Money-Wasting Mistakes Startups Make Choosing A Merchant Account
merchant accounts for startups

Money-Wasting Mistakes Startups Make Choosing A Merchant Account

Merchant accounts for startups. They are one of the many trials of starting a new company or launching an online offer.


It’s even more difficult when you operate in the “high-risk” business category such as selling supplements, a biz-op course or an offer with continuity.

According to, this year e-commerce is poised to increase 20.7% around the world. Naturally, online startups represent a portion of that market.

You know the uphill battle you face just getting your business off the ground. But, to find a reliable method of accepting payments does pose a serious challenge. Some choose the low-risk route. Stripe, PayPal, Square and various payment aggregators to process customer payments.

Then you discover that these payment processors can’t meet your business needs. Some don’t accept merchants selling supplements, business opportunities and many recurring digital offers. So, you look for alternatives. Someone suggests that you should apply for a dedicated merchant account. Then, you stumble across a blog on merchant accounts for high-risk businesses. A merchant account seems like the answer to your business payment problems. So, you apply. But, you get denied each time.

The key is to make payment processing as friction-free as possible for your customers and business. But you’re not making any headway with a merchant account. This post is just what you’ll need to get started – the ultimate blog post on merchant accounts for start-ups or businesses with limited processing history.

We will guide you on what you can do as a newly minted startup ready to improve your payment processing. Take a look at:

  1. Reasons why your applications are declined
  2. A list of ways merchant accounts for startups get approved
  3. 3 major pitfalls to avoid for new merchant account signup
  4. Strategies to improve your merchant account application process


The five most popular reasons merchant account applications are denied

No Credit Card Processing History

It’s like a catch-22. You need payment processing to build transaction history. But you need transaction history to get approved by a reliable payment processor. It’s just one of those hurdles you must cross. If you can’t show a positive history, then your application may be denied. (Keep reading for a few tips on overcoming this hurdle.)

No Personal Credit History

People are told not to get in debt, often. What some fail to mention is that you need to build a credit history. Building a credit history does not mean going into debt. So, in a situation where you’re starting a new business, you should be able to show you can manage credit. Payment processors often rely on a positive credit score to open a merchant account for a new business owner.

Poor Personal Credit and Tax History

You’re the primary signer for a merchant account application. Thus, acquiring banks that assess your company will review your personal credit history. Poor credit history and open tax liens will affect your application. Consider a business partner/co-founder with a better financial record to sign as the primary applicant. Also, repair your credit history before applying again. Submitting applications for many merchant accounts at once will affect your credit score even further. Furthermore, keep track of where you’re applying. You don’t want apply twice to the same payment processor.

Lack of Start-up Capital

New business but no money in your bank account? That’s a no-no. Payment Service Providers (PSPs) will look for start-up capital. The more you have, the more you signal a strong intent to build a viable business. When you can improve that trust factor, you stand a better chance of being approved for an account. Having 10-20% of your desired monthly volume cap in a bank account for starting operations would be a good start.

Your Business Type

As you’ll notice throughout our site, we work with high-risk businesses. They are the business categories that find it harder to access merchant accounts. Why? Some merchant processors will not work with high-risk businesses. If you operate within a specific industry, you may be classified as a high-risk business. This makes it harder to get approved for a merchant account.
If your business falls into the “high risk credit card processor” category, that may be the reason why your application was not approved. Instead, find a company that works with your type of business.


DirectPayNet can help navigate merchant accounts for startups. Send us a message and we’ll guide you to obtain one for your online business.


A Website with Plagiarized Content

As part of the business review process, your website will be assessed. And, if it has copied content, your overall business practices will be questioned. Consequently, your application will be denied. Having a professional looking site with original content will make it much simpler to get approved.

What’s next?
Merchant processors assume risks when they approve a merchant account. As such, they often prefer to do business with low-risk entities that have the lowest liability possible. They want to limit their exposure.

So, in a situation like this, what can you do to improve your chances of getting a merchant account for a startup?


3 Tested & Proven Ways to Get Approved for Merchant Accounts for Startups. Be Prepared so You Can Avoid Being Shut Down Within the First 60 Days
1. Submit a Detailed Business Plan

A clear business plan can do wonders for your application process. A one to two page summarizing the items highlighted below will help make your business more credible for a payment processor:

  • Your financials. Including reliable sales predictions. Predictions should be well within the range of similar businesses in your industry. You can also shore up your financials by providing a business bank account statement that shows working capital and a few transactions.
  • Your marketing plans. Outline how you plan to target and acquire new customers. Retaining repeat customers can help too based on the ROI for repeat business.
  • Website security features. Working in an online space and accepting credit card payments require strong online security. Show how you maintain PCI compliance, 3D secure processing, and more.
  • Pricing and return policy. Outline the rationale behind your pricing and return policy. Your website should have detailed pricing information. Make your return policy easily accessible.
  • Contact details and customer support. Your business plan should provide reliable contact information and your contact details should be easy to find on your website for your customers.
  • Quick Team Presentation. A brief summary about your qualifications as well as any key team members.


