Understanding High Risk Merchant Accounts | What Makes A Business High Risk? | B2B Vault: The Payment Technology Podcast | Episode 98

Yo, what's up everybody? It's Justin live from B2B Vault, the payment technology podcast with your host Allen Kopelman, and we'll be providing you educational information about business payments fintech, decentralized finance, and the technology businesses use in today's world. And in today's podcast, we're going to be talking about high-risk merchant accounts. There's a lot of stuff in the news, always about high risk. What does it take to be a high risk? Am I high risk to, uh, payment processing? Um, does my business fall under that? I don't know. You know, there's just a lot of questions.

So yeah, it's like everything you wanted to know about high-risk payment processing, but you were afraid to ask.

There you go.

Sort of like the Woody Allen movie. I don't know what that is, but Woody Allen, he had a movie, Everything You Want to Know About Sex, But You Were Afraid to Ask. Whoa.

Yeah, definitely.

That's an old movie way before your time. Okay, you know, way before you're done, right? Look, you'll have to look that one up.

I will. What was the other movie that I gotta look about?

Oh yeah, we want to do one day, we got to do a podcast about the— we need to all— we need to sit down. We're gonna have to do it in the office one day, like come in one morning early and watch the movie Middleman. It's a movie about— and it covers high-risk payment processing. We should do it. Like, come in early one day, watch the movie, right? Watch this movie. I think Luke Wilson is in it. And there's a lot of other famous people. James Caan, I believe, is in it. And it's about these two guys.

James Caan just passed away. I think so.

Rest in peace, James Caan. Yeah. So they basically sign up with like Authorize.net. And they figure out How are these the guys who were processing all the— yeah, the porn. So they figure out how to process for porn sites.

This is starting off as a weirdly weird podcast. Pause.

No, yo, no, but that's what they do. Yeah, it's about high-risk credit card processing, and then the story gets completely out of hand. But we're gonna definitely like watch the movie and then do a podcast. It's about it because it'll be fun.

I was just saying you said sex and porn. I'm not going on— sorry, very beginning, first 3 minutes of the podcast. Okay, close your ears, ladies and gentlemen, if you have little toddlers in the car.

So what should you know before you end up getting a high-risk merchant account? Are you really high risk?

Yeah, what is like beyond that? Like, how is— how do you even get classified as a high risk?

So high risk, you know, could be classified by You got shut off by a processor before. So you could be any business. I mean, you could get— you could be, you know, we've had people come to us and they're strip club, and then somebody that's not in the business went in there, signed them up as a restaurant, and then they started processing, and then the bank found out that it was a strip club and not a restaurant, and then they get shut off, right? Okay. So sometimes the processor can put them on the match list or put them on a warning list. And then it makes it harder for that merchant. But, you know, so what—

so say if I'm starting my business, right? I'm, uh, I don't even know what would I— what would be a good business to say? A smoke shop, right?

So you want to make sure that you're not picking a name like, oh, Justin's— Justin's Weed Smoke Shop. Like, you're not going to get credit card processing, okay? Like, you gotta make sure smoke shops are a high high risk. Well, it could be depending on what you're advertising. Everything goes by, you know, are you high risk or not? First of all, does the bank that you're going to go to deal with that merchant type? You need to ask them like, oh, are you smoke shop friendly? Okay, right. Are you friendly? Oh, I sell some CBD, you know. What, what do you sell in your smoke shop? Do you accept Merc? Do you accept— somebody called me today, I got one of my sales reps, right? So he's like, oh, go look at this website. He goes, oh, you know, they got declined by the place I normally send business to. This guy sends me some little bit of business here and there. So he goes, go look at the website. There's nothing wrong with it, right? They had some vape, they had a bunch of bongs, right? So Not every processor wants to process like a store full of bombs, right? But we have places that will take it. They don't care, you know. And so that's what you have to understand, you know. You go to some processors and they're processing through places like Bank of America, Chase, Wells Fargo. Okay, those are publicly held banks, so they're going to shy away from those, right?

They got to keep it PG.

