Closed Merchant Account8 Steps You Should Take After a Terminated Processing Agreement

Closed Merchant Account Due to Fraud or Chargebacks? Don't Worry—You Have Options.

If your acquiring bank has just closed your merchant account, or if you suspect that your account is in imminent danger, you have to act fast. What should you do?! What’s the first step to take toward recovering from a disaster like this?

It’s true that a terminated processing agreement and closed merchant account will carry severe long-term ramifications. There are several things you need to know, however.

Depending on how this is handled, seeing your merchant account closed could mean a slight shift in how your business operates, or it could mean total collapse. So, take a deep breath, tread carefully, and read on.

A Terminated Merchant Account is Serious

An acquirer assumes a degree of risk every time they process a payment on any merchant’s behalf. For instance, there’s always the possibility that:

• The merchant could go out of business.
• Chargeback liabilities could exceed the merchant’s account balance.
• The merchant could engage in shady business practices.

Acquirers have a primary responsibility to look after their own assets. If the bank suspects that your account poses a potential risk for any reason, they’re likely to terminate their agreement with you and close the account.

If that happens, any funds in your account might be frozen and inaccessible to you until the bank resolves any outstanding debits and disputes. You’d also be unable to process any new transactions until you secure a new account. This could be hard, as other processors and financial institutions may refuse to do business with you. Service providers that are still willing to take you on may charge exorbitant fees and impose restrictions on your activity to offset the perceived risk.

In most cases, a closed merchant account means that your business is in serious danger. If you don’t act fast, you may lose everything you’ve worked for.

Why is My Merchant Account Closed?

Like we mentioned, your acquirer may close your account if they feel that it poses a risk to their business.

There are specific reason codes that outline why a merchant account could be closed. We’ll examine these in more detail later. For now, we’ll say that forcibly closed merchant accounts usually happens for one of three reasons:

Additionally, you can still twist on the hook for chargebacks after your account has been closed or canceled. You read that right. Just because your account is shut, doesn’t mean you won’t receive chargebacks that were filed beforehand. Since the chargeback process takes a while to set in motion, you could still receive chargebacks for a few months after the date your merchant account closed.

How a Merchant Account Gets Closed: A 3-Stage Progression

In extreme cases, the bank may jump straight to canceling a merchant account. This would only happen as a way to try and cut off abuse that is presently in progress. In most cases, the bank will attempt a few other options before finally closing your account.

If your account is under review by your acquiring bank, the process will likely occur in three stages:

Stage #1 | Revenue Hold

Merchant account reserves are common practice for high-risk payment processing. Because of the increased risk level, acquirers withhold a portion of the merchant’s revenue to cover potential losses. The bank will use the reserve account to cover losses if the operating account doesn’t have sufficient funds.

The amount to be withheld will be laid out in the merchant agreement. Some banks will require a reserve upfront. For example, the merchant might be required to provide the equivalent of one to two months’ worth of anticipated sales. Or, a rolling reserve will hold back a percentage of sales each month.

Account holds and freezes are similar in some regards. But, while a hold is just a temporary measure, a freeze can be indefinite. It’s generally a sign that your account termination is imminent.

While an account freeze is in effect, you won’t be able to process any card transactions or transfer funds from the account. Also, any income you have pending won’t be deposited until the freeze is lifted.

The final stage of the process is the absolute worst-case scenario. At this stage, your acquirer will inform you that your merchant account closed due to one of the three reasons outlined above.

Once a merchant account is terminated, your acquirer is required to add you to the MATCH List (sometimes called the “Terminated Merchant File”). This is a running log of merchants whose accounts have been closed by an acquirer and processor. Being MATCHed means you’ll be labeled as “high-risk.” This will make finding a processor that will work with you much more difficult.

What is the MATCH List?

