What is the Terminated Merchant File & How Can It Jeopardize Your Business?
Few three-word phrases can strike fear into the hearts of merchants like “Terminated Merchant File,” or TMF.
The TMF is essentially an eCommerce blacklist; if you’re in it, that could mean your business is just hours away from disaster. So, how do you end up in the Terminated Merchant File…and more importantly, how do you get out?
The Terminated Merchant File Explained
The Terminated Merchant File is a log of merchants maintained by Visa and Mastercard. As the name suggests, merchants are added to the file if any of their MIDs are canceled for breaching standards set by the card schemes. When acquirers add a merchant to the TMF, it marks that business as a risky venture, warning other acquirers from doing business with them.
There are numerous behaviors and practices that could result in a merchant being listed on the TMF:
- Committing merchant fraud.
- Continuing to collect recurring charges after customers cancel a subscription.
- The merchant is engaged in money laundering.
- The merchant experiences excessive, sustained fraud activity.
- A business increased loss exposure for the industry by violating their merchant agreement.
- Depositing excessive counterfeit sales.
- Failure to comply with PCI DSS requirements.
However, the most common reason a business ends up in the Terminated Merchant File: chargebacks.
From the acquirer’s perspective, a business that experiences a lot of forced payment reversals is a threat. Thus, most will decline to work with businesses who are added to the TMF.
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An Outdated Practice
In many ways, the TMF is a relic of chargeback history. The list was intended to protect banks from unanticipated losses by identifying and flagging merchants who either:
- Did not operate honestly.
- Failed to address fundamental issues in their business.
- Operated in business sectors that were inherently risky.
Like many chargeback rules, though, the Terminated Merchant File—also sometimes referred to as the MATCH List—does not account for the realities of contemporary eCommerce. When the standards used to determine whether a merchant is a legitimate risk are outdated, listing a merchant on the TMF can be an excessive response.
Retail was a totally different environment when the TMF was first thought up. The rise of EMV chargebacks, tokenization technology in card-present retail, and zero-liability policies have fundamentally changed how merchants do business. Consumers are anxiously watching their statements for any sign of post-Equifax fraud.
The standards for adjudicating chargebacks and listing in the Terminated Merchant File needs to be revisited if eCommerce is going to keep moving forward.
Can You Get Out of the TMF?
A business will remain on the list for five years after their most recent inclusion in the Terminated Merchant File. Other acquirers will be able to find their listing at any time during that period, which may influence the bank’s decision to refuse to do business with the merchant. Once listed, your options for getting out of the TMF are limited:
- Listed by Error: You can be removed from the Terminated Merchant File if you were listed by mistake. In this case, the acquiring bank who first added you to the list would need to contact the card scheme on your behalf and report that your inclusion was a mistake.
- Resolve Temporary Causes: You can also be removed from the list if included on the TMF for PCI DSS noncompliance. Once you have verified compliance with your acquirer, they can file the card scheme to remove you from the list.
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Unfortunately, there are no other guaranteed ways to be removed from the TMF. Once listed, you will have a black mark on your record that will make most standard acquirers want to avoid doing business with you. If you can’t find a processor to take you on, then your eCommerce business can’t process transactions…which means your business can’t survive.
To make matters worse, you may not even need to meet the minimum chargeback-to-transaction ratio enforced by the card schemes to see your account terminated. Many standard acquirers will close merchants’ accounts as a preventative measure well-before chargeback thresholds are breached.
There are other factors to consider as well, such as transaction volume. Since all the card schemes’ chargeback thresholds land somewhere in the 1% range for chargebacks as a percentage of sales volume, sellers with fewer, but higher-value transactions are at great risk. For example, if a seller conducts a few hundred high-value transactions each month, just three or four chargebacks could be enough to tip the scales.
Not the End…But Not Ideal
Even if you are listed in the TMF, it’s not always the end of the world. In fact, some merchants might find high-risk processing advantageous—or even a necessity—depending on their product category.
Remember: If you find yourself in the Terminated Merchant File, that doesn’t mean you are banned from accepting transactions. However, you will need to find an acquirer willing to do business with you. High-risk processors tend to involve more stringent standards and higher fees to cover the added risk, but may not be the worst option. Contact us to learn more about high risk credit card processing.
As a rule, the added strains of high-risk processing are something to avoid whenever possible. To do that, though, you’ll need to isolate your specific chargeback risk factors and adapt the necessary solutions to keep chargebacks in check. Click below to learn more about how you can keep your chargebacks from earning you a spot in the Terminated Merchant File.