Why do merchant account providers impose volume limits?

Volume limits can be a merchant's single worst nightmare. This article discusses why these limits exist.

Volume limits protect the underwriter of the transaction. As a merchant, you receive money when a customer makes a purchase, but the underwriter is responsible for it. If the merchant has a large number of chargebacks and has insufficient funds to cover them, the underwriter will have to repay the issuing bank (the cardholder’s bank). Because of this risk, the underwriter will analyze a merchant’s typical monthly volume and average ticket price and use this information to detect suspicious account activity. The underwriter will also place a monthly limit on the merchant’s credit card processing as a safeguard against fraud. The underwriter will take into account your business and personal credit history, product or service category (high risk categories include adult, gambling and pharmaceutical), and how long you’ve been in business.

Anytime you exceed the volume limit that they have for you, they can freeze your funds and stop processing transactions. I know of businesses that’ve run into this problem and it can be a nightmare. It can damage the reputation of your company and result in a loss of sales. You may not be able to get another merchant account after you’ve had your account frozen.