Right, they're going to shy away from that type of client. But then you have other banks, right, privately held or family-owned, and they're very, very large. Some of them are in the top 10 banks in the United States, and they're going to say, we don't care, we'll take those clients, right? And you're not going to pay like some crazy high risk— oh, it's 5% for credit card processing— because that's in their normal you know, state, you know, normal types of business that they accept, right? Just like strip club. You know, we talked to a couple of processors, like, you know, we're dealing with somebody new now, we're not going to mention the name, right? But we asked them, oh, will you do a strip club? And they were like, no, right? Straight up no. They're not doing it because it's owned by a public company and they're not going to do that, not going to have strip club on the books. So you got to make sure—

public means everyone owns them. What? Public means everyone owns them, right?

Right.

For those that don't understand, you know, I get questions on the stock exchange.

Yeah, it's a publicly traded company. They're listed on the stock—

Allen is a privately owned company. My company was a privately owned company. Samantha's Graphic Design is a privately owned company.

All right, Rocky's—

I don't know, dog treats.

Dog treats, privately owned by Rocky. Infused with chicken jerky infused with CBD.

It sounds like you have a— that's a product line right there, Rocky CBD Treats.

Could be, you never know.

Launch it, dude, never know, you might make a billion bucks, right?

So, you know, every bank has their specialty of like— some banks like the adult business, some banks like CBD, and then different banks like different products amongst the CBD. Some banks say, okay, Delta-8, no flower, we'll take it. But as long as it's 100, they can show the tests are hemp-derived, you know, Delta-8, we'll accept it. Oh, you have flour, it's— you have the test, it shows that it's hemp, we will take it. You know, as long as you can prove that, that, you know, you're playing within the rules of the bank. So you have to make sure you don't want to sneak something in, right? Get signed up with a CBD bank, then all of a sudden you decide, well, I'm just going to add on like Delta 8 products, and then you get a call and they go, hey, you know, we review your site all the time, because they use software that basically crawls your site every— usually like monthly.

And then if you have to like audit the site—

yeah, they audit the site. So, and they're looking for words, right? Cannabis, weed, Delta 8, mushrooms, right? Mushrooms.

Hey, they're talking about legalizing I'm all for legalizing mushrooms.

Yeah, they're talking about legalizing mushrooms and, and having it, you know, I'm sure there's good—

imagine this guy on some shrooms.

No, but I'm just saying. Yeah, well, I probably wouldn't show— we'd probably have like a 2-hour podcast, dude. I could not even—

man, no way, Jose.

I'll be talking non-stop. We've been talking about Dick Durbin.

I just be like this the whole time.

But no, I'm sure that they're gonna put it into some kind of limit of what percentage of something you could have.

Give this shrooms to the PTSD guys, man. All the soldiers out there, it works.

No, so, you know, different banks like different things. One bank likes adult, one bank likes cannabis-related business, another bank doesn't like that. One bank likes nutraceutical products, you know, like vitamins and You know, supplements. Another bank doesn't like that. One bank likes Doc Prep. Doc Prep is where, you know, a website is helping you prepare documents, like to recover, get a replacement for your Social Security card, a driver's license, a birth certificate.

Those are big.

A visa. Yeah, it's a big business because, you know, people are lazy. I mean, you could go do it yourself, but, you know, get a federal tax ID.

Stop being lazy.

But maybe you want to get it faster. And you need to get it faster and you don't have time to go retrieve all the documents and do all that, there's companies that do that stuff. But not everybody likes each kind of merchant. Same thing like guns and ammo. Not everybody likes that. There's a lot of rules around some of these merchant types, right? Like with adult, they have certain guidelines from MasterCard that must be adhered to and they get audited for that. Once a, you know, yearly they get audited for their business practices. The same thing like with, um, smoke— like let's say you're selling cigars online or you're selling vapes online, you have to adhere, you have to have certain, um, disclosures on your website. And the same thing with CBD, you have to have disclosures on your website and they review your site. Like for CBD, the MasterCard came out with new regulations regarding around advertising, and also that all the certificates, the— they call the COAs, which are— has to be available on the website, has to be available, and they have to be no older than 12 months. So if you don't— if yours are less than 12— over 12 months old, like I reviewed somebody's site, the thing— the tests were like 2 years old, the bank won't accept them for a merchant. They might have a merchant account now, but if they get audited, they probably get closed.

