If Stripe cancels your merchant account, immediately request details from Stripe, file an appeal within the 30-day dispute window if warranted, and secure an alternative payment processor—ideally a high-risk specialist—to avoid business disruption.
Many merchants wonder, "What should I do if stripe cancels my merchant account?" Stripe has become a major payment processor in recent years. Many small businesses, especially those requiring an ecommerce merchant account, have made use of Stripe's services to grow their operations.
However, some businesses have had a more difficult time. One issue that is faced by some businesses that use traditional banks or popular payment processors is having their merchant account frozen or shut down and the funds in the account held.
This issue is not unique to Stripe, but the company is a helpful case study in understanding the issue. Today, we will take a brief look at the answer to the question "What should I do if Stripe holds my funds?"
Why Does Stripe Close Accounts Without Warning?
Banks and other financial institutions that provide merchant accounts to businesses can freeze or shut down your account without prior notification. It does not always happen without warning, but in many cases it does, and those cases can be extremely difficult for a business. Stripe is one payment processor that has a reputation for canceling merchant accounts without warning and without explanation.
Many businesses have had their accounts put on probation or canceled by Stripe. Stripe notifies merchants that their accounts have been closed through an automated message that does not include an explanation of the reason for the closure. It is often unclear how to request an explanation or reinstatement of your account.
To make matters worse, Stripe typically holds funds from the closed account for up to 180 days to cover any chargeback fees, etc., that may be delayed in arriving. That in itself if not unreasonable.
If a company has a high chargeback rate, and has unresolved cases when the account is closed, those cases and disputes remain. In that case, Stripe would have to cover those costs itself, possibly incurring a significant loss.
However, regardless of how reasonable it may be, having a significant amount of its funds put on hold is damaging to a company, and to a small business it can be fatal.
Why Does Stripe Suspend or Cancel Merchant Accounts?
So, why was your Stripe account frozen or terminated? One of the main reasons for high risk merchant accounts to be canceled, etc., is that the merchant is judged to be a high-risk business.
What is a high-risk merchant? A high-risk merchant is a business classified by payment processors as having elevated risk due to factors such as high chargeback rates (typically above 1%), operating in certain industries, or processing primarily card-not-present transactions common in ecommerce.
Traditional banks and payment processors are usually reluctant to open a merchant account for high-risk businesses to begin with, and applies stricter requirements and criteria even when they do. High-risk businesses with accounts at traditional banks, etc., are put on a very short leash.
Keep in mind that Stripe has the right to freeze or cancel your merchant account any time they want according to their Terms of Service, and they are not required to provide you with an explanation of why it was done. In addition, even if they review your case, the statistics suggest that it is unlikely that they will rule in your favor.
Why Does Stripe Consider Your Business to be High Risk?
The reasons that Stripe may consider your business to be high risk are likely to be very similar to the reasons used by traditional banks. There are two general categories of high-risk business, as follows.
Prohibited Industries (Absolute Bans)
Elevated Risk Factors (May Lead to Review/Closure)
Illegal activites
High chargeback rates (above 1%)
Adult content/pornography
Subscription-based business models
Unlicensed firearms sales
Ecommerce-only operations
Certain controlled substances
High-volume sales
Multi-level marketing schemes
International transactions
Counterfeit goods
Counterfeit goods Poor or no business credit history
The "Red Zone" refers to businesses that are considered risky independently of their business history.
Factors that can put a business in the "Red Zone" include:
Operating in an industry with a high risk of chargebacks
Selling primarily services or intangible products
Processing high transaction volumes
Failing to comply with safety, security, or regulatory requirements
Operating adult-oriented services, such as pornography, gambling, tobacco, weapons, or alcohol
The "Grey Zone" refers to businesses that are considered risky because of their actual business history.
Factors that can put a business in the "Grey Zone" include:
Having a poor business credit score or no established credit history
Having a high chargeback rate
Operating as an international merchant
Accepting or processing foreign currencies
Not surprisingly, businesses considered to be the highest risks are those that fall into both categories.
Stripe specifies the types of business that it will not service in their Restricted Businesses List, so be sure to read the terms and conditions carefully before utilizing their services. Doing so could save you a lot of headaches, both financial and literal.
What to Do if Stripe Terminates or Freezes Your Merchant Account
If Stripe closes your account and puts the funds in the account on hold, it is important that you act quickly. Follow these steps:
Contact Stripe immediately to request written details about the closure reason and any options for resolution.
Download all account statements and transaction records before you lose access to your dashboard.
File an appeal within 30 days if you believe the closure reason is unreasonable or illegitimate.
Check your MATCH list status—being placed on the MATCH (Member Alert to Control High-Risk Merchants) list can affect your ability to open accounts with other processors.
Consult with an attorney if you believe Stripe has violated the terms and conditions and will not resolve the matter.
Notify affected customers who could be impacted by the closure, and arrange alternative payment methods if possible.
Contact a high-risk payment processor to establish alternative payment processing as quickly as possible.
Understanding the MATCH List
When Stripe terminates your account, they may report your business to the MATCH (Member Alert to Control High-Risk Merchants) list, a database maintained by Mastercard.
Being placed on the MATCH list can make it significantly more difficult to obtain a new merchant account, as most processors check this database during the application process. MATCH listing typically remains for five years. High-risk payment processors are often more experienced in working with businesses that have been MATCH-listed.
How Can I Resume Payment Processing After Stripe Closure?
Although Stripe usually sends you notification that you have 30 days to dispute the cancelation of your account, you need to make other arrangements for payment processing as soon as possible. The ideal is to have a backup plan already in place, at the very least knowing of other payment processors that could provide you the necessary services. Although it's possible that your Stripe account will be reinstated, a full month or more of being unable to receive payments could do serious damage to your business.
In such cases, it would be advisable for you to consider using a high-risk payment processor. High-risk payment processors have the knowledge, experience, and resources to work with your special circumstances and needs. They also have a higher threshold for things such as chargeback rate, and can help you reduce chargebacks to begin with.
Whether you are just now starting your high-risk business and are considering a high-risk payment processor, are contemplating a switch from a traditional bank, or are in the middle of dealing with having Stripe or another payment processor suddenly close your account, our team at Zen Payments is ready to put its knowledge and experience to use to help your business. Feel free to contact us.
Key Takeaways
Request a written explanation from Stripe immediately upon receiving closure notification
Download all account statements and transaction records before losing dashboard access
Check your MATCH list status to understand how termination affects future merchant account applications
Contact a high-risk payment processor to minimize business disruption
File an appeal within 30 days if you believe the closure was unwarranted
Josh Phelps is an experienced sales professional with eight years of expertise, including four years in payment processing. Throughout his career, Josh has successfully secured approvals for thousands of businesses, demonstrating his skill in navigating and optimizing the payment processing landscape.
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Frequently Asked Questions
Stripe's Terms of Service allow them to close accounts at their discretion without providing detailed explanations. Common reasons include being classified as high-risk, exceeding chargeback thresholds, or operating in a restricted industry category.
Stripe typically holds funds for up to 180 days after account closure to cover potential chargebacks, refunds, or disputes that may arise from transactions processed before termination.
Yes, Stripe generally provides a 30-day window to dispute account closure. Contact Stripe support immediately to request a review, provide documentation supporting your case, and ask for specific reasons for the termination.
The MATCH (Member Alert to Control High-Risk Merchants) list is a database of terminated merchants maintained by Mastercard. If Stripe adds your business to this list, most traditional processors will decline your application, though high-risk specialists often work with MATCH-listed businesses.
