Stripe does not have the same reputation that Paypal has for freezing accounts seemingly at random and without warning, but it’s not completely unheard of to log into your Stripe account and find that you can’t use your funds.
Just because Stripe does this less frequently than does PayPal doesn’t make it any less of a pain in the neck when it happens to you. So this, of course, leads to a fairly obvious question:
How do we prevent that from happening?
There may be instances where you do everything right and Stripe still freezes your account, but these instances do not make up the majority of cases.
So how do you decrease your odds of having your funds frozen?
A big misconception is due to Stripe’s automated onboarding process where any business can sign up, literally, without going through any sort of review or due diligence. This is the main culprit to freezes as a business signs up and is able to accept payments, so they think they are “approved” or “all set” but in reality, this is just because Stripe relies solely on a reactive risk model, which means once you start processing, they start looking at things. This means they review your website, products and services, processing history and more, after you may already be taking payments. If they see the business is selling products or services that are not acceptable, such as e-cig and vape products, or they aren’t comfortable with something else, they will freeze the account.
This is when merchants then realize their business may be deemed “high-risk” and cannot be supported for payment processing by a traditional bank and processor such as Stripe. Some others that are similar include Braintree, Square, Shopify Payments and even some large processors, such as Wells Fargo, First Data, Worldpay, Bank of America, and more, where they approve without a real review then freeze funds after realizing the business isn’t something they actually support.
A big difference is Maverick underwriters initially before on-boarding to ensure if the account is approved, it is a long-term and stable account as there aren’t any surprises prior to going live; essentially a proactive risk model including up-front due diligence and underwriting, versus Stripe’s reactive model.
Your Stripe Account: What Does It Really Need To Know?
One of the first steps to keeping Stripe on your side is to make sure that they know what line of business you’re in. Certain products and services are regarded as more high-risk than others for a variety of reasons, If you run a business in any of these industries, then it stands to reason that once Stripe finds out, they may consider freezing your account.
Some of the businesses that fall into this category include the following:
- Adult entertainment. Adult entertainment brings with it a controversy that not all financial businesses are eager to get involved with. Paypal, in particular, has a history of freezing accounts belonging to people and brands who deal in this kind of content. Smashwords, in particular, had issues with Paypal a few years back relating to the adult-themed material being sold by authors through the service. The brand has since ironed these issues out and struck a deal with Paypal, but smaller brands have had a more difficult time reaching agreements with Paypal and Stripe surrounding the material they deal in.
- Firearms and related products. Firearms, ammo, and other products in this market usually cause issues with mainstream banks and processors. They’re a bit tricky, and even when they’re bought legally, they are still scrutinized. There are cultural and political issues at play, and it’s not difficult to imagine anti-gun groups and federal scrutiny apply pressure to payment processors and others, such as the card brands, which cause “reputational” risk. And of course, the regulatory component coupled with ongoing compliance management is a burden for processors, especially for card-not-present (eCommerce) firearm businesses. It’s just a lot of risk for a payment service to take on, hence, why Stripe strictly prohibits firearm sales.
- Electronic cigarette and vape. E-cig and vape products have become very popular and therefore, there has been a significant increase in businesses popping up in the industry. Due to federal and FDA changes, most traditional banks have stayed clear of these merchants, especially to card-not-present merchants, such as those operating an eCommerce website. eCommerce merchants specifically have additional requirements for compliance and regulatory, which is the main reason Stripe stays clear as the ongoing management can be gruesome.
- Health products and nutraceuticals are yet another product that is seen as higher risk by traditional processors because of the aggressive marketing, not being FDA approved, and that some may experience occasional chargebacks. A lot of these merchants will open an eCommerce website, sign up for Stripe, then a few weeks into processing have issues due to a volume increase causing a review, some cardholder disputes, or even the website may flag.
Again, we have a combination of legal concerns and the potential for scams and fraud and surrounding an industry that the public generally holds in low regard. It’s not uncommon for telemarketing companies to contact people on the no-call list, nor is it uncommon for telemarketers to work with shady clients who will have them using pushy sales tactics and selling faulty products. Your telemarketing service may be focused on white-hat marketing strategies, maybe all you do is help promote political campaigns and charities, but that doesn’t change the way the industry is viewed. Other businesses that processing services may think twice about include online dating sites, ticket sales, and tours.
- Sometimes an industry has a certain reputation, or it’s just too easy to use a certain product or service as a cover for something illegal, or maybe a processor has just been burned by people in that industry one too many times. In any event, the best course of action is to let Stripe know exactly what you’re selling before you waste your time starting an account.They might reject your business as a result, but there are alternatives. It may be more difficult to use those alternatives, and you may wind up signing up for a dozen different payment processors to cover your online firearm business, but it’s better to do a little extra work now than it is to have your account suddenly frozen a year from now right after your best fiscal year ever.
