Nuvei Case Highlights Chargeback Risks in Merchant Approval Process

High chargeback rates often signal potential fraud or customer dissatisfaction

Federal regulators are examining how payment processors evaluate merchants before granting card acceptance privileges, with chargeback history emerging as a key factor in approval decisions. The Federal Trade Commission has signaled increased scrutiny of underwriting practices following two recent cases that link ownership ties, prior processing relationships, and dispute patterns to merchant eligibility. Industry data suggests these factors are increasingly shaping access to payment networks for businesses seeking to process credit and debit card transactions. The FTC’s focus stems from concerns that opaque approval criteria may disadvantage certain merchants while enabling others with problematic histories to gain access through loopholes in vetting procedures. Payment processors like Nuvei typically assess risk by reviewing a merchant’s financial stability, business model, and past chargeback ratios — instances where customers dispute transactions and request refunds through their banks.

High chargeback rates often signal potential fraud or customer dissatisfaction, prompting processors to impose stricter terms or deny service altogether. PYMNTS Intelligence data indicates that merchants with prior processing relationships face different evaluation standards than new applicants, creating inconsistencies in how risk is measured across the industry. How Chargeback Histories Shape Access to Payment Systems Chargeback history functions as a critical red flag during merchant onboarding, directly influencing whether a processor approves or restricts an account. When a business accumulates excessive disputes, it not only faces higher fees but may also be placed on monitoring programs that limit transaction volumes or require reserve holdings. In some cases, processors terminate relationships entirely to avoid liability under card network rules. The FTC’s review aims to determine whether current practices unfairly penalize businesses attempting to improve their dispute resolution or whether they adequately protect consumers from repeat offenders.

Regulators are particularly interested in whether ownership structures obscure true risk profiles

Regulators are particularly interested in whether ownership structures obscure true risk profiles, allowing high-risk merchants to re-enter the system under new entities. What Criteria Should Define Fair Merchant Access? Industry experts argue that transparent, standardized benchmarks are needed to balance risk mitigation with equitable access to payment services. While processors must manage exposure to fraud and financial loss, overly rigid criteria could exclude legitimate businesses rebuilding their reputations after past issues. The FTC’s inquiry may lead to clearer guidelines on how chargeback thresholds, ownership disclosures, and prior relationships are weighed during underwriting. Any outcome could reshape how acquiring banks and payment gateways evaluate applicants, potentially introducing new documentation requirements or appeal processes for denied merchants. Stakeholders warn that without reform, inconsistencies in approval standards may persist, creating uneven playing fields in the digital commerce ecosystem. Frequently Asked Questions What role do chargebacks play in merchant approval?

Chargebacks indicate transaction disputes and potential fraud, prompting processors to assess risk levels and may result in higher fees, account restrictions, or termination if thresholds are exceeded. How do prior processing relationships affect new applications? Merchants with previous accounts may face different scrutiny than new applicants, as processors consider historical behavior alongside current financials when evaluating risk. Could FTC review lead to changes in underwriting practices? Yes, the investigation may prompt standardized criteria for assessing ownership, chargeback history, and prior relationships to ensure fair and transparent access to card payment systems.