Banks Cut Off Companies Listed by FDIC as High-Risk Merchants


Ranging from news articles to recent CEO interviews.

Banks Cut Off Companies Listed by FDIC as High-Risk Merchants; Payscout Maintains That the Solution Lies in Reputable Merchant Processors

A report published by the FDIC lists a number of merchant categories as high-risk. Payscout, Inc., stands in support of unfairly labeled merchants, and considers those who follow applicable federal and state laws to be categorized as managed-risk, not high-risk.

(Los Angeles, CA) August 25, 2014—A recent list that was published (and later withdrawn) by the Federal Deposit Insurance Corporation (FDIC) listed over 30 merchant categories, ranging from nutraceutical companies to travel agencies, which were considered to be high-risk (managed-risk). Shortly after the list was published, banks hastily cut ties with businesses that fell into these categories. The resulting action left many merchants scrambling to find a suitable merchant service provider willing to process their transactions. Payscout, Inc., a global merchant service provider that specializes in managed-risk processing, maintains that as a consequence, the United States’ eCommerce growth rates will suffer.

Managed-risk merchants are categorized as such because statistics show that they tend to have high chargeback rates and significant numbers of payment disputes. These companies include nutraceuticals, online dating services, travel agencies, etc. However, these companies find credit card processing services to be crucial to their success.

The recent FDIC report incited these merchants to fight back in order to continue to survive in the marketplace. Payscout CEO Cleveland Brown asserts that the reaction of banks in severing ties with merchants not only puts merchants out of business, it also stunts the growth of the eCommerce industry’s projection to surpass $300 billion. This growth will be driven by the technical innovation of managed-risk merchants.

“There is no way to avoid the risk of merchants’ industries, as it is the ethical behavior of both the consumers and the merchants that are dictating the risks,” said Brown. “Instead, it can only be moderated by a managed-risk processor with expertise in this arena. This will allow for the continued success of merchants, facilitate smoother transactions with consumers, and continue to drive the innovation needed to sustain the growth of our eCommerce industry.”

As eCommerce surges in popularity, companies are encountering more issues in locating reputable merchant service providers to process their card-not-present (CNP) transactions. Merchants are struggling to find processors that will allow their business to stay afloat without an inundation of fees or threat of cancellation.

For this reason, Payscout recommends considering the following five factors for managed-risk companies who are seeking to establish themselves:

  1. Find a merchant provider who specializes in managed-risk businesses. Companies with expertise in the field will be more in tune to the various niches of each industry, and have better relationships with banks less likely to charge high fees.
  2. Maintain a good business and personal credit score. Part of a company’s risk is determined by their credit score. When all bills are paid timely, there’s a better chance of receiving low rates for merchant accounts.
  3. Minimize chargebacks. Be sure to give thorough and accurate product descriptions, as well as a fair return policy.
  4. Employ practical marketing. Marketing that promotes unrealistic results is more likely to result in chargebacks. Practical marketing increases your chances to have access to credit card processing.
  5. Always offer superior customer service. Banks check customer reviews and web sites for assessments of a company’s products and consumer satisfaction. Good customer service will lead to more positive reviews by consumers, fewer chargebacks and better relationships with banks.

Brown maintains that when following these steps, a managed-risk merchant can stay on pace with the booming industry of eCommerce and avail themselves of opportunities to be profitable. Payscout’s clients range from SMBs to Enterprise eCommerce companies.

phone icon

Contact Us

Mon-Fri 9am-7:30pm EST
email envelope icon

Email Us

Receive a response in 24 hours