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:
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?
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.
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.
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.
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.
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:
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.