Even though the subscription economy has grown by a whopping 435 percent in the last 9 years, merchants operating in high-risk verticals still face a lot of challenges. A major issue they face is high cancellation and chargeback rates and these chargebacks can be a concern for a credit card processor.

Your current merchant services provider can terminate your merchant account because of high chargeback rates. Sometimes, it may even appear that they have terminated your merchant account for no apparent reason. Either way, if you’re a business that runs on auto-bills, you’re left without a payment processor to handle them.

If not done carefully, securing a new credit card processor can lead to accusations of transaction laundering. This article will explain the reasons your payment processor might drop your account, how to avoid transaction laundering, and how to get back to business—fast. 

What is Transaction Laundering? 

Let’s say a business has its merchant account terminated by a processor because the chargeback percentage has become too high. In order to keep the business running, its owner takes the remaining auto-bill accounts over to a new processor. But rather than informing the new processor that these are rebill accounts who signed up in the past, merchants often claim that these charges are from new customers. This practice happens very often in the high-risk ecommerce space. If the merchant sneaks this by the processor and gets the account running, they will often immediately get into chargeback trouble, which when compounded by the fact of the transaction laundering (which a good processor will almost always discover) they can be terminated again very quickly.

This often happens in the nutraceutical space. For example, a merchant could start a business selling vitamins and put their clients on an auto-charge. Soon the clients aren’t happy with the vitamins or the auto-bill arrangement and start putting chargebacks on their card for the product. When there are too many chargebacks, the credit card processor terminates the merchant’s processing. Then the merchant finds a new processor – it becomes transaction laundering when the nutraceutical company does not disclose the genuine history of its auto-bill list and rate of chargebacks to its new processor.

What is Rebilling?

Rebilling or auto-billing occurs when a merchant charges customers for services or goods on a recurring and pre-planned basis. Customers can be rebilled on a weekly, bimonthly, or monthly basis. Clients must consent to the rebilling during the first purchase. After that, subsequent charges happen automatically. Most subscription businesses use rebills to collect payments. 

Why Does It Matter If a Charge is a Rebill or a New Order?

It’s critical for the smooth operation of payments systems (and it’s required by card brands and processors) that all rebills run under the original merchant account (MID) where the original order was placed – unless special arrangements are made. It’s important to understand that a rebill relationship is in a sense a contractual relationship between the customer and the merchant, where the customer agrees to be billed each month or quarter. But the customer made that agreement in connection with a specific merchant account. So if that merchant account is terminated, it’s not appropriate to simply shift those bills to a new merchant account that never had that agreement with the customer.

In addition, processors like NMA who work with managed-risk companies such as nutraceuticals have robust risk modeling systems, and we have an understanding of the typical lifecycle of a nutraceutical customer. Transaction laundering affects the accuracy of these models, often forcing the processor to terminate the merchant account.

But I’m Running a “Clean” Business!

Many processors see all “high risk” merchants as the same. Because there are unscrupulous high-risk merchants out there, many processors assume that every merchant is like that. At NMA, we recognize that there are good and bad operators in every business model, and there’s no reason to make assumptions. That’s why every account is evaluated personally and individually – we call this “payments made personal”.

So while the most common reason a merchant might be terminated and need a new processor is excessive chargebacks, it’s not the only reason. So there can in fact be circumstances where a merchant needs a new merchant ID (MID) and has a legitimate need to continue rebilling its happy customers who want to continue receiving the product.

Here are some other reasons why an account can be terminated where the merchant is not behaving badly, and how NMA can help.

Industry changes 

Businesses in industries that processors consider high-risk can have their merchant accounts terminated because of regulatory changes. For example, in 2019, many businesses in the CBD niche found themselves without a payments processor after Elavon decided to stop serving them. Similarly, online tobacco and alcohol merchants have suffered the same fate due to frequent bad press that makes them “reputational risks” for processors. 

