Stripe is a powerful payment processing platform that allows businesses to accept various payment methods online. It’s incredibly popular among ecommerce companies, SaaS providers, and more—which are the types of businesses that should avoid it!
Why? Because sometimes Stripe puts a hold on your payouts. This means the money from your sales doesn’t reach your bank account as expected.
When this happens, it can really throw a wrench in your cash flow and disrupt your operations. You might struggle to pay your bills, inventory costs, or even your employees. It’s a stressful situation that no business owner wants to face.
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Why Stripe Pauses Payouts
We have seven reasons why Stripe pauses payouts, freezes, accounts, prevents payments, and more.
Missing Account Details
When you sign up for a Stripe account, you need to provide some essential information about your business. This includes things like your tax ID number, business address, and banking details.
Stripe uses this info to verify your identity and make sure you’re legit.
If you fail to provide any of these documents or if the information is inaccurate, Stripe will pause your payouts. They might ask for additional verification documents, like a copy of your driver’s license or a recent utility bill, to confirm that you are who you say you are.
It’s super important to keep your account information up to date and accurate. If Stripe requests any verification documents, make sure to provide them promptly. The longer you wait, the longer your payouts will be on hold, and that’s not good for business.
High Dispute, Return, and Chargeback Rates
Another major reason Stripe might pause your payouts is if your business has a high rate of disputes, returns, or chargebacks. Disputes happen when a customer questions a charge on their credit card statement and asks their bank to investigate.
Returns occur when a customer sends a product back for a refund. Chargebacks are similar to disputes, but they’re initiated by the cardholder’s bank.
If your business racks up too many disputes, returns, or chargebacks, Stripe sees this as a red flag. It could mean that there’s something fishy going on with your sales practices or that you’re not delivering on your promises to customers. As a result, Stripe may pause your payouts to protect themselves and their users from potential fraud or financial losses.
To avoid this situation, it’s important to maintain low rates of disputes, returns, and chargebacks. You can do this by being transparent about your products or services, providing excellent customer service, and promptly addressing any issues that arise.
It’s also a good idea to keep an eye on your chargeback ratio – that’s the percentage of transactions that result in a chargeback. Aim to keep this number below 1% to stay in Stripe’s good graces.
If you do experience a high volume of disputes or chargebacks, take action immediately. Reach out to your customers to resolve any misunderstandings and work with Stripe to provide evidence and fight fraudulent claims. The sooner you tackle the problem, the better your chances of getting your payouts reinstated.
Your Business Niche
The industry or niche your business operates in can have a significant impact on whether Stripe considers you high-risk and potentially pauses your payouts. Certain industries are inherently riskier than others due to factors like higher chargeback rates, fraud incidents, or regulatory scrutiny.
High-risk industries often face greater challenges when it comes to maintaining a stable Stripe account. These businesses may experience more frequent account reviews, requests for additional documentation, or even sudden account terminations.
Some examples of industries that Stripe and other payment processors typically categorize as high-risk include:
Vaping/e-cigarettes: Due to strict FDA regulations and the potential for underage sales, most payment processors consider this industry high-risk.
Adult entertainment: Factors like age restrictions, reputational risks, and higher fraud rates contribute to this industry’s high-risk status.
Gambling and fantasy sports: The association with gambling and high chargeback rates often lead to payment processing challenges for these businesses.
Nutraceuticals and supplements: Lack of clear regulations and potential for deceptive marketing practices make this industry risky for payment processors.
Cryptocurrency and forex trading: The unregulated nature of cryptocurrency and the high risk of fraud place these businesses firmly in the high-risk category.
Other industries that may face heightened scrutiny include telemarketing, debt consolidation, online auctions, and travel booking. If your business falls into one of these high-risk categories, it’s essential to have a clear understanding of the potential challenges you may face with payment processing and to work proactively to mitigate risks.
MOST ONLINE BUSINESSES ARE HIGH RISK, LEARN MORE
Scaling Too Quickly
Every business dreams of rapid growth and success, but scaling too quickly without proper risk management can actually lead to paused payouts on Stripe. When your business experiences sudden spikes in transaction volume, it can trigger red flags in Stripe’s fraud detection system.
Rapid growth can strain your business’s resources and make it challenging to maintain the same level of customer service and order fulfillment. If you’re not prepared to handle the influx of sales, you may see an increase in customer complaints, disputes, and chargebacks. As we discussed earlier, high rates of these issues can lead to paused payouts.
To avoid this situation, it’s essential to have a solid risk management plan in place before you start scaling your business. This might include:
Gradually increasing your advertising spend and sales targets, rather than going all-in at once
Investing in customer service and support to handle increased demand
Implementing fraud prevention measures, like AVS and CVV checks, to weed out suspicious transactions
Regularly monitoring your chargeback ratio and addressing any issues promptly
Communicating with Stripe about your growth plans and working together to manage risk
GET A PROCESSOR THAT SCALES AS QUICKLY AS YOU DO
Restricted or Prohibited Business Lists
Stripe maintains lists of restricted and prohibited businesses to ensure compliance with legal requirements and to manage risk on their platform. These lists outline the types of businesses and activities that are either completely prohibited from using Stripe or require additional scrutiny and approval before being allowed to process payments.