2. Adjust Your Payment Processing Models

With merchant accounts for startups, it’s best to begin with a straight sale approach. Yes, you want to offer subscription/recurring payment options. But, right out the gate is not the time to offer it if you’re a startup. For at least the first three months use straight sales to build some processing history with your payment provider. Later, request to add subscription options to the offer. Also, try to sell product bundles to increase your revenue per customer.


3. Make the Know Your Customer (KYC) Process Smoother

KYC for financial institutions is a critical element of the application process. To make it move smoother, you should:

  • Have all the necessary documents at hand for their Customer Identification Program (CIP). This includes name, date of birth, address, and ID number.
  • Ensure you have all the records ready for review if you have registered a company. Business bank statements, incorporation documents, articles/memorandum of association, employer identification number (EIN) letter are all essential.
  • Have everyone’s personal data available if there is more than one beneficial owner of the company.
  • Prove your business and personal worth as part of the financial institution’s customer due diligence efforts.


3 Major pitfalls to be avoid for a startup merchant account

When you’re being denied for a merchant account and suddenly reap success, you really should check the fine print. Some of the requirements are steeper – and more expensive – than you would like. There are other pitfalls, but you should avoid these three.

  1. High merchant fees: Some account processors will take advantage of new businesses. They set costly rates to get high-risk businesses approved for a merchant account. Shop around. High fees do not have to be your reality.
  2. High reserve requirements: Merchant account reserves are security deposits put aside by an acquiring bank. It’s for unplanned liabilities stemming from your business activities. There are three types of reserves – upfront, accrual, and rolling. Find an alternative solution if you’re presented with more than a 10% rolling reserve over six months. Higher reserves aren’t required. Unless you have very poor credit or processing history (i.e. riddled with chargebacks). (Here’s a cheat sheet on how to lower merchant account reserve requirements.)
  3. Signing up to a payment aggregator: An independent merchant account and a payment aggregator are not the same. A payment aggregator permits merchant to process payments without setting up a merchant account through a bank. Stripe, Square, and PayPal are all payment aggregators. They don’t pair well with high-risk businesses as they cannot tolerate risk and chargebacks. However, a merchant account is a type of bank account that allows you to accept credit card payments. They offer more flexibility and improved processes, especially when your earnings start to scale.


Related Post: When to upgrade from PayPal to a real merchant account

Strategies to get merchant accounts for startups approved

Declined merchant accounts for startups is not the end of the world. Implementing these five strategies ensures that your next application stands a better chance of success.

Build business payment processing history

You may not have a merchant account right now. But, that doesn’t mean you can’t build a processing history. One of the easiest ways is through other payment methods. Consider adding ACH or e-check processing to your website. Once you’ve built sufficient history with these methods, you will improve your chances of being approved for a merchant account.

Build the personal credit history of the business owners

Your personal history factors into the assessment and approval process for a merchant account. Ensure you and all other beneficial owners are working on improving your credit history if it is not in a favorable state.

Start local before you expand overseas

Build a good history of domestic processing before you offer services abroad. In short, selling in your own country before selling overseas reduces the likelihood of high declined orders. Transaction approval rates do better when orders are through a domestic payment channel.

Start Simple

By simple we mean, simple products and services at lower price points. And like we mentioned before, wait a few months before introducing recurring payments.

Outsource to an experienced merchant service provider

This is a great way to meet and exceed all the requirements. It will help you get approved for a merchant account. In other words, a company like DirectPayNet can reduce hassles and make the process smoother. Like us, they can help you find the right merchant account provider for startups.


Send us an email today. Raise your chances of getting approved for a sustainable merchant account.


About the author

As President of DirectPayNet, I make it my mission to help merchants find the best payment solutions for their online business, especially if they are categorized as high-risk merchants. I help setup localized payments modes and have tons of other tricks to increase sales! Prior to starting DirectPayNet, I was a Director at MANSEF Inc. (now known as MindGeek), where I led a team dedicated to managing merchant accounts for hundreds of product lines as well as customer service and secondary revenue sources. I am an avid traveler, conference speaker and love to attend any event that allows me to learn about technology. I am fascinated by anything related to digital currency especially Bitcoin and the Blockchain.