Wow.

Because MasterCard's on the warpath for that right now. You know, every single bank, you know, you open up a retail store, you're selling t-shirts, t-shirts, embroidery, hats, you know, or you have a restaurant, you're selling subs. Every bank likes that. Who doesn't like that? It's card present, low risk, right? So every bank likes that.

Real quick, just, that's a really great part of the podcast to explain the difference between a high risk and a low risk, right? So you got your strip clubs, uh, smoke shops. What else?

Well, they're not necessarily high risk. I would call them niche, right?

There's— there's the right bank. People don't like, right, like the more hard edge or—

right, stuff. No, you just got to find the right partner that likes that business, but you're not overpaying for price, right?

But I'm just trying to say to separate to each other. So then, you know, banks like, you know, the mom-and-pop, um, clothing shop that does, you know, custom t-shirts for people, um, stuff like that, right?

Right. Yeah. So you— but you want to make sure if you're in a higher risk kind of category that the company you're going to work with is somebody that understands that business and wants to work and tells you like, oh yeah, we do this We do— like, people know, like, for me, yeah, oh, I have a hard-to-place client, right?

They're gonna call me.

They call me and they go, oh, do you have a solution for this? Usually, yes. We have like 15 partners, so we have partners that they specialize in certain areas, and that's what you gotta understand. And don't go to somebody that's just gonna take all your information and send it all over the place because you're going to end up with credit pulled, and that's not going to look good. And then when you do find a bank, they're going to go, man, this guy applied everywhere. So you don't want to take the shotgun approach if you're in a very niche category. And believe me, there's businesses no one's ever heard of. I, I've had a few this week. Like, I had a guy that's specifically doing graphic design for NFTs and Web3. Specifically, that's what it's for. Smart for you, right? I mean, I thought it was a unique category. Or let's say you want to run a subscription program where you're charging somebody every month. Not every processor likes that, so you got to make sure that they like it before you do it with them. So you have to kind of make sure, like, what, what you're doing, and, and the, that, that comfort level is there. And, you know, getting— just because someone says, oh, I could get you processing, and then they tell you, oh, it's 9% or 10%, that's always not good because that's a red flag to their bank that why are they charging this guy such a high price, right? So we try not to do deal with people that do that. We want to get our merchants the best deal we can get them, always, you know. And, you know, that's what we— that's what we're in business for, to make sure we, we're getting people, you know, the right, the right bank for their business and the right price. You know, the other thing is, here's an example of somebody sent me a website a couple weeks ago, and I tried to explain to the client, potential client, I said, at first glance, I looked at his website and I said, hey, yeah, we could get you We probably can get you credit card processing, but you're gonna have to make a few adjustments. And the guy's like, why? And I'm like, okay, like the lingerie and the toys, okay, that's easy. We can find a bank.

Not—

believe it or not, there's banks that don't like that because there could be some questionable pictures on the website, all right? So they're not gonna be down with that, selling that online. And then the guy also had ED pills and some Nutra products. And the bank that takes the lingerie doesn't like those two products. Then the guy was also selling CBD. So now you got— you got the three things. Well, and then the last thing he had, he was selling adult magazines and DVDs. So it's like, dude, like, this right here, like, we're not going to find an adult bank that likes— the adult bank probably will like the lingerie and toys, but they don't like the ED pills and the Nutra, and they don't do CBD. The CBD bank doesn't like adult and Nutra, but they'll take the lingerie. So you're not going to get all those 4 categories.

So what would you suggest to him? Does he like build different websites up?

Yeah, like build— like sell your, you know, if you want to have— if you, if you're going to sell adult stuff, sell adult stuff. If you're going to sell—

so like the lingerie, adult toys, and the adult mags could be one, right?

Right, that could be one website.

Couldn't the pills and the CBD be one site?

