This thread is addressed in the first hand to ISO/MSP reps on this sub-forum. Need your expert opinion and advise based from industry experience.

It is a known fact that US banks do not want to deal with so called high-risk merchant accounts (mostly related to adult websites). What's the main reason in most cases? Is it ethical (or religious) question or inability and lack of skills/technology to effectively process such type of transactions? Why word "high risk" still in place if now merchants can be armed with antifraud tools (geo-ip, ISP match, BIN match, etc.), 3d secure, fraudscrub (phone screening), internal monitoring system with automatic refunds for unused subscriptions, etc, etc. ?

What are today the hypothetical chances to open a direct "high-risk" merchant account with hypothetical US bank for tasty monthly volume if all the above mentioned tools will be brought upon with merchant and launched on this account virtually guaranteeing 0% of fraud related disputes and definitely below 1% overall CB ratio? Please comment.

NOTE: let's do not waste time on 3rd party solutions and discuss direct MID only with US bank(s) only for 1 (one) virtual partnership program.

In the case of adult, a lot of US banks and processors just choose not to underwrite the business.

Risk of fraud is only one of several risk factors for acquirers (US or otherwise). So, while having very robust fraud protection is a huge plus, its not the only factor taken into consideration. They also worry about chargebacks resulting from customer dissatisfaction with the product/service, chargebacks resulting from future delivery, the merchant becoming insolvent, etc. They also consider whether or not the business could run afoul of V/MC Card Association rules and be subject to fines or other punitive actions.

In terms of what your chances would be to open a high risk merchant account with a US bank with a reasonable volume cap, its impossible to say without knowing more about your business: what you sell, how much it costs, how you sell it, who you sell it to, how long you've been selling it, and the strength of your financials and credit rating (so that if there are chargebacks, you will be able to cover them instead of the bank).

In answer to your question, Leksus, the main reason is that Visa and MasterCard operating rules & chargeback monitoring guidelines make it very unfavorable for a U.S. acquirer to take on high risk accounts such as adult merchants.

As a concrete example, if an individual merchant in an ISO/MSP's portfolio exceeds the chargeback thresholds established by either Visa or MasterCard (and both have different criteria), then this can result in the ISO being audited by either or both Card Association as well as incurring financial penalties - neither of which is a desirable circumstance.

Some of these financial penalties start at $10,000 and can quickly accelerate to $100,000+ or more. Egregious violation of Visa/MC rules can result in penalties exceeding $500,000 so it is all very serious stuff.

These penalties are assessed first to the Member Bank - and then passed through to the ISO/MSP and then sometimes to the merchant depending on the merchant agreement verbiage.

However, even more importantly sometimes is the fact that due to these kinds of issues, most Member Banks are either not willing or are highly reluctant to allow their ISO/MSP's to accept such accounts in the first place.

For instance, even for a full-risk ISO/MSP agreement, there are usually some restrictions placed by the sponsoring bank on a few types of merchants that can't be boarded... even if the ISO/MSP wanted to do so.

And if you are an ISO/MSP, I can tell you from firsthand experience, you want to have as much leverage as possible when negotiating your agreements with your Member Bank(s) so if you are carrying a lot of high risk merchants, this will reduce the amount of leverage you have and reduce your negotiating power.

The end result is that even if you do work it out where you can take on such high risk accounts, you will get less favorable financial terms and control in other areas while also simultaneously exposing yourself to far greater scrutiny from the Card Associations as well as your own sponsoring bank.

Thus, this is the reason why very few U.S. merchant processors are willing to do this trade-off. At the end of the day, it has a lot less to do with morality or ethics than it does to just good business sense and reasoning, for most processors.

While there are certainly profits to be made in that arena - and I do agree with you that an adult merchant who really has their act really together on the fraud scrubbing side poses no greater risk than a lot of other conventional businesses... it is not really worth doing unless the ISO/MSP intends to be a specialist in high risk businesses.

Hopefully that helps answer your question! (which was a very good one btw, as I'm sure many folks have wondered the same from time to time) :)

Thank you for your posts, Dave and cdg

Here is how I see the situation. Again, everything rolls around chargebacks, which as I see it is a main issue with banks. Let's analyse it for a bit.

Chargebacks due customer dissatisfaction is fixed relatively easy via reasonable return/refund policies delivered to users a couple of times before and after purchase. In addition, internal monitoring system will red flag both inactive (like never logged in) and small usage accounts, which could be automatically refunded based on login behavior. There are some other tricks that deals both with this problem and delivery assurance, which I don't want to expose here, but I can assure you, really works.

