This article lists and explains some of the more common types of risk inquiries that a sub-merchant may encounter as part of owning a merchant processing account. The list is not exhaustive but is meant to cover the most common occurrences and how those can be resolved favorably.

Commonly encountered risk scenarios

The different scenarios outlined here may result in different types of risk-mitigation actions taken by the Stax Connect team. It’s important to note that not all of these events result in the sub-merchant's ability to process being limited, but each can result in processing being limited or entirely restricted. All Risk scenarios have a 14 calendar-day SLA. If the merchant is experiencing delays for any reason, notify our team immediately to avoid account closures.

It is always the goal of the Stax Connect team to resolve the issue with the help of the Partner and the sub-merchant in the most favorable way possible while protecting all parties involved.

ACH Reject

This occurs when Stax attempts to debit or credit the sub-merchant’s bank account on file but is unsuccessful. The bank will issue a return code (R code) to Stax, briefly explaining why the debit/credit failed. Without a functional bank account on file, it’s impossible for Stax to fulfill its obligation to the sub-merchant, funding their bank account or collecting the necessary fees to keep their processing account open.

Resolution

The sub-merchant can provide correct bank account information, and a voided check or bank verification letter to validate the new information.

Frequent / High Dollar Chargebacks

While chargebacks rarely result in a risk inquiry when isolated, they can lead to an open inquiry if they are frequent or are for very high dollar amounts. A chargeback is when the funds that a sub-merchant has successfully processed are deemed invalid by the cardholder, via the cardholder’s bank. There is a separate article that covers chargebacks in deeper detail.

Resolution

The best resolution for an elevated number of chargebacks is to reduce the number and frequency. A high chargeback frequency is often an indicator of misrepresentation or, worse, fraud. Partners with sub-merchants struggling with chargebacks are highly encouraged to contact their Growth Manager for additional assistance.

Above Average Ticket Processing (High Ticket)

Most businesses will process transactions within a range of dollar amounts. At the upper end of that range is what’s referred to as the “high ticket”. There is a separate article that covers high tickets in much more detail.

When sub-merchants process transactions that are frequently above the high ticket amount, or that greatly exceed the high ticket amount, this may result in a risk inquiry being opened. This is often an indication that something about the business has changed. While that change is typically a positive one (e.g. the business has grown, or has taken on a large customer), this isn’t always the case.

In other cases it can mean the business has begun selling a different product or service, or that it is engaged in unlawful or highly risky behavior. These instances are rare, but a simple risk inquiry will often yield the truth in short order.

It’s important to note that simply processing above the high ticket amount will not necessarily trigger a risk inquiry. Businesses grow and changes happen, sometimes quickly. It’s the frequency and severity of the activity that can be of concern.

Resolution

If the business is or has fundamentally changed, it’s the responsibility of the sub-merchant to notify the Partner about what has been changed, and provide any supporting documentation to validate. The Partner should then pass that information over to the Stax Connect team so that appropriate steps can be taken. If a risk inquiry is opened first, the Stax Connect team will request specific documentation with regard to what’s been observed with guidance on how the sub-merchant can resolve the matter. Sub-merchants should be encouraged to be as transparent and cooperative as possible to ensure a rapid and favorable resolution.

New Account Review

This is one of the most common risk inquiry causes. Some new sub-merchant processing accounts will be reviewed both selectively and at random by the Stax Connect Risk team. This happens after the account has been approved by Underwriting and the account has been activated for processing.

During this review, the risk analyst is looking for any inconsistencies in the sub-merchants application or in the materials they provided that would warrant further review. There can be a wide range of different items that may trigger the inquiry, but often it’s associated with the validity of any documents the sub-merchant provided, and how they relate to each other. For instance, if names on different documents don’t match, or if there are inconsistent dates on the documents that don’t align with expectations.

Resolution

In most cases, new account review inquiries can be favorably resolved with the sub-merchant answering a few clarifying questions. Often there’s an ask for additional documentation to further validate the ones that were previously provided. For example, a utility bill may be requested to verify the sub-merchant’s physical address, or a color copy of the signer’s driver’s license may be requested to prove their identity matches that on the enrollment application.

Frequent Refunds

Similar to chargebacks, refunds happen and are a fixed feature in payment processing. Refunds are meant to protect consumers, and create an avenue for customers and sub-merchants to resolve differences without resorting to chargebacks.

When there is an elevated number of refunds for a merchant, this could be indicative of many of the same issues related to chargebacks. In some cases, sub-merchants will preemptively issue refunds when they believe a chargeback may be imminent. An uptick in the frequency and value of refunds will often trigger a risk inquiry into the sub-merchant’s processing activity.

And while it’s rare, a sudden, massive increase in refunds can empty a sub-merchant’s bank account if the balance cannot cover the volume. This in turn will result in an ACH reject (noted above), which will escalate the severity of the matter.