The prohibited businesses list includes categories that Stripe does not support under any circumstances due to legal or ethical concerns. Some examples of prohibited businesses include:
- Illegal products and services
- Adult content and services
- Debt relief and credit repair services
- Gambling and gaming
- Pharmaceuticals and supplements
- Weapons and explosives
Operating in a prohibited category can result in immediate account termination and loss of access to Stripe’s payment processing services.
On the other hand, the restricted businesses list includes categories that may be allowed to use Stripe after undergoing additional review and receiving explicit approval. These businesses typically face heightened regulatory scrutiny or present increased financial risks. Examples of restricted businesses include:
- Crowdfunding and fundraising
- Financial services and money transfers
- Marijuana dispensaries (in jurisdictions where legally permitted)
- Subscription services
- Travel agencies and timeshares
To operate in a restricted category, businesses must provide detailed information about their operations and undergo a thorough vetting process. Stripe assesses factors such as the company’s compliance with applicable laws, its risk management practices, and its overall financial stability.
Failing to disclose that your business falls under a restricted category or operating in a prohibited category can lead to severe consequences. Stripe may freeze your funds, terminate your account, and report your business to relevant authorities if necessary. This can result in significant financial losses and legal repercussions for your company.
GET A MERCHANT ACCOUNT THAT TRULY BACKS YOUR BUSINESS
Foreign Merchants
Stripe’s global reach is impressive, but foreign merchants may still face unique challenges when using the platform. These hurdles can complicate the already complex process of running an international business.
One of the primary challenges foreign merchants encounter is navigating the different legal and regulatory requirements in their home countries. While Stripe strives to comply with global regulations, businesses are ultimately responsible for ensuring they adhere to local laws related to online transactions, data protection, and consumer rights.
Currency conversion is another potential obstacle for international businesses. Although Stripe supports transactions in over 135 currencies, there may be additional fees associated with converting funds to your local currency. These costs can add up over time and impact your bottom line. It’s crucial to factor in currency conversion fees when pricing your products or services and setting your budget.
Moreover, foreign merchants may be subject to additional verification requirements to comply with Stripe’s global anti-money laundering (AML) and know-your-customer (KYC) policies.
This enhanced due diligence process can involve providing extra documentation, such as proof of business registration, identification of beneficial owners, or information about your company’s source of funds.
The verification process can be time-consuming and may delay your ability to start processing payments. In some cases, Stripe might even request periodic updates to ensure ongoing compliance, adding an administrative burden to your operations.
While you likely won’t convert as much, it’s better in the long run to open a local Stripe account and convert the currency from yours to your target market. This is opposed to opening a Stripe account in your target market directly.
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Statement Warnings
Before Stripe takes the drastic step of pausing your payouts, they often provide warning signs that your account is at risk. One of the most common indicators is a statement warning.
Statement warnings are notifications that appear on your Stripe dashboard or direct on your Stripe statement, alerting you to potential issues with your account. These warnings can range from minor concerns, like a sudden change in your sales volume, to more serious problems, like a high chargeback rate or suspicious transactions.
When you receive a statement warning, review the notification and understand the issue Stripe is flagging. Some common reasons for statement warnings include:
- Unusual transaction patterns or sudden spikes in sales volume
- High rates of disputes, refunds, or chargebacks
- Incomplete or outdated account information
- Selling products or services that fall under Stripe’s restricted or prohibited categories
The bad news is that when Stripe gives you a statement warning, your account is 9 times out of 10 shut down.
However, the information on the warning can tell you what type of merchant account to open. Or at the very least, it will tell you what to look out for in your merchant services provider.
OPEN A MERCHANT ACCOUNT THAT SUPPORTS YOUR BUSINESS
3 Steps to Save Your Business
Alright, so your Stripe account is in hot water, and you’re facing the dreaded payout pause. Don’t panic! Here are three steps you can take to get your business back on track.
1. Open a Local Stripe Account
If you’re operating in a different country than where your Stripe account is registered, it’s time to go local. Opening a Stripe account in your physical location can work wonders for mitigating payout issues.
Here’s why: Stripe has different risk tolerance levels and compliance requirements for each country. By having a local account, you’re playing by the same rules as other businesses in your area. This can help reduce red flags and keep your payouts flowing smoothly.
2. Open a Merchant Account
A merchant account is a special type of bank account that allows you to accept credit and debit card payments. Stripe, contrarily, is a payment aggregator.
Having a dedicated merchant account as your primary can be a lifesaver when Stripe payouts go awry. It provides an more secure route for your funds, ensuring you can still process payments and keep your cash flow stable.
Plus, merchant accounts often have higher transaction limits and more customization options than Stripe alone. It’s like having a backup generator for your business – you’ll be glad you have it when you need it most.
3. Communicate with Stripe
As soon as you see that your payouts are paused, reach out to Stripe’s support team first by email. Explain your situation clearly and concisely, and provide any relevant documentation they request.
Then, send a physical letter to Stripe’s legal department. This letter should be sent with tracking and require a signature. That way, you know when it gets delivered and who signed it. Knowing who signed it allows you to request that person in emails and over the phone.
Stripe is never too willing to release funds. It’s up to you to be aggressive about getting it back and keeping your store running.
