Merchant accounts are valuable business assets. They can be difficult to obtain and easy to lose. Here’s what you need to know about account closures — and how to avoid them.
Why are merchant accounts terminated?
Every time a merchant account is issued, the acquirer or processor that provided it is at risk for significant financial liability.
Like nearly all businesses, acquirers and processors are willing to take on some risks — otherwise there wouldn’t be much revenue potential. But when the risks associated with merchant accounts start to outweigh the revenue, acquires and processors usually have to terminate them.
Here are some examples of risky behaviors that might warrant account closure.
- A data breach or account takeover attack that compromises your customers’ personal information
- Participating in a money laundering scheme
- Selling illegal goods or services or operating without a required license
- Breaching chargeback ratio or VAMP ratio thresholds
- A fraud conviction for a business owner, director, or stakeholder
- Bankruptcy, insolvency, or liquidation
- Noncompliance with PCI-DSS
- Identity theft
- Any other activity that violates card brand regulations
If your account is closed, your business may also be added to the MATCH list. When you apply for another merchant account, your prospective acquirer or processor will consult the MATCH list to see if your business is included. If it is, your future merchant account applications may be rejected. So it is important to protect your merchant accounts as best you can. We have some suggestions on how to do that.
How to avoid merchant account termination
There are hundreds of reasons why a merchant account might be terminated. But all those reasons fall into three basic categories:
So let’s look at best practices for each of those three categories.
Resisting misconduct
To be quite honest, if you are engaging in improper, unlawful, or unethical behavior, your merchant account should be terminated.
Acquirers, processors, and everyone else involved in the payments ecosystem shouldn’t suffer for the sake of your personal gain.
Avoid temptations to lie, cheat, steal, and misuse the payment process.
Preventing non-compliance
Business ownership comes with responsibilities. And adhering to local and federal laws — as well as card brand regulations — is a primary obligation.
NOTE
Don’t let your ignorance be a cause for account termination. Not knowing about a rule doesn’t forgive your non-compliance.
Also, be careful of who you accept advice from. Your merchant account provider should be an experienced, knowledgeable professional that can simplify complexities — not someone who adds to the confusion and frustration.
Lastly, don’t be enticed by others to break the rules. For example, a “friend” asking to run his transactions through your merchant account might seem like an innocent request. But it’s actually a major violation.
Bottom line: Accidentally making poor choices can be just as harmful as intentionally engaging in unethical behavior.
Here are a few resources that can help you achieve and maintain compliance.
- See if you can receive assistance from a local business consultant. Usually, you can find both free and paid support. For example, in the U.S., businesses can consult experts at Small Business Development Centers (SBDC). Make sure you are compliant with everything from business licenses to tax laws.
- Review PCI-DSS requirements. Make sure your business — and the solutions you use to process and store payment information — are compliant.
- Regularly consult card brand regulations. Mastercard and Visa publish all their regulations online and update them twice a year (usually around April and October). Stay up-to-date on everything from logo usage and surcharges to chargebacks and TC40s.
If you are struggling to understand what you should and shouldn’t be doing as a business owner, we suggest you consult a legal expert to help ensure you are compliant and lawful.
Managing fraud and chargebacks
Fraud and chargebacks are the leading cause of merchant account termination.
We have created a detailed guide for chargeback prevention, outlining best practices with dozens of practical suggestions you can use to keep risk in check. We suggest you check it out.
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Here is a very high-level overview of our fraud and chargeback prevention strategy.
STEP 1
Figure out why chargebacks are happening.
If you want to prevent chargebacks, you have to figure out why they are happening and address their root cause.
Your chargeback data can help with this project. Analyse your data by different variables — reason code, marketing source, price point, country, issuer BIN, etc.
Is there a particular country that has higher-than-normal chargeback activity? Should you stop selling there?
Are a significant portion of your chargebacks from a single BIN? Maybe a criminal is running stolen data and you should temporarily block future transactions from that BIN.
Did you have an influx of “merchandise not received” chargebacks? There’s probably an issue in the warehouse.
Solving problems at their source can help prevent future chargebacks. If you use AltoShield to manage chargebacks, our data reports make this process easy and effective.
STEP 2
Use tools to prevent unauthorized transactions.
Fraudsters regularly use stolen payment information to make unauthorised transactions.
When cardholders report these unauthorized transactions, issuers log the fraud activity. For Visa transactions, this is a TC40 report. For Mastercard, this is SAFE data.
Card brands — and your acquirer — carefully monitor the percent of transactions that are reported as fraud. If the ratio gets too high, your account can be terminated. So make sure you have protections in place to help prevent criminal activity and the resulting unauthorised transactions from happening. These things can help:
- Address Verification Service (AVS)
- Checks for card security codes (CVV, etc.)
- 3D Secure
- Third-party fraud detection and prevention tools with velocity checks to prevent card testing (also known as enumeration)
If you’d like help bolstering or adjusting your fraud strategy, our AltoShield product can help.
STEP 3
Use tools to resolve disputes before they become chargebacks.
When a cardholder contacts the bank to dispute a transaction, one of two things can happen. Either you proactively resolve the dispute or the bank files a chargeback.
Here’s how you can resolve a dispute before it advances to a chargeback.
- Sign up for one or more chargeback prevention solutions — the most popular options are prevention alerts and RDR.
- Proactively refund qualified disputes so the bank doesn’t need to file a chargeback.
- Enjoy lower chargeback ratios and healthier merchant accounts.
Here’s information on the available chargeback prevention solutions.
When you are ready to protect your merchant account from closure, let us know. Our AltoShield solutions have been protecting online merchants for more than 15 years.
STEP 4
Update your business’s policies and processes.
The more user friendly your policies, the fewer chargebacks you’ll receive. Make it easier for the cardholder to work with you than the bank. Here are a couple suggestions. Be sure to check our chargeback prevention guide for a complete list.
- Consider offering free return shipping for qualified refunds.
- Extend your refund window to be at least as long as — or longer than — chargeback timelines. Most chargeback time limits are 90-120 days.
- Send reminders for upcoming charges if you use recurring billing. Provide an easy way to cancel subscriptions.
- Provide exceptional customer service. Extend support hours, don’t make customers wait on hold when they call, respond to emails promptly, and train your support team to address issues professionally.
STEP 5
Regularly audit and update your strategy.
Fraud threats and customer expectations are constantly evolving. Make sure your risk management strategy is keeping pace.
Regularly review your strategy and make updates as needed. Chargeback management isn’t a set-it-and-forget it task.
If this seems like a daunting task, our team of experts can help. All AltoPay merchant accounts and AltoShield solutions come with a dedicated support team. Schedule regular consultations or reach out whenever you have questions. We’ll help make sure your payment processing and risk management strategies are optimised for success.
Worried about merchant account closure?
If you are worried about losing a merchant account, AltoPay can help. Use our online form to tell us a bit about your business. We’ll schedule a consultation and help you set a plan to move forward. Reach out today.
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.
