You’re a hardworking, responsible business owner. You work from sunrise to sunset and sometimes longer in order to satisfy your customers’ needs and provide for your family. Sales are on the rise and business is great from all of the sacrifice you’ve put into building your business. You wake up one morning, the sun is shining, the birds are chirping, and you are completely unaware of the impending natural disaster you are about to face. That natural disaster arrives in the form of a notice from your payment processor that your merchant account is being shut down. You feel the sudden rush of your heart dropping out of your chest as if you are strapped into an out of control roller coaster. It doesn’t feel good and you begin to think about how you will accept payments, how your cashflows will be affected, and what will this do to your business?
What could possibly make this any worse? How about the fact that many payment processors know well in advance they are going to shut you down. They will allow your merchant account to run and process payments only to hold those funds somewhat like a forced reserve. The processor can take full advantage of the power they hold over your cashflows in order to protect themselves from any potential losses that could occur from shutting you down right away. These problems are mainly fear of future chargebacks which the processor would have to front to the customers. They can hold this reserve fund in escrow or up to six months after they forcibly close your account and longer if chargebacks are still incoming throughout the 6 months or fear of fraud is prevalent. The good thing is that just because a merchant account is closed on you, even if it is sudden, it’s not the end of the world and you can be back up and running; possibly more efficiently than you were before if you act quickly and accordingly.
There are a multitude of reasons as to why a merchant account would be shut down. Some of the more common reasons are:
Too many chargebacks
Too many flagged transactions
Too many forced transactions
Processing above the approved monthly volume limit
Processing above the approved high ticket limit
Audit finds the product or service sold violates terms of service
Bank or processor no longer accepts the product, service, or industry
While there are other reasons as to why a merchant account is shut down by the merchant service provider; these reasons recur regularly and in only one instance is it out of the control of the merchant. Most merchant service providers will give a written notice explaining the reason for the shut down; however, many times it is not a detailed explanation it simply states the reason why. This means that merchants can for the most part control their payment processing fate. Here are some tips on how to keep your merchant account in good standing and avoid being shut down for one of the aforementioned reasons.
Too Many ChargeBacks
This is perhaps the most common reason for a merchant account to be forced shut down by a provider. We’ve mentioned in prior articles that it is best to keep in mind the 1% or 100 rule. No merchant should ever have 100 chargebacks or greater than one percent of their total transactions in chargebacks. If you cross either threshold you are in danger of being abruptly shut down by the merchant service provider. To read about chargebacks and tips to preventing chargebacks in greater detail, please click on this link.
Too Many Flagged Transactions
Flagged transactions are usually for suspicious activity. If your transactions are being flagged it is usually because there is important verification information not being obtained during the checkout process. This could be any information relating to the card or card holder that would validate the sale. Card-not-present transactions are usually flagged for this reason so this has a greater effect on e-commerce and Mo/To merchants. In most cases, this can be fixed by adjusting the settings within your gateway so that the appropriate information is captured with the purchase. Also, the more information captured during the checkout process the less likely you are to have flagged purchases. Your merchant service provider typically receives notification of flagged transactions and they should have someone on staff that can troubleshoot through the reasons for being flagged.
Too Many Forced Transactions
Forced transactions are typically transactions that are manually keyed-in. The reason they are considered forced is because in most cases the card should be swiped and accepted in a retail setting or entered into a shopping cart by a consumer and accepted. If the merchant is manually keying-in a sale it limits the amount of information obtained to validate the sale electronically. This raises risk exponentially and many, if not most fraudulent transactions are keyed-in. However, if you are transparent with your merchant service provider you can key-in transactions. It starts during the application process where the application will ask you in some form “What percentage of sales do you expect to key-in”. This establishes some form of expectation as to what you will key-in. For retail, your merchant provider will be able to tell you the percentage threshold for acceptable keyed transactions. If you need to key-in the majority of your transactions your merchant service provider will set that up for you as well. For example, if you are a wholesaler and want to take payments from your customers over the phone; you can key them into a virtual terminal but you will have to capture specific information and you will need to have the merchant complete and sign a credit card authorization form.
Processing Above the Approved Monthly Volume Limit
Essentially, a merchant account is a line of credit. This is why merchants are approved for a specific amount of dollar volume every month. It is the merchants’ responsibility to communicate the payment processing needs of the business to the merchant service provider. Responsible merchants typically know when they are going to need more volume. If you cross your approved volume without prior notification to your merchant service provider there is a high probability you are going to have funds frozen for an extended period of time at the very least.
Processing Above the Approved High Ticket Limit
Like the monthly volume limit, the high ticket limit works in similar fashion. During the application process you are asked what you expect your highest ticket (highest possible sale in dollars) to be. If you charge an amount greater than this without notifying your payment processor in advance; you face the same consequences as processing above your monthly volume limits.
Audit Finds the Product or Service Sold Violates the Terms of Service
This may very well be the most flagrant violation, and in most instances, ends with the merchant being placed on the TMF or MATCH listing; the equivalent of a merchant account death sentence. Why? Merchant service providers look at this allegation as an outright act of deception and fraud. This usually happens under a few circumstances with the two most frequent being:
The merchant knowingly or the agent unknowingly to the merchant deceives the merchant service provider during the application process. For example, you apply for a merchant account as an electronics store, but in reality you are selling e-cigs and vaporizers. Or, you apply as a nightclub or strip club but you are really running an escort agency or brothel.
You apply for a merchant account appropriately and the merchant service provider explicitly states you cannot sell certain products. You oblige during the application process but after being approved you switch your product mix to include the forbidden items. Only to be caught later on by a surprise audit of your retail or e-commerce site.
It’s simply not worth the risk if you plan on accepting any form of payment other than cash for any business in the foreseeable future. Being blacklisted by the cardbrands is incredibly costly in terms of the time and money required to fight a blacklisting through the legal process and most of the time you won’t win.
Bank or Processor No Longer Accepts the Product, Service, or Industry
Every so often the acquiring bank will audit their payment processing portfolios to determine the amount of risk they carry from a group of merchants. If that risk is deemed too great to continue to keep on their books; they will discontinue service to those merchants. High risk merchants are most at risk for this type of occurrence.
If you find yourself in a position whereby your merchant service provider has decided to forcibly shut down your merchant account; the best thing you can do is to react promptly by contacting another merchant service provider that is familiar with these types of situations so that they can do everything within their power to transition you into new merchant services seamlessly so there is no interruption to your business. One such merchant service provider is Painless Processing. We have a track record proven to deal with high risk merchants and adverse, time sensitive situations. Contact us today to speak with one of our merchant services experts that will explain, answer your questions, and walk you through the entire process.