Libby James, Co-Founder of Merchant Advice Service, discusses terminated merchant accounts and how, although there isn’t a standard set of rules when accounts are penalised, directors and CEOs can navigate the maze of solutions.
Obtaining a merchant account can be daunting and with industry terminology thrown around, it can be difficult to decide which provider to use if you’re not familiar with the market.
When choosing a merchant account provider, it’s important to know the full price of accepting card payments from your customers. Comparing providers like-for-like will enable you to select a company that caters for your business needs, with fair and reasonable costings and contracts. For example, if you operate in a high-risk industry, the amount of merchant account providers to choose from may be reduced and the costs slightly increased.
Understanding terminated merchant accounts can be tricky. Accounts can be blocked, declined or terminated for a number of reasons. It’s important to decipher the difference between the three, then you can decide how to approach finding a new merchant or repairing your relationship with the current provider.
Blocked merchant account
Every individual merchant has a merchant category code (MMC.) This code not only illustrates what type of business the merchant deals with (goods or services) but also the specific industry e.g. restaurant or online gaming company. The code enables transactions to be blocked if illegal activity is trying to take place. An example of this is in America where in each state has different laws and legislations which apply, online gaming is illegal in New Jersey and Nevada. If a company attempts to put through a transaction that goes against the terms of the MMC, it would stop any transactions taking place prior to authorisation.
Terminated merchant account
This is also known as terminated merchant file, where the account provider serves notice (often 30 days) to end the contractual agreement between both merchant and account provider. This can happen for two reasons:
The account providers are constantly assessing their appetite to risk, if there are too many businesses in one high risk sector or the merchant has reached the limit of chargebacks accepted via the account provider they will serve notice. Every account provider is different, meaning that this might not be the end of the road in terms of accepting card payments – what’s unacceptable to one provider might not be to another. Speaking to high risk brokers can aid you in sourcing a new merchant account if you have had notice served. It’s important to act quickly, as notice can be as short as a few working days or even immediate.
The second reason for terminating account isn’t so positive! The contract normally ends on negative terms which means the merchant could be black listed for up to five years. The merchant will be placed on the MATCH list (Member Alert to Control High Risk) or VMAS (the Visa Merchant Alert Service) meaning when applying elsewhere for an account, the potential new provider will be notified. The chances of gaining a new merchant account are slim – but not always impossible.
Declined merchant account
Applying for a merchant account will be subject to a full underwriting process, just like getting a loan or credit card, because it’s important the provider knows you’re likely to be able to afford the fees. If the provider feels that the application is too high risk for their portfolio they will not grant a working merchant account. This highlights the need to use industry experts, ensuring your application is place with the right provider and agreed first time around saving both time and in some cases money.
The reasons for banks terminating accounts are listed below, these are known as MATCH codes:
- Account data compromise
- Common point of purchase (CPP)
- Excessive chargebacks
- Excessive fraud
- Fraud conviction
- Violation of standards
- Merchant collusion
- PCI data security standard noncompliance
- Illegal transactions
- Identity theft
Can you secure a new merchant account after termination?
In some circumstances, you can find a merchant account provider elsewhere, even if you have been declined or your account has been terminated following after being added to the MATCH list. This does largely depend on the reason for account termination in the first place. Most experienced brokers can help if you have been in the following situations:
- High chargebacks (numbers and ratios)
- Previous company financial failure
- High fraud ratios
- Terminated because of change of AUP (Acceptable Use Policy) at the bank, meaning that the merchant is now outside of account criteria.
- Closed because of changes to business format, structure or process
- Closed because of changes in Risk policy at the bank
- Closed because of high refund ratios
- Closed because of business model
- Termination because of VMAS/MATCH listing
There are companies that will accept the above, however it is best to use an expert for number of reasons, most importantly if you have been served notice you may not have a lot of time to approach numerous advisors until you are accepted. Secondly, the experts in high risk merchant accounts know their stuff, your application will be packaged accordingly and therefore more likely to be accepted.
Independent brokers will specialise in various areas of merchant advice and speaking to the correct advisor makes could be the difference between having your account accepted or not.