Understanding U.S. Based Merchant Account Restrictions

Merchant Warehouse |

December 10, 2010

There are certain kinds of companies that the credit card associations will not do business with, meaning the firms cannot open a merchant account and cannot process their charges through anyone elses, either. When determining exactly who is to be included on this “blacklist,” a large number of banks and financial institutions can consult on the issue and offer recommendations, but in the last analysis, the credit card associations of Visa and MasterCard will make the final call.

Adhering to the list is something that is considered mandatory for all credit card processing companies, merchant account providers and their properly licensed merchants. The definition of this restriction, ironically, is unrestricted. Quite simply, no U.S. credit card merchant processors are allowed to acquire transactions from blacklisted entities.

The Chargeback Factor

When making the determination as to whether a particular kind of business should be prohibited from setting up an account with a U.S.-based credit card payment processing service, there are several factors to consider. The chargeback potential of the industry as a whole will be the deciding factor in most cases. In certain industries, historical data has shown that chargebacks are simply and unacceptably high. Even if a particular firm does not have a bad history, its business category is really what is blacklisted, so it ends up making no difference.

Of course, even when a merchant account processing service is established, chargeback levels are still closely monitored. If the chargeback levels exceed 1% of the total transaction volume for three consecutive months, a merchant will most likely lose the account, although certain contractual details might alter or delay the decision.

There are other matters in which there is no wiggle room whatsoever. Any applications received from the following categories of businesses will not be considered for U.S.-based credit card transaction processing accounts, without exception:

• Internet/MOTO cigarette tobacco sales
• Occult materials (not books)
• Online gambling.
• Lotteries, raffles, gambling
• Escort services
• Collection agencies engaged in the collection of uncollectable debt, as defined by the Associations
• Credit repair agencies
• Sports forecasting or odds-making
• Any illegal activity
• Adult-oriented products or services (all media types: Internet, telephone, printed material, etc.)
• Internet/MOTO pharmacies (where medication is prescribed without an in-person visit with a physician)
• Re-importation of pharmaceuticals from foreign countries
• Internet/MOTO firearms or weapons sales (including ammunition)

If a business has a merchant account, and wants to remain in good standing, it will adhere to the blacklist and not act as a “launderer” by covertly processing charges for a prohibited firm. Incorporated into most merchant account agreements is a stipulation that the merchant will comply with all applicable local, state and Federal laws and not misrepresent any of its charge card business. Because of the voluminous records that are kept of transactions, and the powerful computers available today, there are an ever-diminishing number of ways to get away with prohibited charges, and most merchants will not risk the loss of their company’s lifeblood – its credit card sales – for a few easy dollars.

Depending on the nature of the merchant’s business and the credit card associations’ experience with that category of firm, there may be additional stipulations in the processing agreement. All the association members are bound to the rules and regulations of the brand, as well as to all applicable business laws in the United States. Restrictions are not put in place to restrain trade or punish certain business types. The main consideration is not morals, ethics or traditional values, either. It is plain old common sense and good business practice, all in one.

Over the last almost 50 years, the credit card firms have learned what works and what doesn’t – more important, who pays and who doesn’t – especially in the American marketplace. This knowledge is reflected in the text of the credit card processing agreements, as well as in the categories of businesses that have shown themselves to be less than painstaking about running an honest, upright business. Keeping the U.S. merchant account provider industry and its customers in a positive light is a critically important side effect of the restrictions that are, quite reasonably, aimed at keeping out shady and unscrupulous characters. For the credit card associations, it seems to be working.