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 in particular 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?”
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 usually holds funds from the closed account 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.
So, why was your Stripe account frozen or terminated? One of the main reasons for merchant accounts to be canceled, etc., is that the merchant is judged to be a high-risk business. 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, 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.
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.
The Red Zone
The “Red Zone” refers to businesses that are considered risky independently of their business history. Some of the factors that can put a business in the “Red Zone” are being in an industry that has a high risk of chargebacks, deals only with services or intangible products, deals in high-volume sales, fails frequently to comply with safety/security standards and regulations, or operates “adult-oriented” services (e.g., pornography, gambling, tobacco, weapons, alcohol).
The Gray Zone
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 bad business credit score or none at all, having a high rate of chargebacks, being an international merchant, and accepting/dealing with foreign currency.
Not surprisingly, businesses considered to be the highest risks are those that are in both categories.
You can find a list of types of business that are typically considered to be high risk here.
Stripe specifies the types of business that it will not service, 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.
If Stripe closes your account and puts the funds in the account on hold, it is important that you act quickly. Failing to do so could result in losing the funds. Contact Stripe as soon as possible to get all of the details that you can and put necessary measures into action. If you believe that the reason for closing the account is unreasonable or illegitimate, you can file an appeal. If you believe that Stripe has violated the terms and conditions and it will not resolve the matter, it may be a good idea to consult with an attorney.
If Stripe will not reopen your account, be sure to notify any of your customers that could be affected by the closure, which could prevent them from making payments depending on the timing. You may be able to arrange for them to pay you some other way.
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.