I recently heard from a guy who had a business merchant account with a big bank and had his account closed for something that at first sounds really crazy.

The account was closed due to "fraudulent activity" and was stemmed from that fact that he had a high increase in the amount of money he charged/collected through the account. He was told that he needed to call in advance if the activity on his account was to increase compared to it's normal usage. Every charge through his account was supposedly legitimate.

Do any of you know or have heard anything about rules like this?

This is all about communication - something that I have always stressed. If you do not communicate with your MAP (merchant account provider), they can terminate your account.

When you sign up for an account, you tell them how much you want every month. Let's say $10,000. And your average ticket is $200. Now let's say in three months, all of a sudden you start to process $2,000 tickets and your volume is $30,000. Yes, they are going to suspend your account and review your practices. Merchants can do fraudulent things just as consumers can.

If you start to process more han what you thought, you have to contact your processor or agent immediately. It is the MAP's money before it is your money and they want to protect their money and their business

Yup, Corey is right on the money, so to say.

We had one single VERY high charge come through and it raised a flag with our MAP. They called and asked if this was correct and if it was going to be a common thing. It got squared away easily and we were on our way. However, if this continues, we'll be sure to contact them to re-evaluate our limits.

The situation the OP's friend is in, sounds like a communication issue. If the MAP or your friend contacted each other, the issue probably would have been solved much easier.

The thing to remember is that, as far as the underwriter of a merchant account is concerned, every dollar in sales is a dollar in potential chargebacks that they hold the liability on. This makes sales volume itself a risk.

Had your friend opened the account relatively recently?

The processor is particularly attentive at the beginning of a processing relationship because a common method of defrauding a processor is to establish a merchant account for a fake business using a stolen ID. The prepetrator then runs as much sales volume as possible using stolen credit card numbers and hopes to be funded as much as possible in the first 1-3 months before closing the bank account and disappearing with the money.

That may account for the processor referring to "fraudulent activity". Regardless, they can still terminate the account for exceeding volume or average ticket limits, and as Corey noted, a good way to avoid these issues is by keeping the lines of communication open.

Most people don't understand that the credit card processor (the company that holds your merchant account) is ultimately on the hook for any chargebacks that occur if the merchant goes out of business or disappears in the case of a fraudulent merchant as Dave stated above. Therefore, they need to be extremely diligent in monitoring the activity in their merchant account portfolio. Most have sophisticated softwares that raise flags when certain things occur that raise the risk of a potential loss.

-MM

Hi Jetson,

Everyone on this thread has done a great job summarizing the risks and reasoning why merchant processors get concerned about sudden charges in volume and activity... but in your post you made reference to "fraudulent activity."

So to me - it sounds like the merchant processor may have had some real problems validating the cardholder charges that were being placed through on the account. "Fraudulent" implies that there was more to it than just a limit increase but potential

While it is definitely true that some merchant processors are far less liberal than others in terms of allowing a merchant to increase their parameters, most risk departments look for similiar things such as the ability of a merchant to financially support the volume that they are requesting.

What if you have account for 5 years (60 months) with very little issues like 1-3 chargebacks a month and average volume $10,000-$20,000 and then it's hit to $50K+ during TV ads ? Should merchant suppose to contact MAP first ?

Thanks

Originally posted by Corey Bryant
This is all about communication - something that I have always stressed. If you do not communicate with your MAP (merchant account provider), they can terminate your account.

When you sign up for an account, you tell them how much you want every month. Let's say $10,000. And your average ticket is $200. Now let's say in three months, all of a sudden you start to process $2,000 tickets and your volume is $30,000. Yes, they are going to suspend your account and review your practices. Merchants can do fraudulent things just as consumers can.

If you start to process more han what you thought, you have to contact your processor or agent immediately. It is the MAP's money before it is your money and they want to protect their money and their business

Originally posted by steven-v
What if you have account for 5 years (60 months) with very little issues like 1-3 chargebacks a month and average volume $10,000-$20,000 and then it's hit to $50K+ during TV ads ? Should merchant suppose to contact MAP first ?

Thanks

That wouldn't be a bad idea.

Yes - contact them. Always when you are going over your contract. That contract is there for a specific reason.

Think of it maybe this way. You have a great client. You send him 10 pencils every month. And you have a contract to do so and it states you will bill him every month for 10 pencils. So you bill him for his 10 pencils. Now what happens if he calls you up and says he now needs 20 pencils? Do you still bill him for 10 pencils? You have a contract stating that you will bill him for 10 pencils, but he is getting 20 now. You need a new contract.

MAPs write everything out - for their protecttion and yours.

Good communications is always a plus - whether it is a merchant account provider or any other service provider or vendor.

In the case of merchant services on the risk management side, if a merchant has an extensive multi-year history - a reasonable risk management department should not have an issue with increasing the monthly volume due to a new sales promotion.

The only time this should really be a big concern is if your product/service mix shifts dramatically or you need a much bigger individual ticket size along with increased monthly volume.

So from that sense, the best risk departments know when to NOT hassle a merchant as well as knowing when it is very necessary to draw attention to a certain "red flag" issue or situation.