What Does it Mean When Your Merchant Account Is Terminated?

Merchants turn to payment processors like PayPal, Square, and Stripe for all transactions. But, what happens when they freeze or terminate your account? Business grinds to a halt. Your payment processor declines your payments. They lock your account.

Your options are limited. What do you do now? Can you get your money back? Situations like this can strike fear in the heart of every small business.

Don't worry; we'll guide you through what options you have should your payment processor freeze your merchant account. You don't have to say goodbye to all your money and hard work.

What Type of Merchant Accounts Are Stripe Closing?

Whether you're with Stripe, PayPal, or any other payment processor, you want to know why if they terminate your account. Typically, there are three reasons.

1. You're an unauthorized business

2. You haven't verified your identity and address

3. Your business is high risk

Firstly, PSPs will refuse any unauthorized business processing by default. Secondly, the payment processor requires you to verify your business. Thirdly, your payment processor has determined you're a high risk. The latter category is vague and debatable. There are several reasons you could fall into this final category.

For example, if you offer digital goods without physical evidence (e.g., downloading an app), the payment processor might classify you as risky. Or if you work in a high-risk industry, where there is an increased possibility of fraud. Finally, international companies are also often considered suspects.
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Why Do Payment Processors Drop Merchants?

Most crucially, you need to know why PSPs suspend merchant accounts to avoid this happening to you. There are a range of different things that cause frozen accounts.
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Customer Complaint

If a customer complains that they didn't authorize any purchase from you, the payment processor might stop your account. This is especially true if there are several complaints within a short space of time.

There's no specific number of complaints that will get you kicked off the PSP network. However, if you receive an abnormally high number, you're a risk to the payment provider.

What matters is the volume of transactions vs. the number of complaints. If a merchant only completes a small number of transactions in a month, and one of them raises a complaint, then the PSP could cut you off. In other words, if the transaction volume doesn't offset the risk, then the provider will probably terminate your account.
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Chargebacks

Chargebacks are when the payment provider returns the money to the customer after they successfully dispute it. Lots of chargebacks can generate a significant loss. Therefore, payment providers work on chargeback ratios. If your merchant account results in a considerable number of chargebacks, they will judge you as high risk.

PSPs tend to allow around 0.2% or 0.3% chargeback ratio. Any higher, and they're likely to drop the merchant. Therefore, it's important to ensure your transactions do not result in chargebacks.
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What Should You Do?

Depending on your payment provider, you may receive limited (or no) warning of account closure. You typically have about a month to argue your case. This might entail providing evidence that the transactions obeyed their terms of service.

If you don't succeed within 30 days, unused funds should be returned. Yet, if customers continue to complain, you might not see your money for a while.

Therefore, you must take action as soon as possible. Firstly, contact customer support at your payment provider. This should ensure that any errors are dealt with quickly. However, if this doesn't solve the problem, contact your customers about the situation. They can decide whether to pay you through a different provider.

File an appeal to your payment provider against unfair account closure. If this step struggles, you might want to seek legal help. Finally, you might need to move your merchant account elsewhere. Determine whether your first provider owes you any funds—you might not see these funds for a few weeks.

If you've had your merchant account closed and reinstated, you should work to get your account back in good standing. However, you might want to move to a new provider. Cathedral Payments works hard to find payment solutions for merchants. If you find that you've had an account closed recently without justifiable reason, speak to us.

Furthermore, there are alternative payment methods to the traditional. Bitcoin and cryptocurrencies are more flexible and might be your preferred option. Cathedral Payments can help you integrate cryptocurrency into your merchant transactions.

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