Your merchant account is a vital part of processing payments. So it’s critical to take proactive measures to keep your merchant account in good standing. We will go over what actions or situations could get a merchant account terminated and what merchants should do to stay on the right side of the card networks.
What is a Merchant Account?
A merchant account allows merchants to accept credit card transactions by holding the money from a sale once the payment gateway approves the purchase. The funds remain in the merchant account until a scheduled transfer happens, which puts the funds into the merchant's bank account. This schedule can range from once a day to once a week.
Since not every transaction is successful, the merchant account allows for money to be pulled from when necessary. When a return or a dispute happens, the money is drawn from the merchant account instead of the merchant's bank account.
What Can Cause a Merchant Account to be Shut Down?
Too Many Disputes
If your dispute ratio is too high, it can cause your merchant account to be shut down. To calculate your dispute ratio, take your total transactions and divide it by the number of disputes you receive. This calculation is usually based on the number of transactions and disputes over a month. The overall standard for merchants is to keep their dispute ratio under 1%.
Anything that may look suspicious to the merchant account providers may get your merchant account shut down. This could include inconsistencies like your processing volume for your industry, your business has a negative reputation, or you are not selling what you agreed to.
Now, this is an obvious one, but you can get your merchant account shut down by having fraudulent activities associated with your account. Fraudulent activities could include misuse of credit card information, goods or services not being delivered, or any other fraudulent activity at fault of the merchant.
You won't lose your merchant account just by being a business in a high-risk space. But high-risk merchants need to productively work to keep their merchant account in good standing because they are at a higher risk for fraud and disputes. There are many categories and verticals that classify merchants as "high-risk merchants." These merchants primarily fall into one of three risk areas:
- First, there is a reputational risk, which consists of merchants that provide goods and services that are "unsavory" or viewed with morally charged positions. These could include adult entertainment, gambling, and high-interest rate lending, among others.
- Financially risky merchants are in industries that typically have high loss or dispute issues. Some examples are issues that include long delivery times, online products and services, trial offers, ticket sales, travel, and subscription billing models.
- Finally, there is a regulatory risk. These merchants manage highly regulated by-laws or rules in their industries. This risk involves merchants who are in PayDay and high rate lending, gaming, CBD, marijuana, and tobacco, and alcohol. In the event the merchant violates their regulatory guidelines, their bank is subject to fines.
MATCH List or Other High-Risk Program
MasterCard's Alert to Control High-risk Merchants or MATCH is a system where acquirers are allowed to review risk information before entering into an agreement with a merchant. MATCH is mandatory for all MasterCard acquirers, and its database contains information about merchants and merchant account owners who have been terminated by an acquirer(s) in the past.
How Can Merchants Keep Their Merchant Account
Now that we have gone over the things that can cause merchants to lose their account, let's move on to how to keep your account in good standing. The main goal should be to avoid disputes, fraud, and any activity that may make you look suspicious.
#1 Easy to Recognize Merchant Descriptor
An unclear merchant descriptor can cause unnecessary disputes. When a confused or forgetful customer looks over their statement and sees a purchase they don't recognize right away, they may assume it is a fraudulent charge and dispute it. To make a clear descriptor, merchants should make sure to display their business name that the customer will recognize. Doing so is especially critical if your legal company name differs from what a customer is familiar with.
#2 Easy to Reach Customer Service
If a customer has a question about a transaction or a problem with the merchandise or services, a merchant's customer service should be easy to reach and work with. This means merchants should put contact information everywhere the customer may look or interact with your brand. By being easy to reach, customers will reach out to you with a problem, instead of disputing the charge with their issuing bank.
#3 Flexible Return Policy
When a customer needs to return an item, but is unable to because of the merchant's strict return policy, they may turn to the dispute process to try and help them get their money back. By creating a flexible return policy, merchants can avoid disputes and create a better customer experience. If your company can't have a flexible return policy, make sure to clearly communicate your policy before the transaction is completed.
#4 Process Cards Correctly
To make sure you are staying in good graces with customers, merchant account providers, and card networks, you need to process cards correctly and stay in compliance with rules and regulations. Take time to look over the necessary elements to process transactions accurately and in line with the card network rules and regulations. It is also important to comply with payment and data regulations like PCI, GDPR, and PSD2.
#5 Only Use Your MID for What is Approved For
Be honest with your business intentions. Merchants need to only use their MID for the products and industry they were approved for. Even using a different URL or a price point that is not what was agreed upon can put your merchant account in danger. Being untruthful in any way on the application for your merchant account or payment processor can put your business in jeopardy.
#6 Prevent Fraud
True fraud is when a fraudster obtains credit card credentials and successfully uses them at a merchant's site or store. The actual cardholder disputes the transaction as fraudulent. It is the merchant's responsibility to prevent fraudulent transactions from being accepted on their website. The good news is that merchants can prevent true fraud by installing fraud filters and fraud scoring.
#7 Prevent Disputes Before they Happen
Real-time Resolution (RTR) allows merchants to stop invalid disputes from ever being filed and keep the dispute ratio low. RTR enables merchants to communicate real-time customer, order, and product information to the issuing bank. The increased visibility into the situation surrounding the dispute gives the cardholder's financial institution enough information to prevent invalid disputes from being processed.
Click here to learn more about Real-time Resolution and the possible ROI for your company.