.png){kind=small}
Traditional payment processors like PayPal operate under the principle of working with a high volume of low-risk clients, which allows them to make a lot of money without having to keep too close an eye on any individual client relationship. This means they rely heavily on automated account flags, freezes, and shutdowns to keep their risk profile low without a lot of expense on oversight. The problem for clients, though, is that freezes and shutdowns often come suddenly and without warning, leaving merchants scrambling as their ability to make money is stunted.
Fortunately, we have extensive experience showing merchants what to do if their account is shut down by PayPal. It all starts with understanding why accounts get shut down, acting quickly to protect your funds, and securing a payment processor that specializes in your industry's unique challenges and can reliably serve you without unexpected interruptions.
In this guide on protecting your payment processing, we will cover:
- Why PayPal shuts down merchant accounts
- First steps after an account shutdown
- How to get your funds back
- Long-term prevention strategies
- How to pick a more reliable processor
Let’s elaborate a bit to figure out the best next steps for you if your merchant account is shut down by a traditional payment processor like PayPal.
Why PayPal Shuts Down Merchant Accounts
Sudden Transaction Volume Spikes
The most common cause of an account shutdown is when PayPal's automated systems flag accounts for sudden increases in transaction volume. If your business usually processes $30,000 monthly, but peak season comes around and causes it to jump to $150,000 for a month, PayPal's algorithm may interpret this as suspicious activity rather than legitimate growth.
Risky Industry Classification
PayPal, like most payment processors, has a restricted/prohibited industry list that includes mid-to-high-risk industries like telehealth, online gaming, CBD, cryptocurrency, and other emerging sectors. These industries are classified this way based on their higher chargeback and fraud rates, potential reputational risk, and other issues that could present problems for processors.
Businesses often face sudden account freezes or closures when PayPal either decides their industry is "no longer supported" or discovers that they were operating in one of these industries after their account has already been opened, since many traditional processors don’t perform any significant underwriting upfront to confirm compatibility with their services.
This decision is typically final and non-negotiable, leaving terminated clients with little recourse or immediately available solutions.
Chargeback Rates >1%
For traditional payment processors, the general benchmark for merchant chargeback rates is 1%. Merchants with chargeback rates that exceed this benchmark will receive an account flag, a hold on their funds, or a termination of their account, depending on the severity of their chargeback issue. Chargebacks increase costs for both the processor and the merchant, and businesses that routinely experience higher rates of them signal that their industry may be high risk.
MATCH/TMF List
The Member Alert to Control High-Risk (MATCH) and Terminated Merchant File (TMF) lists are databases controlled by Mastercard and Visa, respectively, to designate merchants they see as illegitimate or excessively high risk. Merchants included on these lists face serious consequences. Once listed, they are instantly flagged across all major payment processors for five years, essentially blacklisting them from most payment processors.
Reasons for ending up on the MATCH/TMF lists include:
- Unpaid fees
- Behavior that suggests transaction laundering
- Chargeback rate exceeding 1%
- Selling prohibited products/operating within a prohibited industry
There are a few others, but these are the most common.
First Steps After PayPal Merchant Account Shutdown
Step 1: Comprehensive Documentation
Collect all relevant documentation and evidence surrounding your account closure. Take screenshots of/download:
- Your PayPal dashboard
- All transaction records you have access to
- Any communications between your company and PayPal.
This documentation can not only help you gain access to held funds but can also be helpful when applying for new merchant accounts with other payment processors if they are aware that another provider terminated your account.
Step 2: Contact PayPal Support
Formal requests for reinstatement and clarification on fund release timelines can be the simplest and fastest way to remedy the issues that come with account termination—when they work. It is uncommon that they are successful, but a message to PayPal’s support staff takes very little time. Document all responses for future reference with new processors, regardless of whether or not your account is reinstated or timelines are clarified.
Step 3: Find an Alternative Payment Processor
Most of the time, merchants can’t afford to wait to find out if PayPal will restore their account. The key to maintaining cash flow is understanding exactly what to look for in an alternative payment processor, and acting quickly:
- Rapid onboarding
- Experience with previously-terminated merchants
- Multiple banking relationships for redundancy
- Dedicated account management
Step 4: Keep Stakeholders in the Loop
It is essential to inform your fulfillment team, customer service, and key clients about any disruptions to your payment infrastructure.
How to Get Your Funds Back
Rolling Reserve Release Timeline
PayPal generally holds funds from shut-down accounts for 90-180 days after closure. For accounts with TMF/MATCH categorization or high chargeback rates, holds can be extended indefinitely pending investigation.
When disputing held funds, the following documents may be required:
- Proof of product delivery
- Customer service records
- Refund policies and procedures
- Business registration documents
- Bank statements showing legitimate business operations
Prepare this information ahead of time to improve your odds of getting hold of disputed funds.
Long-Term Prevention Strategies
There are strategies that can help you avoid sudden account closures in the future:
- Work with Multiple Payment Processors: High-volume merchants should maintain relationships with 2-3 processors to avoid overreliance on a single provider
- Specialized Processors: Choose specialized high-risk payment processors that understand your company's unique challenges and advertise support for your industry
- Communicate with Your Processor: Inform your payment processor proactively before major changes like new marketing campaigns, product launches, or seasonal spikes in transactions to avoid catching them off guard with sudden account changes
With all of this said, the best way to avoid having your account closed is to choose a payment processor that supports high-risk and high-volume businesses.
How to Pick a New Processor
Businesses that get their account shut down by PayPal should prioritize payment processors with a high-risk specialization to reduce their risk of unexpected account interruptions in the future.
Unlike PayPal's one-size-fits-all approach, specialist processors offer:
- Upfront, personalized underwriting to assess risk from the outset
- Direct relationships with broad networks of banks
- Dedicated support teams and account managers familiar with your industry
- Flexible reserve and settlement terms that can be customized for your needs
- Advanced features like chargeback and fraud management to reduce processor and merchant risk
As a result, businesses can operate with more confidence and mitigate the unique risk factors of being a high-volume merchant or working in a high-risk industry. More advanced fraud and chargeback management tools also facilitate scaling, reduce payment processing costs, and increase revenue stability.
Account Shut Down by PayPal? Work With SeamlessChex
It's time to get credit card processing and merchant services from a reliable payment processor that respects the way you do business. Account shut down by PayPal? Sign up for your merchant account today or contact a SeamlessChex representative to learn more about our chargeback and fraud management solutions and how we can help your business scale smoothly.
