Many merchants get a shock when a payment processor simply freezes the payout or places a reserve hold, even if their chargeback ratio is extremely clean. In reality, acquiring banks and payment processors actually look at many more factors apart from chargebacks when they review your account’s overall risk.
Payment processors may freeze your funds because of reasons such as:
- A sudden sales spike. You ran a marketing campaign on Google Ads or Meta, and you started immediately getting orders. That is a red flag.
- Next are the industry classification changes. So all of a sudden you added a couple more products to your website, which are basically different from the category for which your merchant account was approved. That can also be a reason.
- Website compliance concerns. Sometimes you add content on a website, which actually violates the policy of the payment processor or card company. So that can also be a reason for the sudden freezing of your account.
- If you also increase the ticket size, then this can appear to the payment processor as a concern.
- If the payment processor sees a lot of refunds happening on your merchant account, that can also trigger account suspension.
- Sometimes regulatory exposure can also be the reason why a payment processor will freeze your account. The rules and the regulations of industries and governments keep on changing. And if there is a sudden rule change that impacts your industry, then your account will be frozen.
- If you have a lot of card cross-border transactions, that is also a risk for a payment processor.
- If your customers are going to platforms like Trustpilot and other review websites and posting negative things about you, then that can also be a concern for payment processors. Remember, payment processors review your website and your social media and your online footprint on a regular basis.
- Just in case there is any concern from the acquiring bank, that can also be a reason. For example, if one of your customers called the card issuer and said that the transaction was fraudulent and the merchant used forced sales tactics to convert the sale, then there might be an internal communication between the issuing bank and your merchant acquiring bank, that is, the bank that has issued the MID to you. This can also be a reason.
Such situations are very common in high-risk industries such as pharmaceuticals, adult content, coaching, forex, travel, dropshipping, gaming, CBD, vape, spiritual services, and various businesses that take subscription payments. It is important to know that even merchants that have got excellent payment processing histories can face sudden reserve increases or payout delays if the payment processor believes that future financial exposure is increasing.
Here, you must know what a rolling reserve is.
A rolling reserve is basically money that is held by the payment processor, and the purpose of holding this money is to cover the potential future disputes. refunds or any kind of compliance penalties. For example, a payment processor may hold 5 to 10% of your daily sales, and then the payment processor may say that the funds will be released after 90, 180, or 360 days. Some accounts actually face delayed settlement even after closure, even beyond the timeline that the processor has given. This is because after the completion of the hold period, they do the full reconciliation of the transactions and chargebacks, and then they send the money to your business bank account.
Cardholders can sometimes file disputes months after the transaction has actually happened. In many of the merchant account agreements, the acquiring bank has got the legal right to maintain reserves, even if the merchant stops processing transactions.
Some merchants may claim that the support team is not helping. Many merchants say that the customer support team says that the account looks absolutely fine. This may be true from a customer support perspective. However, the reserve decision is usually made by the risk department, compliance team, sponsor bank, or acquiring partner. If your account enters into elevated risk monitoring, Then, the frontline support agents may have very little authority to override the risk policies that are used by the acquiring bank. This is why most of the merchants who get their accounts frozen feel confused because the support team says everything looks good, while the payouts always remain frozen.
There are certain high-risk businesses that face higher scrutiny. Businesses operating in online dating, IPTV, adult membership, telemedicine, supplements, crypto-related services, coaching programs, ticketing, travel clubs, and continuity billing, all of these industries are considered high-risk, and such accounts are always under regular monitoring.
Even a fully compliant business in these industries can definitely face the reserve requirements. This is simply done because the industry has got historical exposure to high returns and chargebacks. This is one of the key reasons why mainstream processors, also known as low-risk payment processors, keep terminating the accounts, even if the merchant has genuine and normal processing activity.
Can the merchants really get the reserved funds released quickly?
Sometimes yes, but most of the time no. It is because the payment processors have got their own rules. However, some processors may consider partial release if the merchant can provide a strong fulfillment record, delivery confirmation, low refund ratio, financial stability document, updated compliance material, and proof of satisfied customers. However, many payment processors put the reserve until the exposure window closes, but there’s no harm in trying with your payment processor and asking them to release the funds.
Merchants should always avoid reacting emotionally or threatening the payment processor aggressively because if you do so, it can sometimes worsen the situation or even increase the risk of your payment hold for a longer time. Sometimes, we need to be gentle. A proper communication with your payment processor, requesting an update and providing the required documents, and being consistent can certainly help.
Smart merchants, they actually reduce future processing risk by utilizing various strategies.
They utilize multi-gateway setup.
They have diverse acquiring relationships.
They implement strong fraud monitoring tools.
They have fully compliant billing descriptors on their website.
You’ll find clear refund policies on the websites of such merchants.
They will diversify their processing across different geographies to reduce the risk.
And they are well prepared for industry-specific underwriting.
Remember, the strongest payment strategy is not just to get approved for the account, but it is actually to build long-term processing stability.
QuadraPay helps high-risk merchants. We help businesses in industries like adult, nutraceutical, coaching, gaming, travel, CBD, telemarketing, IPTV, Forex, and various other industries. By delivering them a more stable merchant account solution through our acquiring partners in the US, Europe, and other parts of the world. Our partners are direct acquirers and regulated businesses, so that is why all the communication between the merchant and the payment service provider always stays as per the rule.