Over three weeks ago in Denver at The Big Show the title of this article was a repeating question asked to me. It was apparent from wholesalers to retailers, any association to Vape and lesser extent Smoke, had issues with their merchant processing providers.
It is simple to think all merchant processors are alike! That is a very broad assumption but rather there are distinct differences in the card processing world. First on a surface level, you have a number of Independent Sales Organizations (resellers) who contract with the large processors for a number of solutions – card network access, underwriting, billing, etc. Depending on industry resources reviewed close to 2,000 resellers exist in the U.S. today. Drawing a parallel here – the resellers compromise of the very top of a funnel. Going down into the funnel you will reach the processors – the top 5 account for over 93% of the card authorization traffic transiting their networks today. At the bottom of the funnel are the card clearing banks who ultimately hold responsibility of the merchant portfolios associated with their processors and the processors resellers. The clearing banks are the ultimate deciders on what types of businesses are considered desirable to clear!
The prior paragraph is a mouthful regarding the processing landscape chain. Most merchants do not fully understand how card payments are supported and the roles different organizations play including what types of businesses are desirable as well as a very key aspect to consider – the underwriting risk associated with merchant types.
I mentioned in a prior article about credit/underwriting of a merchant account. For a quick refresh, the following guidelines generally apply across merchant types:
• Card payments taken swiped or chip read – generally lower risk associated
• Card payments taken via e-commerce or keyed entered – risk is higher
• The type of product or service provided by a merchant will determine risk
• To extent how long delivery will take can impact risk level associated with a merchant
• Well established merchants can be deemed unqualified based on type of product or service rendered
• The size of the transaction will determine risk
• Monthly Card and/or ACH volumes will determine risk associated
The challenge facing Smoke and Vape Shops alike including their wholesale suppliers, a majority of the card clearing banks deem such business types undesirable and as a result the credit guidelines have listed them as unqualified.
Back to the title of this article – if you have had your account opened and then closed in a short term, some of the issues that generally create such could be the following;
• How is your business DBA listed on the application?
• What shows up as the card descriptor for your business when it comes to customer’s statements?
• How was your merchant classification code listed on the merchant services application?
• What was the average transaction and monthly volumes listed?
The typical reaction which was clearly communicated in Denver, was that the merchants did not know any of the answers to the above questions. Back to the earlier article, unfortunately merchant services is an area that businesses do not do enough due diligence in vetting their provider to make sure they can support the business requirements.
As a business owner in this space be very detailed with your provider or potential new one. Make sure they understand what you do, how you sell, and when you review the merchant application recall the above bullet points and make sure your bases are thoroughly covered. Better to be rejected in the credit process than have your merchant account suspended which always seems to happen at the wrong time!
Do a proper due diligence as there are card clearing banks and processors alike that will support your business needs. Especially if your business is across distribution lanes such as in-store, e-commerce, B2B, and trade shows (mobile).
Do be clear in relaying your product line up to the merchant representatives. Realize that some products you might carry can be unqualified – example is CBD based products. While the FDA has in its way approved such on the Treasury end of the Fed, anything Cannabis related will create issues for banks here in the States.
Concluding here – covering the bases will help to insure you have the correct provider. Ultimately preventing the disruption that is caused when merchant accounts get suspended. SVBS
Joe Radest started his career in card payments in 1998 working for the industry giant First Data. Since FDC, Joe has worked with other notable processors – TSYS, Global Payments and Chase Paymentech. Over 4 years ago, Joe branched out on his own; providing complete end to end business process management and secured payment technology solutions, which affords business clients the ability to securely transact payments without having sensitive data touching their environment. He can be reached by phone at 770-731-0414 or by email at [email protected]