Reasons why your High Risk Merchant account closed and what you can do

Credit Card merchant account Closed

It can be hard for High Risk merchants to find credit card processing provider in the first place, and when you find them, you need to make sure your account doesn’t get closed.

It’s important to understand that a Merchant Account is a line of credit. The cardholder has a line of credit from their personal credit card and the Merchant Processing Provider also extends credit to the merchant. The Provider deposits funds into the merchant account before the cardholder has actually made payment.

A line of credit always caries risk which could cause significant losses for the Processing Provider. This makes Providers very careful and willing to close accounts if something doesn’t look right. Cancelled merchant account is usually due to the following reasons:

  • Legal changes. Any law, rule, or regulatory changes that cause banks to elevate the risk level for certain industries.
  • Breach of contract. Merchants sign an agreement with the Provider and their respective Bank. Things like breaking exclusivity, or depositing transactions on behalf of another merchant are considered a breach of contract.
  • Suspicious Merchant Activity. Sudden deposits of large sums, change of ownership, product switching, and many others fall under suspicious activities
  • Fraud. When merchant is found to be committing fraud the account is terminated immediately. Examples of fraud include: misleading advertising, fraudulent transactions, not delivering merchandise, mishandling credit card information.
  • Chargeback. Credit card refunds requested by the customer. When customers aren’t satisfied with the merchandise, don’t receive it, or are victims of Credit card theft – they often chargeback the full amount. This poses a big liability risk for the Merchant Account Provider and when chargebacks are increasing above 1-2%, the account gets closed.

Often merchants receive a warning that merchant processing provider is perceiving elevated risk from your account in the form of implemented or increased reserve / hold on funds. When you see an unexpected revenue hold or don’t receive a regular deposit, take immediate action. Contact your merchant account provider to understand and remedy the issue. If chargebacks or a misunderstanding is the problem, you can often resolve it before your account is closed.

Feel free to contact AllRates for help with High Risk merchants.

Find more information in our High Risk Merchant Processing Guide