Why banks are moving away from blanket merchant bans for high-risk industries now

For many years, banks relied on blanket merchant bans as away to manage risk. If an industry felt controversial or uncertain, the safest answer was often “no.” Entire merchant categories were disregarded without considering the benefits. Nowadays, that approach is slowly changing. As regulatory expectations progress, banks are reconsidering whether the general category exclusions are the best way to stay compliant while growing. This article highlights what’s changing, why it matters, and how banks can have a safer approach going forward. This article is intended for banks and financial institutions that are seeking ways to manage merchant risk while regulatory expectations continue to evolve.

Why did banks rely on blanket merchant bans?

Blanket merchant bans weren’t about ignoring risk, they were about trying to simplify it. In the past, many banks faced:

• Limited guidance on how certain industries would be viewed by regulators
• Manual and inefficient underwriting processes
• Perceived monetary and reputational repercussions if there was something that went wrong

When faced with uncertainty, banning the entire merchant category was the easiest way to reduce any potential issues. It removed gray areas and made rules easier to enforce, but at the cost of turning away legitimate and established businesses. All merchants were treated the same, regardless of how they operated or how strong their controls were.

What changed in regulatory guidance?

Regulators have changed how they evaluate merchant risk. In the past, banks often made decisions based on industry reputation or labels. Now, regulators focus more on how well a bank understands and manages risk. This shift aligns with the White House Executive Order “Guaranteeing Fair Banking for All Americans” in August of 2025, which reinforces that banking decisions should be based on individualized, objective, risk‑based analysis rather than broad industry exclusions. Instead of judging merchants by their industry reputation alone, regulators now focus on:

• Safety and soundness
• Clear risk appetite
• Documented controls
• Ongoing monitoring and oversight

This gives banks more flexibility but also more responsibility. Instead of asking why a bank serves certain types of merchants, regulators now look at how effectively the bank manages risk. For banks, this unlocks new opportunities and they can move away from automatic bans, as long as they can show strong execution backing their decisions.

Why blanket bans limit bank growth

While blanket bans can reduce complexity, they also limit growth. Broad exclusions can lead to turning away compliant, less-risky merchants, slower portfolio growth, and revenue lost to competitors willing to do broader due diligence reviews. In a competitive acquiring market, banks that are focusing too much on bans fall behind other institutions that can approve more merchants while not introducing increased risk. Finding the right balance of a consistent model that supports growth while not weakening compliance is a delicate challenge facing these banks.

How risk‑based decisioning works

Risk-based decisioning focuses on evaluating merchants individually rather than relying solely on industry classification. Banks use defined criteria to evaluate how a merchant operates and what level of risk it presents. Under this strategy, banks rely on clearly defined risk guidelines and consistent underwriting practices to help make more informed decisions. Risk is monitored over time rather than as a one‑time judgment during underwriting. This allows banks to respond to changes, find issues early, and have stronger oversight. By using this model, banks are not removing risk but managing it more intentionally. This enables them to approve a more diverse portfolio of merchants while continuing to meet regulatory expectations around sound risk management controls

How Maverick Payments helps banks make this shift

Moving away from blanket merchant bans requires more than a simple policy change; it requires the right support and framework. Maverick Payments helps banks implement risk-based decisioning by

• Building clear, documented risk frameworks
• Consistent merchant underwriting
• Enabling ongoing monitoring for risk and compliance oversight
• Helping banks align their goals with regulatory expectations

By providing this transparent and comprehensive framework, Maverick Payments helps banks approve merchants with confidence without introducing undue risk for bank partners.

The path forward for banks

Blanket merchant bans at one point were the safest option in an uncertain regulatory environment. Today, banks have more guidance, better tools, and stronger partners to help manage risk more effectively. By championing risk‑based decisioning, banks can expand merchant onboarding, stay compliant, and remain competitive while maintaining strong safety and control standards. Partners like Maverick Payments play a key role in helping banks through this transition and turn merchant acquiring into an opportunity for real growth.

Want to learn more?

Maverick Payments works with banks to white-label merchant services in a way that supports risk‑based decision-making through clear underwriting procedures, documented controls, and ongoing supervision and maintenance. Learn more about how Maverick helps banks manage merchant risk while staying compliant in this PYMNTS interview featuring our VP of Bank Strategy & Partnerships, Kyle Becker here.

FAQs

What is a blanket merchant ban?

A blanket merchant ban is when a bank declines all merchants in a certain category instead of reviewing each business individually. These bans were often used to reduce uncertainty and simplify their risk management, especially when regulatory guidance wasn’t very clear.

Why did banks rely on blanket merchant bans in the past?

In earlier regulatory environments, banks faced limited guidance, high consequences for mistakes, and manual underwriting processes. Banning entire merchant categories removed gray areas and made risk rules easier to enforce, even though it meant turning away legitimate businesses.

What has changed in how regulators evaluate merchant risk?

Regulators now focus less on industry labels and more on how well a bank understands and manages risk. This includes a clearly defined risk appetite, documented controls, and ongoing monitoring. Banks are now evaluated on execution, not just exclusion.

What is risk‑based decisioning?

Risk‑based decisioning means evaluating merchants individually instead of relying on broad category rules. Banks assess how a merchant operates, what controls are in place, and how risk is managed over time. Risk is monitored continuously rather than only during onboarding.

Does approving more merchants increase compliance risk?

Not when it is done correctly. Approving more merchants does not mean removing risk. It means managing risk intentionally through consistent underwriting, documentation, and ongoing oversight. This approach aligns with the current regulatory expectations when it is done properly.

How does risk‑based decisioning support bank growth?

By moving away from automatic declines, banks can approve compliant, lower‑risk merchants that would otherwise be excluded. This allows banks to grow their portfolios, compete more effectively, and avoid losing revenue to institutions with more flexible risk frameworks.

How does Maverick Payments support banks using a risk‑based approach?

Maverick Payments helps banks put a solid structure around risk‑based decisioning by supporting clear underwriting standards, documented frameworks, and ongoing monitoring practices. This lets banks expand merchant onboarding without weakening their risk and compliance standards.