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Top 10 Reasons Your Merchant Application Was Declined
Published July 7, 2025 (3-min read)
If your business has been turned down for merchant processing, you're not alone. Understanding the reasons behind a declined application can help you correct issues and find suitable solutions. Here are the top 10 most common reasons merchant account applications get declined:
1. Excessive Chargeback History
Merchants experiencing frequent chargebacks, customer initiated disputes, and refunds, represent significant risk for payment processors. Chargebacks not only signal potential dissatisfaction among customers but also increased exposure to financial losses and processing disruptions. Typically, if chargeback rates exceed 1% of total transactions, processors become wary and may reject your merchant application.
2. Poor Credit History
A business owner's or company's poor credit history, including past bankruptcies, outstanding debts, or delinquent payments, greatly influences underwriting decisions. Processors interpret poor credit as indicative of potential difficulties meeting financial obligations, increasing the perceived risk of offering processing services.
3. Industry Risk
Certain business sectors inherently carry higher financial risks due to regulatory scrutiny, potential legal issues, or historically higher fraud rates. Examples of industries deemed high risk include Peptides, CBD & Hemp, Credit Repair, Debt Settlement, Adult Entertainment & Products, Supplements & Nutraceuticals, Hard Money Lenders, MMJ, Firearms & Accessories, Nootropics, Online Pharmacies, Tech Support, Timeshare, Document Prep, Tactical & Prepper, Kratom, Warranty Sales & Services, Smoke & Vape, Custom Jewelry, Travel, SEO, Logistics, Trucking, Moving Services, Consulting, HVAC, and Application & Web Development. Processors often apply stricter criteria, requiring detailed documentation and compliance assurances for these sectors.
4. MATCH/TMF List Placement
Placement on the MATCH (Member Alert To Control High risk merchants) or TMF (Terminated Merchant File) lists severely restricts access to payment processing. These lists document merchants previously terminated by acquiring banks or processors for reasons including fraud, excessive chargebacks, and regulatory compliance violations. Once listed, securing merchant processing becomes significantly more challenging.
5. Missing or Incorrect Documentation
Payment processors require comprehensive, accurate documentation during the application process. Common documentation includes business licenses, bank statements, identification documents, tax forms, and detailed descriptions of products and services. Applications lacking complete or accurate documentation raise immediate red flags and often result in automatic declines.
6. Fraudulent or High Risk Activity
Any suspicion or prior association with fraudulent activities, whether intentional or inadvertent, can severely impact your application's approval. This includes fraudulent transactions, illegal sales practices, or involvement in money laundering schemes. Processors exercise caution to avoid reputational harm and regulatory penalties, swiftly rejecting applications that exhibit such risks.
7. Unclear or Misrepresented Business Practices
Underwriters rely on transparent, well documented explanations of your business model to determine approval. If your business practices, product descriptions, pricing structures, or marketing claims are unclear, inconsistent, or misrepresented, underwriters may doubt your legitimacy and deny your application outright.
8. New or Limited Business History
Startups and businesses with limited operational history face additional scrutiny due to uncertainty around financial stability, operational capability, and sustainable growth. Without historical financial records demonstrating steady sales, consistent revenue streams, or reliable operational practices, underwriters often view these businesses as higher risk applicants.
9. Volume and Ticket Size Mismatch
Payment processors closely evaluate whether projected sales volumes and average transaction values align realistically with your business type and operational history. Exaggerated or inconsistent projections, such as significantly higher transaction sizes or dramatically increased volume expectations, can trigger red flags, leading underwriters to question your business's credibility and risk profile.
10. Non-Compliance with Regulatory Standards
Regulatory compliance, including Payment Card Industry Data Security Standard (PCI DSS) and Anti Money Laundering (AML) regulations, is critical. Businesses failing to demonstrate adherence to these standards expose themselves and processors to significant fines, penalties, and reputational damage. Non-compliant businesses are almost always declined to mitigate these substantial risks.
What Can You Do if You've Been Declined?
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Identify the Specific Reason: Reach out and request detailed feedback on why your application was declined. Contact your processing provider and specifically ask for documentation or explanations that pinpoint exactly what led to the decision. Understanding the precise issue is critical to addressing it effectively.
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Correct Issues: Take deliberate and measurable steps to improve areas of concern such as your credit score, financial standing, or operational procedures. Reduce chargebacks through enhanced customer service policies, fraud prevention measures, and clearer communication. Clarify your business model by ensuring all documentation clearly reflects your actual operations and complies fully with processor expectations.
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Consider Alternative Payment Methods: Explore viable alternatives such as eDebit, ACH transfers, prepaid solutions, or specialized high risk merchant processors. Each of these alternative methods may offer unique advantages that match your specific business model, allowing you to continue operating without disruption.
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Reapply Strategically: Once you've addressed the concerns identified during the initial application, reapply with thorough documentation of the improvements and changes made. Clearly demonstrate how your business has proactively responded to the issues previously identified. Engaging directly with underwriting teams and explaining your corrective actions can significantly improve your chances of approval.
By thoroughly addressing the underlying reasons for the decline and proactively exploring alternative processing options, your business can successfully move forward and secure reliable merchant processing solutions.
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