Managing Your Stripe Account: Look At Your Marketing Material
Your marketing material can actually put you in hot water with Stripe. Even if your company is completely legitimate, and not just technically legitimate, but completely, one hundred percent on the level, honest with your partners and clients and customers, straightforward in your marketing, even then, the language or message found in your marketing can get you into trouble with both Stripe and Paypal. They’re looking for the hallmarks of scams and dishonest companies, and they won’t always want to bother with a full investigation or anything like that.
In particular, Stripe and Paypal are looking for language that you’d generally find attached to get rich quick schemes, operations designed to take advantage of would-be entrepreneurs with a few dollars to invest and not a lot of experience with money management. A lot of the terms and phrases attached to these companies are not attached exclusively to scammers, but they tend to work as red flags for payment processors. “Get rich quick” “multi-level marketing” and “timeshare” all raise flags with these processors. Of course, the irony of it is that these scammers tend to alter the language on a regular basis, precisely because companies and the courts regard certain phrases as red flags with these processors. Of course, the irony of it is that these scammers tend to alter the language on a regular basis, precisely because companies and the courts regard certain phrases as red flags.
Technically speaking, it is possible to become a millionaire overnight. If you’re promising a client that you can turn a $900,000 into more than a million dollars with cryptocurrency day trading, you might be telling the truth. But when you say that you can make your clients rich, when you make promises that sound implausible, even if they’re completely sound, even if you can prove that you’ve kept those promises time and again, the language itself is going to create some cause for concern for your payment processor.
Do Your Paperwork
All of the above-mentioned factors will raise red flags, but they might not be, alone, a reason to freeze your account. If you can prove that you run a legitimate business, that you follow the letter and spirit of the law, that you treat your customers, clients, and partners fairly, pay your taxes on time and so on, then Stripe may take a lenient position on the fact that you sell guns or run an online casino. Keeping all of your data, information, and paperwork together is a good way to make sure that, should any questions come up as to the legitimacy of your business, that you have the answers ready at a moments notice.
This means you’re going to want to hang on to and organize all of the following:
- Order forms
- Customer information
- Delivery confirmations
- Tracking numbers
Keep An Eye Out For Suspicious Activity
It may not be that your payment processor doesn’t trust you, but that they have their misgivings about your clients. It’s not unheard of for people to buy big ticket items and then make a false claim of fraudulent activity on their card. Protecting your standing with your processor often means protecting yourself, as well. There are certain things you should be on the lookout for in regards to customer activity. These include the following:
- Suspiciously large orders. Have you ever in your life needed to buy three thousand vape pens at once for personal use? Certain things you expect to be bought in bulk. If you sell ammunition, you’re used to selling hundreds of rounds at a time. But whenever a large order comes through, past whatever threshold you’re generally used to in your line of work, you should take the time to manually check the order. You might want to give the customer a call and see what they have to say. You may find them to be completely on the level and they could have a reasonable explanation for why they placed such an unusual order, but it’s always worth a check.
- Unusual card activity. This could mean, for instance, several small orders placed on a credit card in a short amount of time. This could point to someone having stolen a credit card and attempting to max it out before it’s reported, or someone attempting to create a paper trail for which they can falsify a fraud claim. If you see multiple cards used at the same IP address, this could also lead to stolen identities, with someone sitting at a desk with a handful of stolen cards or numbers and spending as much money as they can before getting shut down.
- Suspicious information. Nobody actually lives at 123 Fake Street, and Cardholder probably isn’t a real last name. If anything weird comes up when looking at new applications and signups, it may be worth investigating.
- Rush orders. Consider a rush order a “soft” red flag. It might not point to anything suspicious, but if it’s attached to a weird bulk order or a questionable customer account, then it may be worth investigating.
The trick to keeping your Stripe account from being frozen generally comes down to earning trust with your payment processor. You might have absolutely no intention of scamming anyone, your customers may generally be on the level, as well, but if you deal in an industry that tends to attract con-artists, scammers, phishers, spam kings, and crooks, then it stands to reason that Stripe will play it safe by freezing your account whenever they see something suspicious.
Being completely transparent with Stripe from the start, letting them know what it is you’re selling, letting them take a look at any information they might need and keep good, comprehensive records on all relevant activity can be a big help to ensuring that your account does not get frozen, and making sure that you will be able to address the issue if your account is frozen.