Stripe has terminated my account and labeled me a high-risk merchant. What now?

Stripe has terminated my account and labeled me a high-risk merchant. What now?

Stripe terminated account

If you are running an online business that accepts online payments, you must have stumbled upon various payment processors like PayPal, Square, or Stripe. These three are probably the most popular online payment brands in the world and the first choice for most startups and new merchants.

Just to get everyone on the same page, Stripe is one of the most popular PSP (Payment Service Providers) in the world offering online payments to merchants worldwide. For years, it has built its reputation as a super friendly and innovative PSP, especially for small merchants and startups. But as Stripe’s base of merchants grew bigger, so did the number of incidents. An increasing number of merchants started receiving emails saying that their accounts and funds have been terminated or frozen without prior warning or an explanation.

The main reason behind it is that many merchants do not realize the hidden costs and risks of using a PSP vs an independent merchant account

Why is Stripe terminating and freezing merchant accounts?

If you are a Stripe merchant with a terminated or frozen account, you have most likely been labeled a “high risk merchant” at some point. PSPs like Stripe use three labels to categorize new merchants during onboarding. 

The first one is pretty obvious and applies to all unauthorized businesses that are refused any processing by default, i.e. adult content and gambling providers. 

The second category is e-commerce merchants which sell physical goods for which delivery verification is possible using various tracking systems. 

The third category is high-risk merchants. The problem with this category is that the rules for labeling merchants as high risk are very vague and in many cases debatable. For example, you may start processing payments with Stripe as a regular merchant and still end up labeled high risk at some point. The probability of being labeled a high-risk industry merchant is much higher when:

You offer digital goods and services for which there is no physical evidence of product or service being delivered. When a customer raises a dispute, it is very difficult for a PSP like Stripe to verify whether the product or service was actually delivered.
You are classified as a high-risk industry. The list of high-risk industries comprises various business models and industries characterized by significantly higher risk of chargebacks and fraud. Even if your chargeback rate is way below average, you still may end up labeled a high risk merchant.
The third influencing factor may be the fact that you are running a global business and accepting payments from different countries rather than selling locally in one country.

Your pre-approved high risk merchant account

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What are the key reasons for payment processors like Stripe and PayPal to drop a merchant?

There are usually two main reasons why payment service providers suspend a merchant.

Chargebacks

Naturally, they want to keep the chargeback level as low as possible to stay on good terms with credit card companies and banks. If a business is known to notoriously generate chargebacks or disputes, it’s a red flag. The PSPs have much to lose, as their relationships with financial institutions are the cornerstone of their business. With this much at stake they’d rather sacrifice their merchants for the greater good.

Financial damage and bad reputation

Chargebacks can escalate into major problems leading to financial damage and bad reputation for the payment provider. Fraudulent merchants, when faced with a large amount of chargebacks, may decide to close their Stripe account and disappear, leaving the PSP to cover the damages. This is one of the reasons why PayPal requires a bank account as a precaution – it’s a way to recover the cost when a merchant closes and the money vanishes into thin air.

What Stripe account termination or freeze looks like from the merchant’s perspective

Let’s take the merchant’s perspective for a while. What exactly is it that has given Stripe its bad reputation among high-risk businesses? For starters, this is how Stripe informs their merchants that there is an issue and account shutdown:

“Hi,

Thanks for signing up with Stripe!

Unfortunately at this time we will need to stop offering service for yourbusiness.com. Currently Stripe can only support users with a low risk of customer disputes. After reviewing your submitted information and website it does seem like your site presents a higher level of risk than we can currently support. Unfortunately we will be unable to accept any additional payments on your behalf.”

It’s an automated message, the same for all terminated merchants. There is no customization, personalization, nor anything that would pinpoint a specific cause of the account freeze. Needless to say, such a message leaves merchants puzzled and wondering what has actually happened. How to fix it and get the system up and running again? On most community forums people will quote high chargeback rates as the main reason, but this is true only for a small percentage of cases. But on the same community forums, merchants report accounts being shut down with zero chargebacks or following only a single fraudulent transaction. 

Stripe’s BBB (Better Business Bureau) reviews confirm the growing frustration of their former merchants. At the time of writing this article there were more than 90 negative reviews with a 1-star rating at BBB.

Many merchants also reported that when trying to receive additional explanation and perhaps bring the account back to life, Stripe’s support remained unresponsive. Although it seems that this might be the case in the past as there is a reaction to every complaint filed on BBB’s site. 

Another group of issues raised by former Stripe merchants is:

Merchants are not sufficiently protected against fraud despite using all the available anti-fraud filters. Scammers are still able to easily submit payments and credit card details. In many cases, merchant account termination happens because PSPs could not provide enough anti-fraud protection, which later led to a lot of chargebacks. 
No chargeback dispute mechanisms – merchants are left with few options once a chargeback happens. When they fall victim to a friendly chargeback fraud, there are no dispute mechanisms in place. 
90-day fund freeze – on top of account termination, all the gathered funds are frozen for 90 days. This is to secure funds for any chargeback disputes that may happen after the account is closed. Not only can’t the merchant process new payments, but all the previous payments are taken hostage.

By the number of ongoing online complaints against Stripe practices, it is hard not to notice the scale of the problem.

(Image Source: https://uk.trustpilot.com/review/stripe.com)

What do you do when your account gets terminated and funds frozen? How to get your business up and running and start accepting online payments as soon as possible? 

Your pre-approved high risk merchant account

Start a setup process in less than 48 hours and reduce chargeback losses. Get competitive rates tailored to your business and volume

Click here to get your FREE quote

How to start accepting payments after Stripe terminates or freezes the account?

Firstly, remember that there are plenty of other payment processors that will gladly accept your business. There are many payment service providers other than PayPal or Stripe. To make sure you never have to go through similar situations again, we recommend that you look for:

High risk merchant account – payment processors that specialize in working with high risk businesses
Dedicated MIDs – provider who can offer you an individual merchant account with your own merchant ID vs. aggregated accounts offered by Stripe and PayPal 
Bulletproof anti-fraud – payment gateway that can protect you against scammers with advanced anti-fraud filters. It is good to look for a vendor with customizable anti-fraud filters supported by anti-fraud scoring and AI-based detection.
Anti-chargeback – payment processor that provides you a chargeback 24/7 monitoring, real-time alerts, and – most importantly – assistance whenever a chargeback dispute happens. The best processors will help battle and win every single, unfair, or fraudulent chargeback dispute.
Global payments – payment processor that accepts international payments and understands the nature of global credit card transactions, and will never penalize you for transactions from other countries
Responsive support – who are you going to call in case of issues with your payment processing? PSPs usually force you to create a customer support ticket or write an email to a general support inbox… and wait for someone to reply. Luckily, there are payment providers which can offer you a dedicated account manager – a person who will respond within minutes in case of an emergency. 

To quickly get your payments up and running after your Stripe account is terminated it’s best to turn to a merchant account provider that works directly with an acquiring bank. This arrangement offers a couple of benefits: banks are more secure in terms of risk and offer more lenient chargeback policies.  

So why don’t all merchants go with a bank processor? The primary reason is convenience. Stripe and PayPal are easier and faster to set up, especially for teams not specialized in payment platform integrations. But the effort pays off, especially if you want to minimize the risk for your business and ensure continuity of your payment processing.

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Marek Juszczyński

Marek Juszczyński

Full-Stack Marketing Expert With a Strong Background in B2B & Conversion Optimization

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