Merchant Account Crisis: 3 Red Flags It's About To Blow Up
3 Red Flags Your Merchant Account Is About To Blow Up

Merchant Account Crisis: 3 Red Flags Your Processing Is About To Blow Up


Business is booming, but then all of a sudden you lose your merchant account! The red flags are there. As experts, we’re all too familiar of when high-risk payments are about to implode. From low transaction approval to excessive chargeback ratios, there are clear triggers.

So, how do you recognize the signs and remedy the problems? How do you know when your payments channel needs a makeover? When is a merchant account audit necessary? These are questions we get asked often. It’s a result of being in the business of managing high risk payments.

Our answers are often the same. There are clues. And, they are evident. They make themselves known, and you need to figure out why they are there. It’s one of the few times when the answer to a question related to merchant processing and high-risk payments is pretty straightforward.

So, if you’re experiencing any of these signs, treat them as trigger warnings. They are saying it is time to evaluate your payment processing. And implement the solutions quickly so you don’t lose your ability to collect payments online.

3 Clues that should trigger an investigation into your high-risk payment processing

1. A unique rate of 25% or more of declined transactions

A high rate of declined credit card transactions means something is seriously wrong. So, perform an audit of your sales. Pull a detailed transaction report. Use the data to compare declined versus approved payments over a 30-day to six-month period.

If the percentage of approved transactions is under 75% for domestic traffic you need to take immediate corrective action. Yes, a few factors beyond your control can influence your ability to measure and lower decline rates. But there are steps you can take to assess the situation. Plus, you can apply measures to lower the likelihood of an account closure due to excessive risk. The next step is to review the channels where transaction data passes. This includes your payment gateway, CRM or third-party tools. You should already be doing this.

What’s the remedy?

Check the error codes associated with the declined transactions to see if there’s a pattern. Sometimes they’re related to the credit card processing network. Other times it’s a technical problem with the payment processor. (Decoding error messages can be confusing. So, take a look at this two-part post on understanding decline codes). If it’s on your end, then you can make the necessary changes to reduce the declined transactions. For instance, you may discover a problem with one of your API parameters.

Consider upgrading to a merchant account that accepts a wider range of payment types. Some US acquiring banks accept secondary cards like AMEX, JCB and Discover cards. Other providers also offer ACH and e-check payments. This gives customers more payment options and contributes to reducing declined transactions.

If you have foreign buyers (e.g. UK, Poland, Spain), consider getting an offshore merchant account. This can help reduce declined transactions if the reasons are due to them originating outside of your domiciled country. Client credit card conversions are always higher when charged by payment processors close to or within the same region. US debit cards do not convert well for non-domestic payment processors. Thus, try to find a US processor for these cards.

Use your gateway fraud scrubbing tools to limit the number of times the same credit card or email address is submitted. This ensures payment processors aren’t flooded with declines. Also, you will save on transaction fees!

If you need help in securing a more robust merchant account that can facilitate a wider range of payments, contact DirectPayNet. The team specializes in solutions for high-risk merchants.


2. You see excessively high refunds and chargebacks for 60 days or more

Refunds and chargebacks are inevitable. But a high refund and chargeback rate means you’re racking up fees. You’re also putting your merchant account at risk since you have a chargeback ratio to maintain. (Check out this post on new Visa rules. It outlines the updated chargeback ratios for acquiring banks and merchant accounts.)

Is your chargeback ratio higher than the allowable ratio? One of the first things to check are traffic sources. Does your business rely on affiliates or lead generation suppliers? Then the traffic you’re getting may not be the right audience for your business. Plus, some affiliates may use underhanded methods to drive business and earn commissions. This, too, will negatively affect your conversion and resulting chargeback ratio.

Or, perhaps you paid for traffic without knowing the source. Paid traffic from an unknown source could also lead to high chargebacks.

Is there a remedy?

First, review your traffic source. Cancel or put on hold any affiliate account which contributes the bulk of your cancellations.

