What should online business owners do when their bank closes rendering their merchant account is no longer functional
On a regular October Monday, a note on the front door of a Maltese bank said the branch was temporarily closed for “internal staff meetings”. The customers who waited outside trying to access to their accounts at the Sata Bank were only informed by an official notice posted on the bank’s website that their bank had been closed by the Malta Financial Services Authority. Just like that, merchants whose business had relied on routing payments including issuing refunds to customers, retrieving revenue and managing future chargebacks were left in limbo.
Once acquiring banks close, there isn’t very much that its customers, including merchants, can do. Financial authorities close failed banks without any advance notice, so by the time business owners are informed that their merchant account will be closed it is imperative to get another merchant bank account as quickly as possible.
The are no shortcuts, no guarantees, yet it can be done fairly fast. Ideally, the new acquiring bank should not carry the same risks as the previous one. But let’s address the bank failure aftermath one step at a time.
What is a bank failure?
A bank failure is when a bank is closed by a regulatory agency. Usually, this happens when a bank is unable to meet its obligations, so the regulatory agency immediately and without warning steps in to assume the task of selling and collecting the assets of the failed bank and administering its debt. The financial authorities then notify each account holder in writing using the address on record with the bank, promising to provide customer support for urgent payments, meaning all transaction approvals from then on are at their discretion.
For merchants, this means that their accounts at the acquiring bank are in effect “frozen” from use for business purposes. It is still possible – at some point – to recover the standard insurance amount within each ownership category, meaning even if several merchant IDs are open with the bank they will be counted as one ownership category. However, from the moment a bank is declared failed, businesses need to quickly switch to an alternative merchant account ASAP.
Mistakes to avoid when looking for new acquiring banks
First, don’t panic. The last thing merchants should do is seek advice from anonymous users on the internet forums, then use a cut-rate incorporation service that doesn’t understand their business, followed by the first search result for merchant bank account application support.
Another mistake merchants should try to avoid is chasing after the same offshore banks in jurisdictions that have had similar problems. Offshore merchant accounts may seem perfect due to the possibility of opening them remotely and clearing compliance procedures with fewer hurdles, but while such institutions may seem to be far easier to deal with, in many cases you get exactly what you pay for: a temporary solution with high chances of bank failure and a constant possibility of sudden policy change.
While looking for a quick solution, a lot of the pitfalls with opening new merchant accounts revolve around:
• corporate structure and legal strategies not being aligned for optimal taxation while staying tax compliant;
• fast and easy approval that results in very high transaction processing fees;
• additional hidden account costs such as annual account maintenance, monthly service fees, paid support plans;
• low technical proficiency and slow integration support response resulting in transaction routing bugs;
• excessive payouts bureaucracy and fees.
Of course, all of the above traps are easier to avoid when more time for research is available, so researching and testing new merchant IDs (MIDs) should be a recurring task for every online business owner, whether their current acquiring banks are seen as reliable or risky.
What to look for in a new merchant acquirer
Because it so imperative for merchants with a terminated account to sign up with new acquirers to resume business it can be tempting to cut corners, but it’s a good idea to keep in mind a few important criteria when shopping around for new providers.
A diverse, global bank network
Just like with investing, the key to a balanced online business strategy is diversification, meaning having at least two good bank accounts. “Good bank” in this instance would be a bank from within the region where the online business generates a lion’s share of its revenues. It is a myth that only offshore banks work with online businesses, and good payment providers should be able to offer multiple bank application submission services within relevant jurisdictions in Tier 1 countries.
Payment service providers often advertise expensive bank partner networks, but only those banks that work with merchant industry vertical are realistically relevant. Some payment service providers specifically list the industries they refuse to work with – these are typically high-risk, as defined by Visa and Mastercard – while others specialise in serving niche industry needs.
While merchants rarely need Big 4 or boutique tax consultants to structure their business, it helps if service providers have experience with matching business registration and bank jurisdictions that offer higher chances of new bank application being accepted.
Submitting multiple online tickets for each question from a different subject area (KYC compliance, account applications, tech support, etc.) is probably the last thing a merchant with pressing business critical situation on hand would be willing to do. Providers offering live dedicated voice and chat support are probably a better fit for resolving complex issues as soon as they come up in real time.
Targeted risk management and fraud prevention
The ability to manage payment risk acceptance levels with thresholds and minimizing new account risk levels are probably just as important for merchants, as having a new processing agreement terminated produces even more hurdles and has further negative long-term consequences on how a business operates. This is why it is a good idea to protect any new bank relationship with the help of a risk management and fraud prevention solution that will help rebuild merchant history without generating excessive chargeback ratios.
The above are the criteria that are more or less applicable to most online businesses, and there can be more or fewer of, given the unique nature of each business.
This is a promotional post written by Maxpay.
Maxpay is an international payment service provider for online business owners. Since 2013 Maxpay has been offering payments solutions for online merchants, with merchant bank account approval support, easy website integration, multi-merchant account dashboard, subscription billing, affiliate marketing, industry-specific risk and fraud intelligence. Maxpay allows accepting payments in 130 currencies, counts 32 bank partners within its network and serves customers in 50+ jurisdictions. Maxpay’s strengths are combining superb live customer service in 5 languages with international business expertise, legal insights, risk management and fraud protection to help start and restart online businesses in a matter of days.