Understanding Why Merchant Accounts are terminated

A large number of merchants, even those having huge monthly sales volumes, are of the opinion that opening multiple merchant accounts is the right way and the best way forward to successfully hedge against the risk of one or two accounts being terminated. Yes, opening multiple merchant accounts is beneficial but considering it as a ‘way-out for accepting credit card’ in case one or more accounts are closed, is not right.

Get a Better Perspective on the Problem – Before it’s too late

It’s one of those conceptions regarding ordinary and high risk merchant accounts that can sure give you some satisfaction in the short term but have devastating results in the long term. It’s possible a merchant resorting to ‘switching merchant accounts’ every second week would be out of the system, left aghast as no merchant account processing options are available any more. It is, therefore, very important to examine the various factors that lead to merchant account termination.

Listed below are some of the most common reasons why merchant accounts, whether ordinary or high risk, are terminated:

1. Certain mechanisms at merchant’s end are faulty. Sensitive information related to the account (of merchant or customers) is compromised. It’s possible to take some necessary steps to ensure integrity of the data stored and information being transferred from one end to the other. Service providers or banks do not take non compliance with the various security standards (including the PCI) for granted.
2. Factoring transactions is one of the sure shot ways to have a merchant account terminated within no time. Several merchants try to carry out transactions on behalf of a third party, hoping such acts would go unnoticed. Alas, merchants involved in factoring transactions are caught within no time and their accounts are terminated on short notice.
3. Against a sales transaction amount (does not refer to the total volume) of let’s say 1000 dollars if the chargeback is more than 10 dollars, the merchant account is likely to be terminated by the service provider any time soon. A chargeback ratio higher than 1 percent is looked upon as red signal by everyone including the merchant account service provider and the acquiring bank. Even if the chargeback amount is higher than 5 grand (and less than 1% in total), it’s still going to lead to account termination.
4. If the monthly fraud ratio exceeds 8 percent, it’s something to be worried about. Processing more than ten fraudulent transactions on your portal is also going to lead to account termination.
5. In case a fraud claimed by a user is proven, chances of an account being closed are pretty high. In some cases, a merchant is only penalized. Collusion in such activities (including identity theft), however, is a sure shot recipe for disaster.
6. If your company or business entity is declared bankrupt, your high or low risk merchant account will be terminated.

While you’d almost certainly not get involved in criminal activities including factoring transactions, identity theft or other transactions fraud, account termination ( if at all) is going to be due to high chargeback ratio. Get multiple high risk merchant accounts but not because you want to deal with chargebacks. There’re other ways to deal with that problem.