Generally, while a closed merchant account isn’t a guaranteed trip to the MATCH list, it can happen if your account closure meets certain criteria:

MATCH List Reason Code	Title	Explanation
Reason Code 01	Account Data Compromise	Account data is stolen from the card-present merchant and used with other merchants
Reason Code 02	Common Point of Purchase	Account data is stolen from the card-present merchant and used with other merchants
Reason Code 03	Laundering	The merchant processed transactions that did not involve a bona fide cardholder
Reason Code 04	Excessive Chargebacks	The merchant breached predetermined chargeback thresholds
Reason Code 05	Excessive Fraud	The merchant breached predetermined fraud-to-sales dollar volume thresholds
Reason Code 06	Currently unused	--
Reason Code 07	Fraud Conviction	One of the business's owners was convicted of criminal fraud
Reason Code 08	Mastercard Questionable Merchant Audit Program	The merchant is labeled a “Questionable Merchant,” as determined by MasterCard guidelines
Reason Code 09	Bankruptcy, Liquidation, Insolvency	The merchant is unable to discharge all financial obligations
Reason Code 10	Violation of Standards	The merchant was in violation of one or more of the card network’s regulations
Reason Code 11	Merchant Collusion	The merchant participated in fraudulent collusive activities
Reason Code 12	PCI-DSS Noncompliance	The merchant wasn’t compliant with PCI-DSS requirements
Reason Code 13	Illegal Transactions	The merchant processed illegal transactions
Reason Code 14	Identity Theft	The business owner’s identity is in question

You won’t necessarily be notified if you’ve been added to the MATCH list. Therefore, if your merchant account was terminated due to one of the reasons above, it would be in your best interest to contact your acquirer to get the details. Removal from the MATCH List is possible, but there are only two circumstances under which it might happen:

• The acquirer contacts Mastercard on your behalf and reports the original addition was made in error.
• You were added using MATCH list reason code 12 (PCI-DSS Non-Compliance), but have since become compliant.

Learn more about the MATCH List

Ultimately, having your account terminated is never a good look. Many financial institutions may refuse to do business with you, while those still willing to take you on may charge high fees to offset the added risk. Don’t despair, though: even with a closed merchant account, you can still keep on rolling…if you make the right moves in a timely manner.

8 Steps to Take After a Closed Merchant Account

A canceled merchant account is a serious setback. Still, it doesn’t necessarily need to be the death blow that kills the endeavor. Here’s what to do:

You shouldn’t assume you understand the reasoning for the account cancellation. It’s important to know the absolute truth. Plus, you’ll need to provide a written statement from your previous acquirer when applying for a new merchant account.

The MATCH List is a database with information about businesses and owners whose merchant account has been canceled. The card networks require banks to report all terminated merchant accounts via the MATCH List.

Ensure the business has, in fact, been MATCHed. The application process for a new merchant account may be different for businesses that have been placed on the MATCH List.

You should have at least six months’ worth of processing statements. Before losing access to the acquirer’s online reporting system, you should double-check that you have all the necessary paperwork to get up and running with a new service provider as quickly as possible.

It’s possible to secure a new merchant account. You shouldn’t waste time contacting acquirers that refuse to do business with high-risk merchants, though. Many financial institutions will refuse to sign a business with a terminated merchant account.

You need to recognize the position you’re in, along with the new limitations resulting from it. Seek out a service provider that specializes in high-risk merchant accounts.

Many merchants are tempted to make their situation seem better than it is. They assume this makes them more appealing to a prospective acquirer. In reality, it’s a bad tactic that will probably backfire (most likely in the form of increased rates).

The acquirer will learn of any past problems anyway. It’s best to acknowledge them upfront so as not to sacrifice the acquirer’s trust.

It takes a long time to underwrite a high-risk account (much longer than a traditional account). Don’t try to rush the system. Relax. The acquirer probably dislikes the excess paperwork just as much as you do!

Acquirers will scrutinize any new merchant, but will be especially cautious of those with a previously canceled merchant account. The bank will carefully monitor your activity to ensure the new account complies with the current merchant agreement.

As long as you remain compliant with all aspects of the merchant agreement, you shouldn’t have anything to worry about.

Remember the old adage: “Fool me once, shame on you. Fool me twice, shame on me.”

A terminated merchant account is evidence of insufficient chargeback management techniques. If you don’t seek help the second time around, you’re destined to repeat the same mistakes. So, if your account is in imminent danger of termination due to chargebacks, for instance, it’s imperative that you do whatever is necessary to fix the problem.

We recommend you contact Chargebacks911® as soon as possible. You’ll face numerous hurdles, including issuing refunds to customers, retrieving revenue, and managing future chargebacks. We can help, but in situations like these, you don’t have a moment to lose.

Chargebacks911 offers a guaranteed ROI. We’ll let you know if our services are a good fit for your business, and we can help you with your current predicament.