Internal changes

Credit card processors frequently assess their portfolios for risk. If they see an industry that makes them less money than others and also carries a higher percentage of chargebacks, they might drop every company within that industry without warning. In the managed-risk space this is sometimes referred to as a “MID purge” because merchants are dropped only because of their category, not because of anything specific wrong with their business.

Sometimes, this happens because of changes in internal leadership. The new team may have a low appetite for risk and liability. Now, these merchants who have a legitimate business with good auto-bill clients think they don’t have anywhere to turn. 

Ultimately this is one way that NMA is different from other processors. We’re deeply committed to the managed-risk space, and we never purge – we assess every business on its individual merits. 

If you’re been dropped by your processor in spite of having chargebacks under control, that still doesn’t mean you’re free to move your rebills – moving those onto a new processor might still be transaction laundering if not handled carefully.

Lack of analysis in the beginning 

In other cases, payment processors don’t do a thorough analysis when a business first signs up for the service. This is a very common issue with “big box” processors who essentially “auto-approve” new accounts. The strategy seems to be to approve everyone, and then only do the real underwriting after the fact, and quickly terminate any businesses that don’t fit the processor’s desired risk profile. As soon as the business becomes successful and their sales volume increases, the business gets flagged. The processor then realizes that the business is in a category they don’t support or they consider too high-risk. Now, a business that did nothing wrong is without a processor.

We feel this is disingenuous and a poor business practice – at NMA we carefully evaluate every merchant to make sure the relationship is a fit before we start them processing.

What Should You Do If You Need To Change Credit Card Processors?

If you face termination of your merchant account, there are steps you can take to switch credit card processors fast. 

Find out why you were terminated 

Contact your merchant services provider to find out they terminated your account. This information will help you decide the best course of action. If your account was terminated because of high chargeback rates then you need to institute measures that will prevent future chargebacks. If your merchant account was in good standing but was still terminated because you operate in a high-risk industry, you need a payments processor like NMA that regularly works with high-risk businesses. 

Collect your account statements 

Next, collect your merchant account statements for the last six months. You can download this information directly from your processor account, assuming you can still access it. In situations where you cannot access your account, send a formal request to your previous processor so that they can share the information with you. You will need these statements when applying for a new payment processor. They will use it to assess the health of your merchant account. 

Store your auto-bill data safely

Store data about your subscriptions and rebills in a way that meets all Payment Card Industry (PCI) standards. This makes it easy for you to migrate this data to your new payments processor (with their permission) and start collecting payments again. 

How NMA Helps Small Businesses That Have Been Dropped By Their Current Processor

One way NMA is different is that we do have the ability, under specific circumstances, to accept auto-bills moving from another processor. If you come to NMA and explain your situation, NMA will do an assessment of your business and consider taking over your processing. If you’re running a clean business and have nothing to hide – and if you’ve been dropped by another processor due to no real fault of your own – then NMA may be a great option for you.

There are several benefits of using NMA to process your rebills. They include: 

  • Chargeback prevention using Fraud Wrangler. This proprietary AI-powered software forecasts, prevents, and fights chargebacks. You get alerts about transactions that are likely to be chargebacks which gives you a chance to prevent them. Additionally, disputes are automatically refunded. This prevents chargebacks from happening in the first place. This feature is vital in the managed-risk space, as chargebacks are the biggest issue that subscription businesses face. 
  • Merchant ID preservation through real-time information about the status of your account. Fraud Wrangler has a comprehensive dashboard where you can view all your transactions and chargebacks. You will receive status updates and forecasts about your account via email ensuring that you have a clear picture of where your account stands. 
  • Expert support. NMA has been in the subscription and high-risk industries for more than a decade. We will help you grow faster without extra stress because We Work For You®.
  • Customized and cost-effective solutions that are tailor-made to fit your specific business needs. 

Grow Your Subscription Business 

If your merchant account has been closed by your processor, don’t lose hope. With the right plan, NMA can help you process your auto-bills without the fear of transaction laundering. NMA is the merchant account that Works For You®. Reach out to us so that we can help you get back to business.