Merchants Caught Up in Risky Business How To: Avoid Risk Holds

Chosen Payments has recently seen an escalation in actions taken by the Risk Management departments of banks that provide funding for merchant transactions. These actions include delays in approving new merchant accounts as well as holding up transaction funds deemed by the bank to be suspicious in nature.

Behind the Scenes

Before we share some tips on how to avoid having your funds delayed, we will provide a brief education about the relationship between Chosen Payments, the funding bank and your Merchant Account. In order to provide overnight funds, Chosen Payments engages with a partner bank (funding bank) that agrees to provide funds to you immediately on behalf of the bank that issued your customer’s credit card. Let’s say your customer uses a Wells Fargo Visa to make a $10,000 purchase. Our funding bank provides the $10,000 into your Merchant Account overnight and then contacts Wells Fargo to ask for reimbursement for the amount they advanced to you. As a result of this relationship, the funding bank owns and manages the risk of every single transaction they process. This is important to note as Chosen Payments has no control over risk holds or delays in funding except to serve as your advocate based upon what we know about you, your business and our history of doing business together with you.

New Merchant Applications

With that knowledge in mind, we submit the application of all new merchants to a funding bank. The funding bank performs an evaluation of your business performed by an Underwriter. Essentially, the funding bank is underwriting a short-term loan to your business. If the customer who made the $10,000 purchase files a dispute with Wells Fargo (they have six months to do so), you must have $10,000 in the bank for the funding bank to recollect those funds and hold until the dispute is resolved. The Underwriter considers the personal credit of a business owner, the balance of business and personal checking accounts, available assets, prior merchant processing experience and many other factors to decide whether to accept you as a merchant or take a pass. The risk and liability are totally upon the bank – not Chosen Payments. The approval process for adding new merchants has become more stringent and is taking a little longer than in the past.

Risky Business Holds

From time to time, merchants will have funds held on a “risk hold”. This happens when another division of the funding bank decides to take a closer look at a transaction. The Merchant Services Risk Monitoring department can flag a transaction for closer inspection for many reasons. The most common risk is caused when a transaction is much larger than your average transaction amount. Chosen Payments can help you avoid unnecessary funding delays by working as your advocate. If you are processing a transaction that is unusually large, contact Chosen Payments before you attempt to process it. We will ask you to provide a copy of the invoice being paid, the cardholder information such as name, phone number and email address. We will forward this to the Risk Management Department to let them know in advance.

Too Many Returns/Refunds

Another red flag can be raised by too many returns or refunds in a short period of time. This can even cause the bank to ask for 90-days to six months of past bank statements to demonstrate you have enough in the bank at all times to cover additional refunds in the future if you start “trending” in refunds.

Need Help?

Chosen Payments is not always notified when one of our merchants has funds held. If you discover that you are missing funds for a particular transaction or batch of transactions, contact your Chosen Payments Account Executive immediately. We will track your funds down and assist you in getting them released as quickly as possible by working together with you.

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