What To Do When Your Payment Processor Drops You?
This is a guest post by AcroCharge, a tailored payment dispute solution that combines technology with human-powered know-how to significantly improve the chargeback win rate.
Losing your ability to process credit card payments overnight is frightening. So what can you do when your payment service provider (PSP) tells you you’re cut off? You can take several steps before and after losing your card processing rights to lessen the pain.
What Is Your PSP’s Problem?
But first, why would a PSP reject your business? It comes down to fraud and chargebacks. To ensure consumer trust in their service, the credit card networks (i.e., Visa, MasterCard, etc.) set strict limits on how much fraud and chargebacks they are willing to tolerate from acquirers. Acquirers that go above these thresholds are placed in a monitoring program and have to pay steep fines to the credit card company. The acquirers, in turn, set thresholds on their PSP clients.
To ensure that they don’t exceed their thresholds, each PSP monitors the number of fraudulent transactions and chargebacks that its merchants experience. At least, in theory, a PSP should retain a merchant as long as their fraud and chargeback rates are below the levels the credit card companies set for their merchant monitoring programs.
In practice, PSPs don’t wait as long as the card networks. They will “get rid of you” well before the 12-month mark to avoid falling afoul of their acquirer.
Preventing a Cut in Service
An ounce of prevention is worth a pound of cure. You should be proactive in finding ways to keep your fraud and chargeback rates low. For chargebacks, this can be done in part on a policy level by implementing clear terms and conditions as well as a generous refund policy.
However, at some point, you may find yourself requiring additional firepower in the form of special software for fighting fraud and preventing other sources of chargebacks. For fraud prevention, you can ask your PSP what they would recommend.
To reduce chargebacks in general, you will want an early alert system that will enable you to provide refunds before customer claims are processed as chargebacks. There are two vendors in the market that provide this service; Ethoca and Verifi.
You can also start using a chargeback mitigation service like AcroCharge to begin fighting your payment disputes. Although this won’t reduce your chargeback rate in the short run, it will show your PSP that you are seriously addressing your chargeback problem.
When your PSP threatens to kick you off, conduct a written analysis of why you exceeded their limits and how you intend to rectify the situation. Then talk to your PSP account manager, share the root cause analysis and ask for leniency and the chance to fix the problem. The larger the processing volume your company has, the more likely the account manager is to escalate your case to a decision-maker who can grant you some temporary leeway.
Spread Out the Risk
Make sure your short-term liquidity is not entirely dependent on credit card payments. If it is, your business will sink the minute you have a problem with your PSP. Taking out a credit line could be a smart move since you won’t make interest payments on the funds unless utilized. This will provide you with some backup power if your PSP pulls the plug on your primary source of income.
Triage and Reducing the Damage
Well, what do you do if your PSP has already pulled the plug on your relationship?
- Don’t scream at the account rep there; you may still require their help.
- If some of your funds are frozen to repay any chargebacks that still have to work their way through the system, let things run their course.
- Give any documentation your PSP requests from you as quickly and efficiently as possible. This will ensure that your earned income is returned to you as fast as possible.
- Use working capital loans to pay operating expenses while you wait.
Also, request from your PSP account manager 3-6 months of credit card processing information, including chargeback numbers and amounts. You will want to provide this data to new PSPs when explaining your processing history. Please note that this information must be supplied as official reports from your previous payment processor and not as an Excel file.
Once Bitten, Twice Shy
When you are kicked off your PSP, you should take the written root cause analysis of why you exceeded their limits and remediation plan to potential replacement PSPs.
Similarly, if you haven’t done so already, look for anti-fraud and chargeback mitigation services that will reassure a new PSP that you won’t be the same kind of risky client to them as you were to your last PSP.
Stay Calm, Make a Plan
Regardless of what happens, remember that other merchants have survived being cut off by their payment processor. The primary goal is to try to prevent it from happening to you. If that effort doesn’t succeed, be prepared to place your best foot forward and work with a payment processor that specializes in high-risk merchants if necessary.