As a business owner, merchants have many administrative tasks they need to complete on an ongoing basis. One vital task that keeps the business operating and cash flow steady is payment processing. To accept card payments, businesses need a merchant account. A popular option among merchants has been payment service providers, such as Stripe. However, services like Stripe and other PSPs such as PayPal or Square can suddenly terminate their services, leaving merchants with questions such as, ‘Why Stripe closed my account?’
We will explore why merchants can experience Stripe closing accounts and why some businesses may be labeled high risk. These actions are driven by various factors prevalent in the industry, and they happen often. So rather than feeling antagonized, merchants must equip themselves to ensure Stripe doesn’t terminate their merchant account. If they do, merchants should be prepared to continue accepting payments by choosing the best high-risk merchant service provider.
Why Did Stripe Close My Account?
Stripe will close a merchant account if it deems the business high risk. Also, some industries are looked at from a lens of moral subjectivity. The adult content business is a perfect example of such industries.
Some businesses can be doing great as a business and have a very low chargeback ratio but may still classify as high-risk – basically, they’re guilty by association. Although there are numerous reasons, we identify four main reasons that can result in businesses being classified as high risk discussed below. It is usually a result of these reasons that PSPs such as Stripe close accounts.
What is a High-Risk Merchant?
Let’s begin with understanding what type of merchants may be classified as high-risk. There are no specific definitions of a high-risk merchant but simply guidelines based on certain molds. That mold could be the merchant’s industry, where they are located, how large a transaction, in terms of the dollar value the merchant usually processes, or how high is the volume of transaction.
Industry – There are specific industries that are automatically considered high risk due to the potential of fraud, illegal activity, or chargebacks. eCommerce is one such industry that’s automatically regarded as high risk. Compared to a brick-and-mortar retailer that physically sees the cardholder and swipes or dips their card, an eCommerce retailer does not offer those assurances.
Transaction type – The way a transaction is processed is also a significant risk factor. Continuing with the same example of eCommerce, where the card is not physically swiped or dipped but keyed in, such transactions carry the risk of incorrect data entry.
Transaction size – if merchants process transactions above a certain threshold, they will be automatically classified as high-risk. The logic is that it will not take too many fraudulent transactions for losses to pile up for the acquirer.
Location – Locations other than the US, Canada, UK, Australia, and EU are generally considered high risk. This is mainly attributed to limited judicial recourse for acquirers outside of these regions while also facing a looser regulatory environment for financial and banking systems.
How to Ensure That Stripe Doesn’t Close Your Account?
There are specific reasons for which Stripe may terminate your merchant account. Let’s focus on two of them and understand how merchants can avoid these two cancellation causes.
Chargebacks – these result when customers dispute the charges seen on their card statement. In such an event, customers usually call the issuing bank to complain of fraudulent activity forcing the issuer to withhold the payment requested. Incurring, investigating, and fighting chargebacks is tedious and resource-intensive. As a result, PSPs such as Stripe avoid costly merchants likely to experience chargebacks.
Financial or reputational losses – merchant service providers mitigate their chargeback risk with a certain amount of fund reserves that they require from high-risk merchants. Nonetheless, they still face the prospect of a fraudulent merchant whose primary object is credit card fraud. There is also the possibility of a merchant having had one too many complaints resulting in chargebacks and simply deciding to close up shop and leave Stripe to foot the bill. All PSPs quickly act on any slightest hint of such risk, and the merchant account is terminated.
How Can I Accept Payments After Stripe Closed My Account?
Despite all efforts, Stripe closing accounts is still a real threat for many merchants. As a result, merchants should be prepared for an alternative payment processor, especially since the merchant service industry has many options for any business, including a high-risk merchant. Time taken to consider all possibilities and thorough research well in advance of an actual need to switch service providers can save a lot of money and headaches. Below are some factors to consider when choosing a high-risk merchant account service.
Pricing – Merchants need to scrutinize the rates and fees offered by merchant service providers in great detail. Merchants should be aware that they will naturally pay more for these services given the elevated risk of their business as a high-risk merchants. However, there are specific fee structures that are more transparent than others.
For example, interchange plus is better than tiered pricing in terms of transparency and often in terms of cost as well.
Terms and Conditions – This is closely related to price since so much of what’s included in terms and conditions is related to the overall costs merchants will eventually incur. You don’t want a legally binding agreement that locks you into a multi-year merchant account service. Nor do you want to pay multi-year noncancelable lease payments for any equipment that costs only a few hundred dollars.
Expertise – Consider whether the payment processor you’re evaluating has any expertise in processing payments for your industry. You want to partner with a service provider who understands the minutiae of your business mainly so that they can offer guidance on implementing controls to mitigate the risk factors that cast your business as high-risk.
