educational

Processor Points: Pretty Woman

Melody L

It’s that age old problem wherein people judge the book by its cover.

Remember the scene in “Pretty Woman” where Julia Roberts’ unsuitable character has a large amount of cash to buy some nice clothes yet the shops would not cater to her? Her character relayed to Richard Gere, a successful, welldressed character that “they were mean to me.”

I have witnessed several occurrences in which bank accounts are shut down with very little notice because the bank has decided that the business type is not suitable.

This same scenario plays out everyday in the U.S. with regard to merchant accounts and checking accounts. If you are in the adult business, then you simply can’t walk into any bank to open either a merchant account or a checking account. In fact, Eric Munz of L3 Payments called several banks in the Phoenix area asking if they would set up a business checking account for a local club. Munz stated, “The responses were varied but one large bank said that it was against their code of ethics; others stated they don’t serve that type of business”.

I have witnessed several occurrences in which bank accounts are shut down with very little notice because the bank has decided that the business type is not suitable. Of course they don’t say that directly. The bank gives a letter to the merchant that says something non-committal along the lines of — the bank doesn’t think it can serve the account holder’s needs. Basically, “Its not you; its me.”

At least with ACH and credit card merchant processing, there are banks that specialize in servicing the needs of the adult market. They have been doing so for years. They are educated in the market and are only keen on serving clients in whom they have confidence regarding compliance within the card association rules.

Business banking merchants, particularly those seeking checking accounts, have had the luxury of choosing a bank that is close to them and offers the products that they need. Supposedly, banks are there to keep your money safe and they have built their business model on wanting to attract and keep customers with large deposits as those accounts support the rest of the banking products that they offer. However, today, these regional and even national banks are targeting these very accounts and terminating them regardless of the balances.

Why, you ask? I would distill it down to one reason ... reputational risk.

How do you minimize this risk with your bank? A good start is not to flaunt the nature of your business with them. Business names should be kept as benign and nondescript as possible. Be aware of the checks you are depositing or writing these days and the names that might be on the front. With imaging capabilities and character recognition, it is very easy for check data to be screened and flagged for suspicious activity. If you have questionable company names on the checks you are depositing, think about other ways to receive those payments, for instance ACH. If you will be receiving wires from foreign countries, forewarn the bank that they will be arriving and what they represent. Through this advance foresight, when a regulator questions the bank, they will be ready with an answer and the suspicion goes away immediately.

My final piece of advice on the topic is this: set up a backup checking account as you would a back-up merchant processing account. Banks are making these decisions both proactively and as a result of a directive from some higher authority. Some banks are kind enough to give 30 days notice of termination; others terminate the accounts immediately. To ensure that you can continue to operate, be sure to have at least one back-up account. Have a list of all deposits that you receive to that account and all contact information for the issuers of those deposits so that you can communicate the new account information immediately and you are not overlooking any entities.

In the future, perhaps there will be a bank out there who doesn’t confuse solid business practices with misinformed right-wing political correctness and decides to cater to this business.

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