Next, see about improving your customer service. Helping customers sort through their frustrations with a purchase can reduce chargebacks and refund requests.

Prominently place your refund policy on your website site and make it quickly and easily accessible for all to find. Outline how long a refund takes to process.

Finally, hire a chargeback management company to help you handle this situation. Using outside contractors may work in your favor if issues arise with your acquiring bank or merchant processor.

You operate a high-risk business model. Therefore, the lines you can cross are thin. In an instant, you could face account termination and lose the ability to collect payments online. So, limit the chances of that happening. Always keep your finger on the pulse of your business with regular anti-fraud and anti-risk measures.


3. You get a warning from your payment provider

A warning from your acquiring bank is stressful. It often happens where a merchant account has exceeded or has a high sales-to-fraud ratio for consecutive months.

Acquiring banks have specific standards they must adhere to when working with the major credit card companies. They also take on the risk for your business when they allow you to collect payments online. Therefore, they need to ensure the companies they do business with are complying with all requirements that reduce their risks.

If your acquiring bank has contacted you, it’s safe to say that you have a problem. You’re either close to or have exceeded specific limits on certain aspects of your business. Often this has to do with fraud and chargeback ratios. Once you get a notification, it’s time to assess your payment processing, identify the issues, and formulate a plan to rectify the problems.

What’s the remedy?

Most merchants who have gone through this scrutiny with their acquiring banks will know the answer. Basically, provide a written fraud prevention plan. It should outline steps you intend to take and how they will reduce the risk of fraud. In certain cases, your payment provider wants a plan spanning up to 90 days.

Some of the steps you can consider include:

  • Ensuring you’re using an Address Verification System (AVS) to support the use of credit card payments.
  • The use of third-party analytical tools to proactively identify potentially fraudulent transactions. Signed agreements can be shown as proof of these relationships.
  • Implementing fraud prevention rules at the level of your shopping cart and payment gateway. For example, making a security code and an email mandatory. This step prevents such questionable transactions from even being generated. Use the blacklist tools to prevent customers who have refunded or issued a chargeback before cannot buy from you again.


It’s important to note that the remove high-risk activity in your account could be costing you a lot of money. Remember that you are charged an individual transaction fee. These apply each time declines, refunds and chargebacks occur. Over time, this adds up. Before you know it a small chunk of your hard-earned revenue is lost in unnecessary penalties. In this scenario, consider a merchant account audit.


What is a merchant account audit?

No, this is not the same as a mandatory audit from the IRS. These types of audits aim to examine your current merchant account statements. An expert can take one look at several of your document over a three-to-sixth month period. And, based on documented transactional activity, an audit will determine how much of your money represents unnecessarily allocated fees and penalties.

Perhaps you’re getting charged an exorbitant discount rate for specific credit cards. Maybe you’re receiving monthly charges for fees due to lack of PCI DSS compliance.

A merchant account audit is investigative in that you’re looking at a specific area of your business – payment processing. By the end you want to identify and remedy any flaws and breaches. You’re assessing the terms of the agreement with your provider. Also, you may look at what are doing operationally to cause some of the adverse results.

The purpose of a merchant account audit is to provide as objective as possible analysis of your merchant processing fees and solutions. The results should allow you to adopt measures designed to improve your operations and how you manage high risk payments.


So, what’s next for high-risk business?

Even if you’re an established high-risk merchant, these triggers are still a reality. But, don’t believe they’ll just randomly go away. You need to assess why they came up and what you need to do to prevent them.

As some of our clients know, if you fail to acknowledge these warning signs, you will be in for a rude surprise. Even seasoned merchants with high chargeback ratios still struggle with additional merchant account approvals.

So, have you experienced any of these three major red flags in your business? If yes, then it’s time to bring in an expert to establish order in your business.

Working with a specialist in high-risk businesses can help reduce chargebacks and fraud. Above all, this prevents merchant account termination and makes it easier to be approved for more merchant accounts.

Contact DirectPayNet, and we can help you with all of these and more.