Finding out that your merchant account has been closed can be a nightmare for your business. It can definitely leave you feeling like the world is ending. A terminated processing agreement – and closed merchant account – goes well beyond your businesses current operations; the long-term ramifications can devastate your business’ future endeavors.
If you’ve found yourself in this position, it’s time to take a deep breath and figure out the best way to proceed. You will need to pin point what put you in this situation in the first place, and then identify what steps you need to take to fix it. Believe it or not, there is a light at the end of this tunnel.
What is a Merchant Account?
One of the first mistakes business owners make is assuming that a merchant account is a depository account, like a consumer checking or savings account. A merchant account is actually a line of credit. The process begins when the customer takes advantage of the line of credit available by the card network. The card network then extends credit to the cardholder by making the payment on their behalf. Once the cardholder receives their monthly statement, he or she then reaches out to repay the network.
As a line of credit, merchant accounts involve some risks – as all lines of credit do. Some of these high-risk situations include:
- The merchant’s business could crumble.
- Chargeback costs could exceed the balance of the account.
- The potential of a merchant engaging in fraud, hurting customers and the bank in the process.
According to Chargebacks 911, “If the bank suspects elevated risk brought about by a particular merchant, the safest option is to simply terminate the processing agreement and close the merchant account.”
Why Was Your Merchant Account Closed?
Typically, the reason a merchant account is closed falls under one of three reasons:
- Suspicious activity – Suspicious activity can involve the merchant maintaining multiple merchant accounts, or depositing transactions on behalf of another merchant. Both of these activities could result in a termination of a merchant account agreement.
- Fraud – Understandably, if there’s fraud involved (misuse of credit card information, fraudulent transactions, failure to deliver merchandise, overcharging customers, etc.), the acquirer will terminate the account.
- Chargebacks – The leading cause of terminated processing agreements are excessive chargeback levels. Chargebacks, or forced credit card refunds, are such a big issue that networks require merchants to have a chargeback ratio below 1-2%.
Steps to Take After Your Merchant Account is Terminated
Finding out your merchant account has been closed is a serious setback, but it doesn’t have to be a permanent one. It is possible to get your business’ operations back on track.
- Ask questions. Even if you think you know the reason for the account cancellation, make sure you ask questions. It’s crucial to know the truth. In addition, when applying for a new merchant account, you’re going to need a written statement from your previous acquirer.
- See if you were MATCHed? The MATCH List (Member Alert to Control High-Risk Merchants) is a database with information about businesses and owners that have experienced cancelled merchant accounts. Before doing anything else, see if your business has indeed been MATCHed. If it has, networks require banks to report all terminated merchant accounts to this list. For those not on the list, the application process for a new account will be different.
- Keep your statements. Make sure that you have all the necessary paperwork before you lose access to your acquirer’s online reporting system. It is important to make sure you have at least six months’ worth of processing statements.
- Seek out a new acquirer. If you’ve found that you have been placed on the MATCH List, it’s true that this is a very real obstacle to overcome. But it’s not impossible. You should know from the start that financial institutions will not work with you if your merchant account has been terminated. Your best option is to turn to a high risk provider, like eMerchantBroker.com, for a high risk merchant account. A high risk provider specializes in working with merchants that are “hard to approve”, and their services are tailored to meet the specific needs of each industry they work with. In addition, you can also secure chargeback protection and prevention services.
- Be honest and compliant. Keep in mind that every acquirer will scrutinize a new merchant; this is even more true for one that previously had a merchant account cancelled. So be sure you are compliant with every aspect of a new agreement. In addition, it’s always best to be honest with a new acquirer. Let them know about past indiscretions right away and avoid sacrificing their trust.