| An extremely important but seldom talked about | | | | The best defense against chargebacks starts with |
| topic regarding credit card processing is that of | | | | a good offense. Be proactive in stopping |
| merchant account holds. One of the most | | | | chargebacks before they occur and develop a |
| financially devastating things that can happen to a | | | | chargeback prevention plan for your business. |
| business is for a processing bank to freeze its | | | | - Processing in excess of declared processing |
| merchant account. If this happens to your | | | | volume and average ticket - When you apply for |
| merchant account, you won't be able to access | | | | a merchant account, you have to declare your |
| the account and your funds from open | | | | business's average monthly processing volume as |
| authorizations will be held without deposit for an | | | | well as your average ticket. Many people forget |
| undisclosed period of time. This means that you | | | | about these numbers when they begin processing, |
| can't accept new credit card transactions and the | | | | but rest assured that processing banks don't. |
| income from recently processed transactions will | | | | These two figures are far more than a formality. |
| not be deposited for days, weeks or longer. | | | | Processing in excess of your declared volume or |
| Merchant account holds are behind many of the | | | | average ticket can lead to your account being |
| horror stories that you may have read about | | | | held or terminated. |
| online or heard from friends. Merchants are often | | | | - Using a merchant account to accept payment |
| portrayed as the victim in these stories, but there | | | | for undisclosed goods or services - Merchant |
| are two sides to every coin. In this article I'll | | | | accounts aren't a free pass to accept credit card |
| discuss why processing banks hold merchant | | | | payments for whatever you're selling on a |
| accounts, how you can avoid having this happen | | | | particular day. When you applied for your |
| to you and what you can do if a hold is put on | | | | merchant account, you would have had to |
| your account. | | | | provide a basic description of the goods or |
| Suspected fraud is often the basis for a | | | | services that you're selling. Using the account to |
| merchant service provider putting a hold on a | | | | accept payment for anything outside of this |
| merchant account. In a typical situation providers | | | | description would leave you in violation of you |
| are the second line of defense against credit card | | | | agreement and open to recourse by the |
| fraud behind the merchant. In an atypical situation | | | | processing bank. |
| where someone opens a merchant account with | | | | - Using a merchant account to accept payment |
| the intention of using it to defraud cardholders, | | | | for other businesses - Merchant accounts are |
| providers become the first line of defense against | | | | issued to individuals or businesses for use by that |
| fraud. | | | | party only. Using the account to accept payment |
| Merchant processing fraud is a big problem that | | | | for another person or business is strictly |
| merchant service providers are obligated to take | | | | forbidden. Once discovered, this behavior will |
| action against. Providers continually monitor all of | | | | almost certainly lead to the account being |
| their business clients for signs that a merchant | | | | terminated. |
| account is being abused. If indications of fraudulent | | | | Suspicious processing behavior is another leading |
| activity are detected, the offending merchant | | | | cause of merchant account holds. Holds for this |
| account will be held until an investigation can be | | | | reason are especially tough because they typically |
| conducted to determine what triggered the alarm. | | | | applied by the processing bank without notice to |
| Such investigations result in the release of the | | | | the merchant. Merchant usually realizes that their |
| merchant account hold or the termination of the | | | | account has been held when they try to charge a |
| offending account. | | | | credit card or when they stop seeing deposits |
| If an investigation ends with the termination of a | | | | from credit cards sales on their checking account |
| merchant account, additional actions may follow | | | | ledger. Preventing holds due to suspicious |
| depending on the reason for the account closure. | | | | processing activity means avoiding behavior that |
| In the case of deliberate misuse or fraud, the | | | | will trigger a processor's fraud alert. Being aware |
| offending merchant may be added to the | | | | of a few general guidelines while you're processing |
| terminated merchant file (TMF), face fines or | | | | transactions will help you to accomplish this. |
| even have criminal charges brought against them. | | | | - Contact your processing bank's risk department, |
| These fraud detection systems serve a vital | | | | not your sales representative, prior running |
| purpose in the fight against fraud but they're not | | | | unusually large transactions. Attempting to |
| perfect. | | | | process a single large transaction beyond what is |
| Sometimes innocent merchants have their | | | | normal for your account will almost certainly lead |
| accounts flagged and held; the affects of which | | | | to a hold. |
| can prove devastating. | | | | - Keep your processing bank informed on changes |
| There are two basic reasons that cause a | | | | in your business that will affect your processing |
| merchant service provider to apply a hold on a | | | | behavior. For example, if a bait shop that has |
| merchant account. I'll list them here and then | | | | been selling only small bait and tackle items for |
| discuss each in detail in the paragraphs that follow. | | | | years begins to sell deep sea fishing equipment, |
| The first reason is breaking terms agreed upon in | | | | their average ticket that has been $15 may spike |
| the merchant service agreement. The second is | | | | to $500 or more overnight. This drastic change |
| suspicious processing behavior. | | | | may lead to their processing bank holding their |
| To open a merchant account a business must | | | | merchant account until the reason for the ticket |
| sign a merchant service agreement. This | | | | increase can be investigated. Notifying your |
| agreement outlines the rules, fees, and limitations | | | | processing bank of changes in your processing |
| in respect to processing volume and average | | | | behavior will allow them to adjust the ticket and |
| ticket size for the merchant account. If a business | | | | volume figures for your account before there's an |
| breaks any of the provisions in their merchant | | | | issue. |
| service agreement, the processing bank can hold | | | | - Don't process excessive card-not-present |
| or even terminate their account. In the case of an | | | | transactions with a card-present account. Aside |
| account being held, it will be unusable for as long | | | | from the expense of mid and non-qualified |
| as it takes the processing bank to investigate the | | | | surcharges that you would incur, keying-in too |
| breach of the agreement and make a ruling on | | | | many transactions on a merchant account that |
| whether or not to reinstate or terminate the | | | | was set up for mostly swiped transactions will |
| account. | | | | lead to a fraud alert. If you're business has a |
| The following is a list of common reasons why | | | | decent amount of card-present and |
| businesses are found in violation of their merchant | | | | card-not-present transactions, opening multiple |
| service agreement. Study these reasons so you | | | | merchant accounts will help to avoid any fraud |
| can avoid making the same mistakes yourself and | | | | alerts and it will save you on processing expenses. |
| having your merchant account held. | | | | If your account does end up getting held by your |
| - Excessive chargebacks - Chargebacks are taken | | | | processing bank, there's not too much that you |
| very seriously by processing banks, and | | | | can do except let the process run its course and |
| excessive chargebacks are a leading cause of | | | | focus on damage control. The process will need to |
| merchant account holds and closures. A common | | | | conduct their investigation and this will take time. |
| misconception regarding chargebacks is that if | | | | In extreme cases where the cause of the hold is |
| they're won they don't count against you. That is | | | | not deliberate and a substantial amount of funds |
| simply not the case. Win or lose, a chargeback is | | | | are being held, seeking legal council from an |
| a chargeback, and too many will lead to your | | | | attorney that specializes in bankcard law would be |
| merchant account being held, closed or worse. | | | | an advisable step. |