Most payment processors shut down the account without giving any warning because they use automated monitoring system that sometimes trigger account freezes instantly when certain risk thresholds are crossed and remember, and remember they are not required to give you notice before they pull the plug.(read your merchant account agreement) You won’t get warning or a phone call from them because there is not one defined in the agreement.
The processor’s risk team can flag your account usually for an algorithmic trigger, and the compliance team can also execute the shutdown of your merchant account within just a few hours. By the time you discover the challenge, your funds are already frozen. You are locked out of the dashboard.
This is a common scenario when merchants from high-risk industries use low-risk or standard payment solutions(Source). The lack of warning is not a bug. It is basically intentional. The processors, they freeze quickly and they do this primarily to limit their exposure to credit risk.
There are mainly three reasons associated with such type of shudden account closure.
The first one is velocity-based shutdown. When your transaction volume and customer acquisition or average order value, any of these spikes suddenly, this triggers fraud detection flags.
Second logic, which most of the automated risk monitoring systems use is the category-level pressure. When your payment processor receives a new guideline from the acquiring bank or the card companies about your merchant category, this is specially true for businesses operating in high-risk verticals such as supplements, spiritual services, or gaming. PSPs get periodical updates about policies. Based on what is the recommendation of the guideline provided by the acquiring bank or the card company, the payment processor may limit the services or sometimes even shut down all the services to all the merchants from a specific merchant category or industry.
The third key reason is the chargeback clustering. You may not have crossed the absolute threshold, but your chargeback ratio is trending upward every month. That means it’s getting bigger month over month. This can also hit internal trigger points that the payment processors regularly monitor and based on their experience, they may think that your account will soon hit the upper limit, and that is why they may shut down your account.
Remember, payment processors don’t warn you because warning gives you the time to drain the reserves, move your processing volume somewhere else, or contest the decision. All of these things, they basically give operational frictions for your payment processors and this is from their perspective and that is why they think that a silent freeze is a cleaner option.
Now let us quickly look at the actionable steps that you can take.
First, you should contact your payment processor’s support team immediately with a formal request for requesting the reason about the shutdown. Most of the payment processors will refuse to give you specific details citing risk assessment or confidentiality, but some of the good ones will drop hints if you ask them directly, such as was this a fraud ratio issue or was this because of velocity concern? Or you may also ask, was this a category level review?
You should document everything in writing. If they mention that it was because of chargebacks, then pull your own chargeback report to understand the discrepancy between their and your transactional data. If it is because of velocity concern, then you should calculate your month-over-month transaction volume growth and see if there was really a legitimate spike.
If it was kind of a category-based decision, then research whether the payment processor issued any public statement or industry-specific notice on your vertical. Sometimes they even write about it in their blog section.
Simultaneously, you should also apply for a backup payment processor immediately. You have an active business and your timeline is now extremely critical. Remember that most of the payment processors will hold reserve for about six months minimum and you need to have an alternative payment solution provider ready to allow you to accept credit and debit card transactions within days and not weeks.
The above stated scenarios are the main reason why high-risk merchants always need a multi-acquirer strategy from day one. and we have always highlighted this. Maintain a payment processing relationship with at least two separate payment processors. So, just in case, if the first one terminates your account, business does not come to a standstill. Also, never put all the transaction volume on one Stripe account or a single payment processor. Use a payment infrastructure redundancy. This is the way most of the enterprise merchants operate.
It’s ideal to put about 60 to 70% of volume on the first processor and let 30 to 40% volume on the second processor. Always monitor your own metrics obsessively. Always track daily chargeback ratio, transaction velocity, and keep a close eye on the customer acquisition sources. Sometimes the biggest chargeback problems come because of the affiliates that we use. Make sure that your affiliates are using the right strategy.
If you see a pattern that might trigger your payment processor’s concerns such as chargeback climbing. AOV dropping, geographical concentration shifting, then report them proactively to your payment processor immediately and give them proper reasoning. This will demonstrate that you are a risk-aware merchant and you try to reduce the likelihood of disruption.
You must understand that some shutdowns are category-wide. That means your payment processors existing rules have changed and they are going to limit or may no longer support your industry.
One last thing which we want to mention here is that if you get your account shut down and your processor is not giving you a clear reason which is connected with your account performance, then it is probably because of the portfolio decision by your payment processor. In that case, you should focus on rebuilding a new processor relationship. Always mention clear business model with the new processor. Ensure that they already work with merchants from your your industry.
This way, you will know that you are working with a payment service provider that truly understands your industry and will not panic at normal chargeback rates.
If you have recently experienced your Stripe or PayPal or Shopify merchant account shut down and are currently looking forward to get a new solution, then feel free to contact QuadraPay. Our team of experts will try to offer you the best solution through our acquiring partner network. Apply today.