Reasons Why Your Merchant Account May Be Terminated
Setting up a merchant account can take considerable work and take time. Essentially, you are asking a bank to take a risk on your business.
At times, a merchant account can act as an extra line of credit, which means merchant acquiring banks and those that provide those services (acquirers) need to underwrite these decisions carefully. Many banks provide merchant account services, but having a business account doesn’t automatically mean you will be accepted for a merchant account.
Once an account is open, businesses run the risk of the bank terminating and closing the facility. Sometimes, you can see a termination letter coming; but if this is your first time processing customer credit and debit card payments, an account closure can come as a surprise. In our experience, here are the most common reasons merchant accounts are closed:
#1: Too many chargebacks
Card Scheme Rules are the international guidelines that make it possible to buy goods and services through Visa, MasterCard and other major card issuers. Banks need to adhere to these rules, which is why when a customer puts in a complaint saying that goods are damaged, not as described or haven’t been delivered, a charge back can come into force.
Under the scheme rules, the merchant bank returns the funds to the customer. This can happen even when a merchant doesn’t have the funds in that account, which needs to be claimed back from the merchant, and other associated costs covered. When this happens once too often (most merchant banks will have internal guidelines), a merchant acquirer will have no choice except to issue a warning and, if the problem persists, close the account.
#2: Fraud or fraudulent transactions
Merchant banks have to worry about three main types of fraud.
So-called “friendly fraud” is when customers buy goods and services online, then claim a chargeback whilst keeping what they bought, thereby defrauding the merchant and bank.
Cybercriminals also commit fraud against merchants. Most of the time, they are using merchants and card schemes to clean dirty money, transfer funds from stolen or cloned cards – or loans taken as a result of identify theft – into money they can use. Unfortunately, merchants can fall victim to this type of fraud which can force a bank to close a merchant account.
At the same time, banks need to be vigilant that their merchant customers don’t commit fraud. Those who get convicted could pose a risk to card schemes, which is why banks will close business and merchant accounts when cases of fraud are uncovered.
#3: Card scheme violations
Every card scheme has a set of rules and guidelines for merchants, card processors and merchant acquirer banks. Merchants may not need to know these rules in detail, but it always helps to understand the main guidelines that will influence refund, chargeback and other policies that your business should maintain.
It’s important that your card processor and payment provider adhere closely to card scheme rules and any updates. When your service providers fail to maintain scheme adherence, it could impact every company that accepts payments from the major card schemes.
#4: Failure to maintain PCI-DSS compliance
Security compliance has been a hot topic this year, especially with GDPR coming into force in 2018. This is one area that payment processors and providers need to have at the top of their agenda to ensure compliance is maintained and proactive improvements have been put into place.
Any failure, on the part of the merchant – such as suddenly exceeding transaction volumes – could result in an immediate merchant account termination.
When trading outside of Europe, one thing that every merchant needs to avoid is ending up on the MATCH List. Maintained by MasterCard, the Member Alert To Control High-risk Merchants (MATCH) list is effectively a blacklist, which can make it more difficult to get an international merchant account.
Maintaining vigilant security, keeping an eye on chargebacks and friendly fraud, and working with service providers who are equally security and customer focused are some of the most effective ways to ensure your merchant account stays open.
Secure Trading partners with global acquirers as well as offering our own merchant account services. To discuss your organisation’s requirements or for advice on finding a suitable acquirer, contact our team: Call +44 (0)808 159 7217 or email [email protected]