Um, probably not, because the bank that like see— the banks that like CBD don't like the nutraceutical products. No, the banks that like nutraceutical don't like CBD because nutra is a— people don't understand this, but it's like two different types of products, right? It sounds like it might be close to the same because, you know, it's an ingestible product, but no, it's two different things.

I have no idea what you're talking about.

Well, I'm just saying, like you know, ED medication, you know.

Oh, I mean, yeah, I get it. The purposes are two totally different purposes, right?

So I'm just saying, like, for whatever it is, like, for nutraceutical health, health stuff. Yeah, I'm just saying, like, the banks that process that don't— there's not one bank that likes all four of those, right? I asked, they started— I mean, the underwriter was like Come on, dude, like, no, you know already. Yeah, you know, I mean, I knew the answer.

You know the vibes.

And I already told the guy, I said, you could go call like 20 people, no, anyone that says yes to you, you're just, they're just gonna waste your time, have you fill out paperwork, you're gonna send it in, and then you're gonna get declined, and then you're not gonna be happy.

Yo, before you get into that next part, please don't forget to enter for your chance to win a Meta Quest 2 for the 100th episode giveaway of the B2B Vault. You can check out the contest on Twitter, Facebook, the Facebook B2B Vault community page, sharing it on TikTok, Instagram. You can enter the site via social media, check for the links when you follow B2B Vault on TikTok, Instagram, Twitter, and Facebook. And yeah, there's also LinkedIn, the LinkedIn page on—

right. And also watch for our post about posting a question for the 100th episode. And if your questions get picked, we're going to send everyone whose question that we talked about on the podcast, we're going to shout— give you a shout out for your name. And your company, read your question, and we're gonna give out surprise gifts.

Whoa!

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Enter the contest on Facebook, Twitter, Instagram, LinkedIn, and LinkedIn, TikTok. Check us out at B2B Vault. Also check out B2BVault.info. There's ways for you to check out past episodes, get in contact with Allen. If you're looking for a merchant account yourself, there is a beautiful Apply Now button in the top navigation. Click that, it sends you to the form. Donezo. So yeah, check us out on Spotify, Apple, Stitcher, Google, Amazon, Pandora, Pandora, Overcast, you name it, we're there.

We're probably on every single— we were on one the other day. What was that one called? Pod something. I don't know. Somebody posted on, tagged us on Twitter, and we went and looked. Sure enough, we're listed on there.

Shout out to Allen for being in the South Florida Business Journal too. We're— Nationwide Payment Systems was in the Business Spotlight section, which was pretty cool because yesterday afternoon he got a notification that Nationwide Payment Systems was in— got it— was a part of the Google News.

Yeah, that was cool.

Thanks. So that's very interesting. That's very cool. Thanks. Shout out to the South Florida Business Journal. That's all I got, man. Sorry about the podcast the other day, guys. I was really tired, uh, a lot of personal stuff going on. But yeah, back.

All right, we're back. So merchant accounts, and especially, you know, people don't understand, they come with limits. It doesn't matter if you have a restaurant or you have a high-risk merchant account or you're doing e-commerce, whatever you're doing, the banks always want to know what's your monthly credit card processing going to be. Samantha's trapped over here by Rocky. She's over here laughing. Should I wake Rocky up and we'll hear barking on the podcast, or just sit quiet? Let's all just behave.

What's that saying? Leave sleeping dogs lie.

Yeah. So your monthly volume— what's the average sale going to be? What's your high sale going to be? And then people always ask me, oh, is there going to be a reserve? So what is a reserve?

This reserve thing was really— that blew me away when I— when you Yeah. When we learned about that.

Yeah. So, you know, a reserve is the bank could put you on a reserve where they're holding 5%, 10% of your daily sales.

The one company that was holding on it over almost $20,000.

Which one was that?

The guy that you had just talked to the other day. He said, oh, I'm going to have to call Clover.

And oh, yeah, the guy was on Stripe. Stripe, right. And he sent me his thing first. He told me, oh, I'm paying 2.2%.

I go, no, BS.

