Why your credit card processor may drop you without warning

The other day I received an urgent email from a client telling me that PayPal Pro just froze her account without any warning. They said she was in ‘violation of their acceptable use policy’ and gave her no choice but to find another payment gateway.  In the meantime, her customers could not pay via credit card on her site, which of course cost her sales.  Setting up a new payment gateway isn’t usually a quick process, so it took almost a week to get the matter resolved.  You can imagine what kind of impact that had on her sales, and how much money it cost her.

She runs a legitimate business selling bath and body products, so I started doing some research on the topic to see exactly what is going on.  It turns out, this has happened to quite a number of businesses recently, many of them using Stripe as their payment gateway.  The issue seems to stem from products being deemed ‘pseudo pharmaceuticals’ by the payment gateway.

Per Stripe’s ‘Prohibited Businesses‘ page:

 

Pseudo Pharaceuticals:

Pharmaceuticals and other products that make health claims that have not been approved or verified by the applicable local and/or national regulatory body

 

So essentially, this classification could apply to any business selling skin care, makeup, acne treatments, or just about any bath and body product that claims to improve someones skin/appearance/life without having proof.  Who provides this proof is unclear – is is the FDA?  If so, this really throws a wrench in the works for small business who can’t afford to go through FDA approval.

If the products you are selling could be classified as a pseudo pharmaceutical, I would strongly suggest having a backup payment gateway ready to go. Right now I have only seen Stripe and PayPal drop customers, but I would also suggest reading your gateway’s terms of service and see what their policies are on these types of products. Here are some of the more popular alternate gateways. Take a look at their pricing/terms and see if you can get pre-approved.  Don’t activate it unless you need it, as you’ll need to pay the monthly fee:

 

Authorize.net

Orbital (Chase)

USAePay

Braintree (a PayPal Company)

First Data

 

Hopefully nothing you sell will be classified as a pseudo pharmaceutical, but it always pays to have a backup plan! This may be a good time to look at alternate payment gateways anyway, as you can sometimes save a lot of money in fees by switching. Always negotiate as well, as you don’t always have to pay the top rate, especially if you have a high volume of transactions.

Questions? Feel free to contact us.