We’ve all seen that one commercial… “It’s my money, and I want it now!” While the context might be a little different, the sentiment is the same – you’ve earned your money and should be able to process a transaction immediately. So why would a payment processor be holding onto your funds? Let’s take a look at three common reasons:
Risk Assessment
Payment processors commonly hold funds when they are investigating chargebacks or assessing risk to proactively prevent and mitigate fraud and risky transactions. If a customer contacts their bank or credit card company and disputes a purchase, the financial institution has an obligation to fully review all receipts, communications, transaction details and any other materials relevant to the charge. While this process is happening, the payment processor may hold the funds until a resolution is reached. The adage “the customer is always right” may not be as true these days, but due diligence must be done to ensure that the charge is fraudulent. However, if it is, it can still cast doubt on the ability of the business to successfully identify when a stolen card or stolen credentials were used.
Having a high number of customer service issues like the chargebacks mentioned above, requests for refunds, or other complaints (such as lack of customer service) can prompt a payment processor to hang on to your funds longer before releasing them, as they may see business as not delivering the goods or services advertised.
Suspicious Activity
Funds may be held by payment processors when suspicious activity is detected to prevent fraud, money laundering, or unauthorized transactions.
We’ve talked in more detail about some different types of activity that should be monitored in the past (– link to previous blog), but this can include atypical transactions that are higher or lower than average, a high payment velocity within a short period of time, unusual shipping requests, geographic limitations, and more. There is a lot to be suspicious of! With the rising frequency of cyber-attacks, we have had to get a lot smarter about recognizing what is and isn’t normal for our businesses. By extension, the payment processing solutions employed must also be able to spot these red flags too, and seeing something could prompt them to hold funds until they can ensure it is legitimate.
Verification Process
Funds can be held during a verification process to comply with regulations, confirm account legitimacy, and prevent identity theft and fraudulent transactions.
In ecommerce, one of the signs that fraudulent activity may be happening is unusual new customer activity, such as seeing a lot of new accounts created from the same email address or attempts at promotion or coupon fraud from existing accounts who haven’t been active. In cases like these, funds may be held for a certain period to give the customer a chance to report that a fraudulent account was opened, or a charge made.
Is This Legal?
You might be wondering if a payment processor is even allowed to hold funds, and the answer is yes. If you have enlisted a payment processing solution, you signed a contract with them. Within the fine print it should be noted whether they will or will not hold funds, in what scenarios, and for how long. Another consideration is whether your business will still be able to accept new credit card payments if funds from one transaction are currently being held – this would mean that your account was frozen, and not just funds held.
What Can I Do?
Behind the technology of course is still a human element. The machines might be analyzing the data and flagging the transactions, prompting funds to be held. But the more proactive you can be in working with your payment processor, the more streamlined the processing will be. Payment processors love consistency – businesses can usually make projections about future results after collecting some data. If you are anticipating a large increase or decline in profits or have an issue that might result in more disputes or chargebacks than usual, opening that line of communication to your payment processor can help prevent legitimate transactions from being held up.
There are also solutions like Luqra who have technology built into their payment processing capabilities to help with the above issues: assessing risk and potential fraud, managing chargebacks, helping you understand your business activity to identify when something suspicious is happening, and verifying transactions so you can get approval in real time. And we can’t forget about customer service – the more robust and present your customer service team is, the faster you can work with your payment processor to get those funds released and get your hard-earned money.