So I show— he sent me the paperwork. I go, you know, I don't want to like rain on your parade, right? But I said, look, it says right here, this is your sales and this is how much they charged you. Then there was a bunch of other miscellaneous fees. I go, you add all that up and I says, and then you divide that by your sales, and it came out to almost 4%. The guy was like, what are you talking about? He was in shock. He actually got pissed. I bet. And then he didn't even want to talk to me, so we didn't get the account. But he might come back after he calms down. And then I showed him on the bottom, I said, do you realize that they had a 5% reserve on you and they're holding almost $20,000 of your money? He's like, what are you talking about? He goes, there's a reserve? I was like, yeah, right there, it says it right there in this And he's this business owner not paying attention.

I mean, I don't understand how I have—

this is time and time again, we make people all the time, like, if you're gonna have a reserve, first of all, it's negotiable, okay? What are they gonna do, 5%, 10%? Are they gonna give you like a fixed reserve? Like, we have a merchant now, they are on a fixed reserve, and it's a certain percentage of their sales over 6 months, and it's a fixed thing, $20,000. So before it was about $16,000, but their sales went up, so now it's $20,000. And, you know, but there's other ones depending on how high risk the merchant is and their history. And it's also the history of how they're processing. So they might start off with like a 10% reserve, and then the bank will see, oh, there's no chargebacks, everything's smooth sailing. Okay, let's cap it. And they cap it at like whatever they have based on those current sales numbers. And the banks need the reserve because what can happen? Chargebacks.

What's chargeback?

So somebody disputes a charge, like Justin selling CBD, and I'm on a recurring thing every month.

You didn't get it.

And I didn't get it. And I do a chargeback. I need to get my $150 back. So the bank, if Justin doesn't have it in his bank account, guess what? The bank is on the hook for the $150. So that's why they establish reserves to cover themselves. Also, there could be fines. Like, we're gonna, you know, I was telling Justin, I said I heard this morning from two different CBD clients that the FTC was going after and MasterCard were both going after a couple of CBD companies, and there was going to be announcements And we didn't find it on Google, but that doesn't mean anything. If they're talking about it, it's probably happening. It's probably happening, and they'll be— it'll end up on Google in the next few days. I mean, we saw— so you have to, you know, so those fines, the credit card processor gets slapped around, and they're going to go look at the merchant to pay the fine, you know. So that's why I was saying, like, with Nutra Merchants, let's say they're advertising something, the FTC comes in or the FDA They go, we don't like the way the wording is on your website. So the merchant gets slapped around. They fix it right away. Yeah, they get, you know, they get a letter, they get like the nasty letter in the mail. Then as long as the merchant's proactive, they go fix it right away. Then they show it to the FDA or the FTC, and then they usually don't find them. Now, if there was a bunch of complaints, Maybe they would get a fine and then they're going to come after them and they'll come after their bank account, their merchant account, wherever they can go get the money from. Right. So the banks, you know, when you're in a higher risk category, want to have— they want to have money on reserve in case you get some kind of fine, right, from either the card brands, which doesn't happen too often. You know, most of the fines come from the FTC or the FDA having to do with advertising. Right. And disclaimers on your website. Hence, like we were talking about, like CBD as disclaimers, you know, guns and ammo.

Gotta have all that privacy policy, right?

Terms and conditions, shipping, shipping policy, shipping and returns, cancellation policies, a visible phone number so people can get in touch with you.

Name, address, phone number, or NAP.

I tell people all the time, like, you have a higher risk type merchant account Hire like, what's that answering thing you hear on the radio all the time? Like, oh, whatever, Susie always answers the phone. It's like whatever, it's like an online company that provides answering services. You hire a company like that. Oh, so after hours you're not there, you want your phone answered. You don't want the person running to their, their—

like a customer service, sir, right?

But I'm saying you can just get a simple answering machine answering company where they just answer the phone for you after hours so that you don't get people that just go— make it so easy now, especially since COVID Just go on your bank app, boom, boom, boom, I want to do a chargeback. And guess what?

Done.

