Your merchant account could be closed for a variety of reasons — such as violating the terms of your merchant service agreement, experiencing an influx in chargebacks, or simply deciding to shut down your business.
Unfortunately, even if your merchant account is closed, you can still receive chargebacks.
In this guide, we’ll walk you through some of the most commonly asked questions about chargebacks and closed merchant accounts.
If you have a question that isn’t covered in this guide, let us know. The AltoShield team regularly provides guidance to merchants struggling with chargebacks.
What happens when my merchant account is closed?
Your merchant service agreement should outline exactly what happens after your merchant account — the business bank account used to process debit and credit card payments — is closed. Typically, there are a couple things you can expect.
First, your acquirer or processor will probably withhold a certain amount of money for a period of time to cover open authorizations and any new chargebacks. The exact amount and time will depend on your agreement and risk profile, so check with your service provider.
The second outcome is a possible inclusion on the MATCH list. MATCH is a database that identifies merchants who have had their payment processing abilities revoked by acquiring banks or payment processors.
Inclusion on the MATCH list only happens if you meet both of the following conditions:
Though closing your merchant account alone isn’t a sufficient reason for being listed on the MATCH list, check with your processor to verify if you were added to the database.
Can I still get a chargeback on a closed merchant account?
Unfortunately, you can and probably will still receive chargebacks after your account is closed. And you will be responsible for covering the costs of them.
Card brands limit the length of time customers have to dispute transactions. Chargeback time limits vary, though most disputes have to be filed within 120 days of the original transaction. However, there are some situations where the chargeback time limit can extend for up to 540 days after the date of the transaction!
Because chargebacks can be filed long after the transaction is settled, you could retain chargeback liability for months — possibly years — after your merchant account closes.
If your processor or acquirer implemented a reserve when your merchant account was set up, this is why! A reserve account is a non-transactional account holding funds for future purposes — kind of like a personal savings account that is maintained by your processor or acquirer.
If you close your merchant account, go out of business, or can’t pay for chargebacks with your cash flow, the funds in your reserve account can be used to pay for chargebacks or other expenses or fees incurred after account closure.
Will I get prevention alerts if my merchant account is closed?
When your merchant account closes, your chargeback management tools — like prevention alerts — don’t automatically shut off. So you’ll probably continue to receive prevention cases until you cancel solutions with your provider.
When a merchant account is closed, you’ll probably want to do one of two things:
PRO TIP
Billing descriptors are used to match disputed transactions to the company that processed them. If you want to stop receiving alerts, you need to unenroll your descriptors.
But if all your merchant accounts use the same billing descriptor, you will either receive alerts for all your accounts — including ones that are closed — or you won’t receive any alerts, even for accounts that are still open.
To avoid this issue, consider maintaining unique billing descriptors for each merchant ID (MID) so you can easily unenroll some while keeping others active.
How can I prevent merchant account closure?
Merchant account closure is often a result of breaching chargeback thresholds. The best way to avoid breaching thresholds is to implement tools and strategies that help avoid chargebacks in the first place.
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The following is a high-level overview of an effective chargeback prevention strategy. If you’d like additional help reducing chargebacks, check our guide.
Be mindful of chargeback thresholds.
Each card brand has set thresholds for acceptable chargeback ratios (Visa calls this metric your VAMP ratio). Be sure you understand what those thresholds are.
You should know what your processor or acquirer considers to be excessive chargeback activity and what the consequences are for exceeding thresholds. Often, processors and acquirers have lower thresholds than card brands.
Learn why you went over the limit.
If your chargeback activity exceeds established thresholds, it’s up to you to find out what caused the issue. For example, maybe you started selling in a new country without understanding the risks. Or your fulfillment team shipped incorrect merchandise.
Diving into your data can help you figure out the root cause of chargebacks. It can be difficult to track down patterns and insights on your own. However, if you work with a chargeback software provider — like AltoShield — data analysis can be easier and more effective.
Implement chargeback prevention solutions.
Once you understand your chargeback problem fully, you can take proactive steps to prevent them. AltoShield offers multiple solutions that help stop chargebacks before they happen — which keeps your ratios low and thus reduces your risk of account closure.
- Order Insight and Visa CE 3.0 allow you to share business and transaction information with a cardholder’s bank in real-time so that when a transaction is disputed, the bank can work on your behalf to resolve the customer complaint.
- RDR is a refund tool that lets you set up criteria for disputes you are willing to accept liability for — such as cases with certain reason codes or transactions over a given dollar amount. If a dispute meets your criteria, your bank will automatically refund the transaction.
- Chargeback prevention alerts provide advanced notice when a transaction has been disputed so that you can proactively work to resolve the issue — such as refunding the customer. Once you take action, you can easily let the issuer know a chargeback is no longer needed.
Want to learn more about chargeback prevention solutions?
Are you struggling to manage chargebacks? Worried your account may be closed? Contact the AltoShield team today.
Our team of experts can help you create a management strategy that minimizes chargebacks so you can keep your merchant account healthy or get a new one after account closure.
AUTHOR
Jessica Velasco
For more than a decade, Jessica Velasco has been a thought leader in the payments industry. She aims to provide readers with valuable, easy-to-understand resources.
