is the “blacklist” for merchant processors. Being on this register indicates that another bank has terminated a merchant account with you and has raised a red flag to the banking system that you are a credit risk or have been engaged in fraudulent activity. The TMF Match List means you will not be approved for a merchant account for 5-7 years.

To avoid this complication, make sure that any previous merchant accounts under your name were left in good standing. If you have any outstanding bills or fees owed to a previous provider, ensure that those are paid before expecting to get approved for another account.

There are other reasons your name might appear that require more time and involvement to resolve. To avoid being placed on the TMF list, keep your account in good standing and promptly resolve any issues that arise.

For more information or if your merchant account application has been declined, please contact us at 800-899-9811, send an email to, or visit our website at to learn more.