Resolution

Depending on the severity of the activity, the sub-merchant may only need to provide a written explanation of what occurred and the inquiry can be closed with no further action taken. However, the Stax Connect Risk team may request documents from the sub-merchant to support the refund activity, and to confirm the financials of the business are sound and can withstand the increased volume of refunds. It’s also advisable to have a very clear and plain-language refund policy posted by the sub-merchant to their website, and linked from their invoices.

Elevated Trending Processing Volume

This matter is very similar to the high ticket scenario mentioned above. In this case, the sub-merchant’s processing activity in general is consistently higher than what is expected based on the business type and the volume provided on the enrollment application. For example, if the sub-merchant indicated they process about $10,000 monthly, but they’re actually processing $50,000 monthly, a risk inquiry may be opened.

It should be noted that businesses do grow, and new and larger customers are acquired. A risk inquiry in this case is exploratory, seeking to confirm the cause(s) are positive in nature.

This scenario is very different from the business growing steadily over time. Processing activity is always viewed with as much history taken into context as possible. A business that grows steadily over time should not encounter an inquiry of this nature. However a business that doubles overnight may be flagged for review.

Resolution

Most inquiries of this nature are resolved with a simple written explanation from the sub-merchant about the increase in processed volume. Sometimes the sub-merchant input incorrect information in the enrollment application so the basis for comparison is incorrect. Documentation to support the increased volume may be requested, such as previous bank statements or prior processing statements if available.

Periodic Review

Active and approved sub-merchant’s may be eligible for a periodic review by the Stax Risk team. This periodic review serves to perform a due diligence verification on sub-merchant accounts in which the Stax Risk team would ask for documentation to resolve their inquiry.

Typically funds will not be held in this scenario unless there are concerns about the sub-merchant’s financial health or the sub-merchant is unresponsive. A risk inquiry in this scenario is exploratory, seeking to confirm everything is continuing as expected upon initial approval.

These periodic reviews help sub-merchant’s by confirming Stax has the most updated information on how their business operates and is able to continue protecting against any bad actors.

Resolution

Inquiries in this state can be resolved with the documentation or written details being provided to the Stax Risk team within the 14 (calendar) day SLA window. Once received, the Risk team will evaluate the response and close out the inquiry.

Customer Review

A risk review can be triggered as a preventative measure by the Stax Risk team based on the sub-merchant's online reputation. This review is triggered if Stax's customer review monitoring program sees an uptick in negative customer reviews for our approved and active sub-merchants. Risk tickets based on customer reviews are handled similarly to those tickets opened for increased chargebacks.

Resolution

Most of these inquiries can be resolved with an explanation from the sub-merchant as to why their customers are leaving negative reviews. Based on the findings, it is possible that our RIsk Team may request the merchant provide additional documentation and information.

Risk Inquiry Statuses Explained

The risk inquiry process can best be broken down into various statuses. While each inquiry may not follow the flow of statuses perfectly, this should serve as a general guideline with which sub-merchant expectations can be reliably managed.

Open Inquiry

This is the stage where all risk inquiries begin. An inquiry is first opened to investigate further whatever first triggered the inquiry. Some open inquiries are fully reviewed internally and then escalated, whereas others may first be reviewed internally, and then communicated to the Partner to request additional information or documents from the sub-merchant.

Full Balance Hold (FBH)

An FBH occurs when there is enough perceived risk that it is determined the sub-merchant’s account should be temporarily blocked from additional funding. Transactions may still occur, but those funds will not be deposited into the sub-merchant’s account until the matter has been favorably resolved. Once the FBH is lifted, the funds are immediately released and will be present in the sub-merchant’s account the next business day.

Open High Ticket Request

This status is most often related to the above average ticket processing or elevated trending processing volume cases. In this instance, the sub-merchant’s account is being reviewed for an increase to the expected high ticket amount on file. This is most commonly accomplished with documentation from the merchant supporting the increase such as healthy and growing bank statements, or evidence of new customer acquisition that warrants the increase in billing.

Account Pending Closure

Prior to a sub-merchant’s processing account being closed due to a risk matter, the inquiry will move into a “pending closure” status. It’s during this time that the sub-merchant will need to comply with the information requests or their processing account will be terminated. This status most often occurs because the sub-merchant is either unresponsive to multiple attempts to get more information, or because the information provided isn’t what was requested or fails to support the sub-merchant’s case in the matter. The Stax Connect team will work with the Partner to get the matter resolved in the most favorable way possible, however the health of the ecosystem is of the utmost importance and a failure to cooperate or support any claims will often result in account closure.

Account Termination

If the matter cannot be resolved, the sub-merchant’s processing account will be terminated. In the event this happens, the account cannot be reopened. No exceptions are made to this policy, as the policy is not set by Stax. The sub-merchant can, however, reapply for processing after 30 calendar days have passed. If a new account is approved, it will be an entirely new processing account. Prior activity and history will not be available via the new account.

If the sub-merchant’s account was closed due to fraud, wilful misrepresentation, or any form of illegal activity, the sub-merchant may not reapply for a processing account with Stax. Any such attempts will be rejected by Underwriting at time of application review.