5 Essential Reasons Why You Need a Backup Merchant Account

To be a responsible business owner, it’s essential that you backup various processes to protect your business’s operations.

Backing up your merchant account is especially important if you’re a high-risk merchant and your business relies on credit and debit card payments.

Why? Because banks might change the functioning of your account—sometimes without warning—and often it’s down to something beyond your control.

Banks may:

  • Withhold funds,
  • Freeze your ability to process payments, or
  • Shut down your merchant account entirely.
In this article, we’ll explore the following 5 essential reasons why you should backup your merchant account:
  1. You encounter a chargeback issue
  2. Your processor ceases to work with your business type
  3. Your processor doesn’t understand the risks or have tolerance for risk
  4. You’re growing too quickly
  5. Your merchant account is improperly coded
Without further ado, let’s dive right in!

(1) You Encounter a Chargeback Issue

Chargebacks are bad for any business, and not just because you lose out on a sale.

If you get too many chargebacks, your merchant account could suffer from higher transaction fees, you might have to pay a penalty, and—worst-case scenario—your merchant account could be shut down.

A merchant well prepared for this potential eventuality will have a backup merchant account to mitigate serious risk to their business.

One problem with many chargebacks is that they can result from consumer/friendly fraud, affiliate fraud, or stolen credit card generators. Therefore, chargebacks can occur through no fault of your own. It is, however, essential to be vigilant.

But what do each of these terms mean?

  1. Friendly fraud. Despite its name, friendly fraud is nothing close to being friendly. It’s essentially the online merchant’s version of being shoplifted. One version of friendly fraud consists of a customer requesting a chargeback—by stating they didn’t receive a product when they did—which you’ll pay for in more ways than one. Make sure you have systems in place to detect friendly fraud.

  2. Affiliate fraud. When someone uses unsavory activity to make a commission from an affiliate marketing scheme, they’re committing affiliate fraud. Affiliate marketing is a legitimate means of earning money when a specific action takes place—such as a registration or sale of a product—and when this happens, the affiliate gets paid a commission.

    However, fraudulent activities include going against the terms and conditions of an affiliate marketing program. Therefore, fraudulent actors can design ways to fake the system to generate commission payments by presenting false or misleading claims. For example, they may state—without evidence—that CBD will cure a myriad of diseases. Other fraudsters might use stolen credit card lists to generate commissions.

  3. Stolen Credit Card Generators. Despite what you may interpret by the name, credit card generators aren’t machines—they’re software programs. They use various credit card companies’ rules to generate credit card numbers that follow certain numerical arrangements, making them appear valid.

The last thing to be conscious of is that shipping delays can result in a customer requesting a chargeback—an issue that’s been amplified by the COVID-19 pandemic—as a customer might not believe they are going to receive a product and may request one.

Therefore, do your best to mitigate chargeback instances by being clear and concise with your customers, following best practices for minimizing fraud, and utilizing chargeback reduction services.


(2) Your Processor Ceases to Work With Your Business Type

Your processor may make a change—and therefore cease to work with your business type—which is more likely than the norm for a high-risk merchant.

To illuminate this, let’s look at a case study.

You may have heard of Elavon, the credit card transaction processor which used to be—domestically speaking—the leading CBD payment processor. They were perhaps responsible for 90% of payments within the CBD industry, according to Forbes.

On March 14, 2019, Elavon sent an email out to all its clients that sell CBD or hemp, stating that, “the pace of an evolving federal and state regulatory framework makes it extremely difficult to validate the qualifications required to operate within this industry.”

Elavon then gave their CBD and hemp clients a 45-day deadline (later extended to 60 days) before shutting down their merchant accounts.

Elavon’s actions caused many headaches throughout the CBD industry—especially because many merchants didn’t have backup accounts. In short—they left merchants with strict deadlines to find a payment processor before their businesses suffered beyond repair.

Take the Elavon situation as a warning that disasters can strike at any time. If you don’t have a backup merchant account, ensure that you get one.

If you need any assistance with this process, feel free to reach out to one of our experts at L3 who’ll guide you through this process.


(3) Your Processor Doesn’t Understand the Risks and/or Have Tolerance for Risk

If your processor either doesn't understand the risks of your business—or doesn’t have a high tolerance for risk—they could potentially shut your merchant account down.

Let’s look at another case study.

Although Square and Stripe often accept high-risk merchants, there have been numerous instances where these companies have terminated merchant accounts with CBD and other high-risk merchants.

The problem with these companies is that they may undertake you as a client and not initially label your business as high risk. Sometimes, and unfortunately, various categorizations are fluid—and these companies may change their policies and categorization frameworks at any point and terminate your account.

However, you can set up a direct merchant account yourself, which mitigates the need to use these companies.


(4) You’re Growing Too Quickly

This may sound like a strange problem to have, but if you don’t have a backup merchant account and you grow too quickly, you could encounter a host of issues.

One of the problems of growing too quickly is that merchant accounts have a “cap” or processing limit. If you exceed this limit, you could run into trouble.

Therefore, if your bank hasn’t given you a high enough cap that your growing business needs, you may be subject to funding holds and reserves.

If your processing history is clean, your current merchant bank may increase your cap. However, a new bank which operates in your industry will almost certainly open up a new mid for you.


(5) Your merchant account is improperly coded

If your merchant account is improperly coded, you run the risk of losing your merchant account. Therefore, a backup is essential.

There are a couple of reasons that your account may be improperly coded:

  1. Human error. This is self-explanatory—we all make mistakes, and an agent is no different.
  2. An unscrupulous agent. Compared to the first point, an unscrupulous agent will obtain the incorrect coding purposefully. For example, they may already know that a bank won't accept your business type, so they represent your business as operating in a different, usually low-risk, mode.
To have an incorrectly coded business can cause you a myriad of problems other than account closure.

Fines, having your reserves held, and having your name and business added to the TMF/MATCH list are all issues to be wary of. To lower your chance of these issues happening, familiarize yourself with the proper MCC code for your business and ensure it matches the value that’s set when you receive your VAR Sheet.

We’ve covered the merchant category code (MCC) subject in great detail previously. For more information, please refer to this article, or reach out to one of our payments experts at sales@l3payments.com with any questions you may have.


Although this article has detailed 5 essential reasons you need a backup merchant account, they are not the only ones.

However, you’re now equipped with the knowledge. It’s time to act and get yourself that backup merchant account.

If you’re unsure how to obtain a backup merchant account, feel free to reach out to one of our payments experts at L3, who’ll be delighted to help you.


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