Why E-Commerce Startup Merchants are Considered High Risk

Why E-Commerce Startup Merchants are Considered High Risk

Every month, Instabill merchant account managers receive leads about startup businesses in need of credit card processing. We welcome startups and give them whatever tools we can so they can succeed and thrive. And you never know who will be the next e-commerce giant.

The fact that e-commerce startup merchants are considered high risk is unexpected news, and as a result, we have some explaining to do. Here are three reasons why:


Understandably, there is a degree of uncertainty when our merchant account managers sign up a startup merchant. It is impossible to know if the business will succeed or fail. As a merchant services provider, we need to protect ourselves and the acquiring banking partner with which we match the startup. It’s why they assess rolling reserves.

The hope is, of course, that the startup becomes the next Zappos or Match.com. We guarantee those giants were vetted thoroughly before they launched in the early 2000s.

No Payment Processing History

When startup merchants come to us seeking online payment solutions, they often have little or no credit card processing history – and that’s OK. It’s not a deal-breaker by any means. In this case, we request other bits of information such as:

  • Personal banking statements to make certain the startup merchant is financially responsible.
  • Credit score, for the same reason above.
  • Alternative business banking statements (in the case of existing businesses that show transactions other than credit cards, such as cash or pay-by-check history).
  • A business plan that details how the merchant plans to market his/her business and drive traffic.

Lack of Capital

Sometimes e-commerce startup merchants submit applications to us and, during underwriting, we’ll discover they may not have much money behind them – this also is not a deal-breaker.

Some of our acquiring banking partners do require a certain amount of capital in a merchant’s business bank account. However, if a merchant needs an offshore merchant account, the bank will levy a 10 percent reserve and a monthly processing volume minimum (with weekly payouts) that the merchant needs to meet, or risk losing his merchant account.

A startup merchant seeking a domestic merchant account will likely be imposed a volume cap which protects the bank from the merchant losing money because of the daily payouts.

One Important Thing for E-Commerce Startup Merchants to Remember

Most reserves, volume caps and credit card processing fees are binding for the length of a contract with the bank – on paper, that is.

“Reserves are usually held for the length of the contract,” said Wendy Jacques, Sales Manager at Instabill. “But after a year of strong financials and good processing, some banks might be willing to renegotiate after a year.”

Looking for a merchant account for your e-commerce startup? We will help you. Our merchant account managers are reachable at 1-800-318-2713 or by a single click of our live chat option below.

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