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Merchant Lifecycle

Last Updated: 2025-12-28 Status: Complete

Overview​

Merchant onboarding doesn't end at approval. The merchant lifecycle includes legal agreements, ongoing monitoring, periodic re-verification, and enhanced due diligence when risk indicators surface. This section covers post-approval merchant management.

What You'll Learn​

  • Merchant Agreements - Merchant Processing Agreement (MPA), reserves, rolling reserves, and MATCH list
  • Ongoing Monitoring - Transaction monitoring, re-verification triggers, and enhanced due diligence (EDD)

Why Lifecycle Management Matters​

Merchants change over time:

  • Business Model Evolution - What starts as low-risk may become high-risk
  • Volume Growth - Rapid scaling introduces new risks
  • Ownership Changes - New principals may have different risk profiles
  • Performance Degradation - Chargebacks and fraud can spike unexpectedly

Effective lifecycle management:

  • Detects changes before they become problems
  • Ensures ongoing compliance with regulations
  • Protects sponsor bank relationship
  • Maintains portfolio quality

Lifecycle Stages​

Topics Covered​

Merchant Agreements​

The legal foundation of the merchant relationship:

  • Merchant Processing Agreement (MPA) - Core contract terms
  • Reserves - Risk mitigation through fund holds
  • Rolling Reserves - Percentage-based ongoing holds
  • MATCH List - Terminated Merchant File and reporting obligations

Ongoing Monitoring​

Continuous oversight of merchant activity:

  • Transaction Monitoring - Real-time and batch analysis
  • Re-Verification Triggers - When to request updated information
  • Enhanced Due Diligence - Deep investigation for elevated risk
  • Performance Reviews - Periodic assessment of merchant health

Key Concepts​

Merchant Processing Agreement (MPA)​

The contract that governs the merchant relationship, including:

  • Processing fees and pricing
  • Chargeback liability
  • Reserve requirements
  • Termination conditions
  • Indemnification clauses
  • Data security obligations

Reserves​

Funds held by the acquirer/PayFac to cover potential chargebacks and losses:

  • Upfront Reserve - One-time holdback at onboarding
  • Rolling Reserve - Ongoing percentage hold (e.g., 10% for 180 days)
  • Minimum Reserve - Floor amount regardless of volume
  • Reserve Release - Conditions and timeline for returning funds

MATCH List​

The Member Alert to Control High-Risk Merchants (MATCH), formerly Terminated Merchant File (TMF):

  • Shared database of terminated merchants
  • Reason codes for termination
  • 5-year retention period
  • Inquiry and reporting obligations

Ongoing Monitoring Triggers​

Events that warrant re-verification or EDD:

  • Chargeback ratio exceeds thresholds
  • Fraud alerts or suspicious transactions
  • Volume spikes beyond projections
  • Customer complaints increase
  • Ownership or business model changes
  • Sanctions list additions

Common Challenges​

Balancing Trust and Oversight​

The Dilemma: Merchants resent excessive monitoring; inadequate monitoring creates risk

The Approach: Risk-based monitoring intensity

Reserve Management​

The Challenge: Reserves protect against losses but hurt merchant cash flow

The Solution: Calibrate reserve levels to actual risk, release promptly when safe

MATCH List Reporting​

The Tension: Over-reporting harms merchants unfairly; under-reporting violates network rules

The Standard: Report only when required by reason codes, document thoroughly

Topics in This Section​

TopicDescriptionStatus
Merchant AgreementsMPA terms, reserves, liability, and terminationComplete
Ongoing MonitoringTransaction monitoring, KYC refresh, EDD, and re-underwritingComplete
QuizSelf-assessment with 5 questions covering all topicsComplete

Self-Assessment​

Test your understanding with the Merchant Lifecycle Quiz:

  • Question 28: KYC/KYB re-verification frequency and triggers
  • Question 29: Address change verification procedures
  • Question 30: Chargeback ratio re-underwriting process
  • Question 31: Enhanced Due Diligence (EDD) triggers (10 specific scenarios)
  • Question 32: Business model change risk assessment scenario

Next: Start with Merchant Agreements or jump directly to Ongoing Monitoring.

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