Regarding merchant insolvency I am not sure I get the question. If there is virtually no chargebacks and the only funds that are debited from bank account are merchant/gateway fees, how merchant can become insolvent? As for V/MC rules, you might be right. AFAIK they (especially MC) do not tolerate really well adult type transactions. However, I think if MID is properly coded and they know what's really being sold it can be dealt with. What do you think?

In terms of credit, location, customers, etc. although it is indeed relevant to the bank, I am talking only hypothetically here. I do not sell any adult websites nor intent to do so. From my side the above mentioned technology can be offered to all interested parties (including banks) to make this business happen at all. The way I see the situation and correct me if I'm wrong is next. Banks are saying "ok, Mr. Merchant, here is your H-R merchant account, go ahead, but if you screw up we will go after you and the money you owe us, we will hunt you down, will put you in the TMF, etc. etc...". Another words, banks DO NOT CARE about HOW merchant is selling but only care if they are able to recover their loses after merchant goes sour. My opinion this is WRONG business model. By helping merchants who, let's admit, in most cases lacks e-commerce knowledge to properly run its business, banks will not only assure it, but also will make more money in the long run.

Hence, the bottom line is this: IF it will be proven to the banks that chargebacks are no longer an issue and in any case there will be <1% CB ratio, would they talk about it?

Thank you.

The biggest issue that cdg alluded to is the fact that US banks and processors don't want the business b/c there is such a huge market in the US for low-risk merchant accounts. Its simply not worth their while to deal with the additional expense, potential losses, and headaches with V/MC. Their efforts are better spent underwriting conventional business, and they don't want to put their entire merchant portfolio at risk over a relatively small number of adult/high risk merchants. To a certain extent, a lot of them still feel the same way about ecommerce in general. Non-US banks/processors, not having ready access to the US market, are willing to be more aggressive when it comes to risk.

The issue of insolvency comes into play when a merchant goes out-of-business, for whatever reason (it could be totally unrelated to credit card processing) and leaves orders unfulfilled or cardholders who have paid a membership fee for a site that no longer exists, etc. The bank is left having to deal with any resulting chargebacks.

Northwest Airlines recently announced that they are heading closer to bankrupcy due to "the high cost of fuel and delays in credit card processing." Bear in mind that I am only speculating, but "delays in credit card processing" could very well mean that their acquirer is holding back settlements because they are afraid that Northwest will go under or not be able to make good on flights b/c of their mechanics' strike, and the acquirer is worried about the resulting chargebacks.

On your bottom line question, I'd say there is little to no chance of convincing a US bank/processor to take a new adult merchant, regardless of CB ratio.

Thank you, Dave. I guess this is what I wanted to find out when posted this thread.

And there is no way that you can prove to the banks there will be no chargebacks or less than 1%. You would be grouped into an idustry code (SIC).

So it matters more to what others have done in that industry and what the MAPs and acquiring banks have observed in the past years. Fair, no? But it keeps the banks in business and that is what matters. No one wants to go out of business and no bank will put their money on the line for you think might happen unfortunately.

Both David and Corey Bryant are right in ther observation and the way it is.

However CCBILL is one of the largest US based 3rd party processors in the Adult biz, how should they survive ?? I think it's a matter of infrastructure and man power. CCBILL has proven there strange in the Adult business for many years now and they keep growing and processing, so there is a way to do business with it and there is also a bank (maybe more then one bank)that is willing to take the risk.

There are 2 banks who accept high-risk. If you need the account, I suggest to contact to netbilling.com. They will help you to get the account for your business.

Thank you all for interesting posts.

I think CCbill survives not only due to the mentioned factors but also because there is virtually no competition after IBill started having problems. Rumors are that many paysite owners are unhappy with CCBill and would switch to better alternative, however there is no adequate one. Besides, AFAIK CCbill uses mostly European acquires, not US, therefore we can not consider them as true US rival on the high-risk market.
I think 3rd party billing business model is over anyway. My opinion that sooner or later V/MC will invent something to shut the whole aggregation idea down and direct merchant accounts will be one way to go.

Touol, thanks for the tip. I'll check netbilling although I heard they were looking for acquiring banks themselves not so long ago.

Leksus - you are correct about Netbilling. They are always looking for more acquiring banks it seems. With them just an elecronic payment gateway though, I would actually look elsewhere to get your merchant account and save some of your money that you would have to spend with Netbilling

I'm not sure that it is possible easy to get direct account in US for high-risk.
Netbilling is looking for high-risk all time. Banks must keep ratio high-risk/low-risk merchants. They can't have all merchants in high-risk niches due to VISA/MC regulations.
It is more easy to get high-risk solution internationally.

I´ve seen numerous offers for international high risk accounts, but it seems like a jungle to me. I´ve been looking for something solid for a while, but havent found something looking solid.