You got a chargeback. And so you don't want people to do that. So you have the phone answered all the time, make it so you don't get chargebacks. Because listen, I started in the business 20 years ago, the chargebacks was 3%. Mm-hmm. Then it went to 2%, then it went to 1%. Now it's like 0.7%, but the banks would really like you to be around a half a percent. So it's pretty crazy. Plus they measure it against basis points on high-volume merchants, so you got to really watch what you're doing. And if you have 100 chargebacks in a 30-day period— and they don't do it in a calendar I don't like— I really hate how the credit card brands treat the chargeback. It's 100 chargebacks in any 30-day period, so it's a floating 30 days, right?

So I get one on a Thursday of the beginning of the month, right? But I don't get one until the end of the month, it's still— that's going to start over.

Well, no, it doesn't start over. They could just— any 30 days, they could pick out a section and go Oh, during, you know, from July 14th to August 14th, you had 120 yards. Yeah, I know, it's— their rules are, uh, floating, which I don't like. You know, Apple does the same thing.

It doesn't make any sense.

It's a living agreement. Yeah, well, you would think they would just do it on a calendar basis, but they don't. And then, you know, Oh, so Rocky decided to get up and give us a jingle. You know, so chargebacks and fines, you know, that's why they have those. And, you know, keep the chargebacks down. And, you know, there's specific rules when it comes to advertising for certain industries, disclosures you're required to have on your website, you know, different, different things. So you want to work with somebody like myself who has who has knowledge of all multiple industries. Like, I was meeting with the guy this morning also. They were selling— they want— they're launching a website that does visas, so you can get a visa into a foreign country, and they deal with a whole bunch of different countries. Obviously you can go do it yourself, but maybe you can't do it, and then you need to do different things. Like, you need a certain size picture so you can get a rail pass.

I mean, people can do it themselves, but I think what— I think those types of services are aimed for for people who are not technologically savvy, right?

You might not, right? And also, you know, they might be asking for a specific size picture and the picture you have is too big, so they'll size it down for you. So I was meeting with them, so I said, oh, you know, I said, oh yeah, this is like a doc prep thing. And then the guy was like, I said, yeah, we know what doc prep is, we know banks that are friendly with doc prep, and we can help you with that. So I was pretty impressed. So the same thing, you know, you want to make sure that you're explain— you know, the person who's— you want to know that person that you're dealing with is telling you all the things that you're going to have to do. Quarterly reports have to be filed by some merchants. Some merchants have to file compliance statements once a year. Usually the bank sends out the compliance statement or the audit You know, like travel merchants now are under a microscope. It's another high-risk category. So one, you know, we work with a couple of banks that do travel. We have a few travel merchants and, you know, they're really on top of them. Oh, we need to do our financial audit. Want to see your tax returns. Want to see your audited P&L statements and all kinds of stuff. Fresh bank statements and it's due by this date. Even though the due date's not till the end of August, they're like sending out an email once a week, where's this stuff, where's this stuff. I mean, they want to get it way before the end of the month. So, you know, you have to understand, you know, what, what ongoing compliance are you going to have to deal with? Because merchant—

I don't like—

I tell merchants all the time, I go, I'll tell you the truth, right? Like I told that guy with all that crazy stuff. On his website. You might not like it, but, you know, you got to understand, like, certain merchants have to pay registrations, tobacco merchants, so on and so forth. So getting approved is like preparing a good package. We're going to interview you. You need to interview whoever you're working with. If it's me, let's say you want to work with me, you can text the word book, B-O-O-K, to 954-827-9818. And you'll get back a text message from us with a link so you can book an appointment.

Yes, sir.

We give a free 15-minute appointment and we go over what your needs are, and if it lasts a little longer, lasts a little longer. So that's today's podcast, everything you wanted to know about high-risk credit card processing but you were afraid to ask. That's probably too long of a title.

Yeah, we might put it in there.

We'll see how it works. We'll see. Could be the subtitle, but we'll see how— we'll see how that works out. So everybody have a great day. If you want to find out more, you can go to— you can either text the word book to 954-827-9818. It'll be in show notes. Or visit the website b2bvault.info. You can fill out Apply Now or fill out a form. And set up an appointment with us. Everybody have a great day. Carpe diem. Peace out. There you go. Is this getting posted?