U.S.-Based Merchant Account Restrictions

Businesses operating in certain industries are not allowed to set up U.S.-based merchant accounts. The decision on who exactly should be placed on this “black list” is made by the Credit Card Associations of Visa and MasterCard and is mandatory for all of their member banks. What this means is that no U.S.-based processing bank is allowed to acquire transactions from blacklisted entities. Processors are free to make additions to the list and they take full advantage of their prerogative.

The biggest factor in determining whether a particular type of business should be prohibited from setting up a merchant account with a U.S.-based processor is the chargeback generation potential. Visa and MasterCard historical data show that in some industries the chargeback rate is simply unacceptably high. Both Associations require that member banks monitor their merchants’ chargeback rates on an ongoing basis and calculate the merchant’s chargeback-to-transaction ratio (CTR) for each calendar month. Members are required to file monthly reports with the Associations for their:

• Chargeback-monitored merchants (CMM) — merchants with a CTR in excess of 0.5% and at least 50 chargebacks in a calendar month.
• Excessive chargeback merchants (ECM) — merchants who, in each of two consecutive calendar months, have a minimum CTR of 1 percent and at least 50 chargebacks in each month. If a merchant’s CTR is higher than 1 percent for three consecutive months, the processor is required close the merchant account, although it will probably do that much earlier.

Processors keep a very close eye on their merchants’ chargeback ratios, not least because they get charged a fee for submitting each CMM or ECM report to the Associations, not to mention issuer reimbursement fees and violation assessments for excessive chargebacks.

With that in mind, it is understandable that processors can be very picky with new applicants. Although restrictions vary, typically applications from merchants engaged in the following activities will not be considered for U.S.-based merchant account, regardless of exception:

• Any merchant engaged in Illegal activity.
• Adult oriented products or services (all media types: internet, telephone, printed material etc.).
• Internet / MO/TO pharmacies (where fulfillment of medication is performed with an Internet or telephone consultation, absent a physical visit with a physician).
• Re-importation of pharmaceuticals from foreign countries.
• Internet / MO/TO firearm or weapons sales (including ammunition).
• Internet / MO/TO cigarette tobacco sales.
• Occult materials.
• Online gambling.
• Lotteries, raffles, illegal gambling.
• Escort services.
• Collection agencies engaged in the collection of uncollectible debt, as defined by the Associations.
• Credit repair agencies.
• Sports forecasting or odds making.
• Get rich quick schemes.
• Medical marijuana.
• Foreclosure protection / guarantees.
• Lifetime subscriptions (any product or service).

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