Why Banks Watch Payment Processors

Your merchant account sits inside someone else's bank relationship. When that bank gets nervous, the nerves roll downhill to you.

Who the advisory is about

FinCEN's advisory says third-party payment processors are financial institution customers that provide payment processing services to merchants and other businesses. It says payment processors use their own deposit accounts at a financial institution to process transactions.

So the bank sees the processor, and the processor sees you.

Why some merchants look riskier

In FinCEN's words, processors that serve phone and online sellers can look riskier to their bank. The same advisory points to online gaming among the merchants they now handle.

If you sell online or by phone, you are already in the group the bank watches harder. Phone sellers also answer to the FTC on billing authorization.

The signs a bank looks for

FinCEN lists patterns in the processor's own banking:

• Payment processors engaged in suspicious activity often maintain accounts at more than one financial institution.
• Some payment processors use separate deposit accounts for returned check items to make return and error rates harder to identify.
• Consolidation accounts can be used by payment processors to conceal high return or chargeback rates from originating financial institutions and regulators.

The advisory says this account structure severely inhibits a financial institution's ability to monitor and report suspicious activity.

What the bank checks

FinCEN's advisory says financial institutions should determine during due diligence whether payment processors have obtained all necessary state licenses, registrations, and approvals.

Where you come in

Your return and chargeback numbers are part of what the bank sees through the processor. Clean numbers keep the processor's bank calm. When a processor asks you for more paperwork than you expected, this advisory is often the reason.