Freezing of merchant accounts

The account your business relies on can be frozen at any time

Published June 14, 2019Updated May 7, 2021

Considering that the project operates with minimum margins, just having most of its assets frozen for an unknown amount of time would be disastrous.

This chapter continues on the same idea as the previous one, but we’ll view the issue from another angle. Instead of focusing on getting permission to accept payments at all, we’ll focus on the problem that accounts can be frozen at any time, for arbitrary reasons. This isn’t a problem with cryptocurrencies, as they cannot be frozen.

Freezing funds, not just payments

Imagine coming in to work one day and having this conversion with your boss:

I’m sorry John, but we’ll pay you in 6 months.
What?
Don’t worry, you’ll still get your full salary, but we’ll pay it in 6 months.
But why?
You apparently didn’t put one of the new coversheets on your TPS reports.”
TPS reports…??

Don’t worry if you don’t know what a TPS report is, the point is you got your salary frozen for 6 months for an arbitrary and unknown reason.

Now imagine the consequences.

Would you be able to pay your rent? Buy food for yourself and your kids? Repair your fridge if it breaks? Given that only 39% of Americans have enough savings to cover a $1,000 emergency you should be glad if you can honestly answer yes to these questions. Many would panic if their salary was just a little bit late, let alone half a year.

Yet, this has played out again and again for businesses all over the world who have gotten their account frozen for an unknown amount of time for arbitrary or unknown reasons. Actually, let me take that back. What happens is actually much worse—businesses also get funds frozen. It’s like if your employer would freeze your credit card, your savings account and hold off your salary.

Imagine what you would do now, without a salary and without your savings…

Confiscating future payments

Just to be a little gratuitous and to drive home my point on how bad this can be—it doesn’t end there. When PayPal freezes your account, they don’t block incoming payments. People can continue paying for stuff, but you’re not getting their money and you still have to give them the stuff they’ve paid for.

There’s over 600000 euro in there. Money I was planning on investing in the new company.

[…]

I withdraw everything from paypal every week. They limited my account just as sales started spiking, so this money has accumulated since they limited the account.

They didn’t just freeze the account, they’re making it worse by confiscating future payments as well!

Small businesses & projects may be ruined

If you run a very popular business like Minecraft, you’ll probably get through without much issue. You’re already making enough money to cover expenses and the attention in news and social media will make sure the issue gets resolved quickly.

But what happens if you run a small business? If your startup gets their account frozen, with no new money coming in? Obviously, you’ll be in a world of hurt. Maybe you’ll take a hit and survive but it could also kill your business.

What about the Neo900 project I quoted at the start of this chapter? They missed a bunch of supplier deadlines, and the project is still crawling along—but as a shell of what it once was. It was indeed a disaster.

Other examples

If you search for it online, there are thousands of stories like these. Here’s a few examples to get the curious started:

Some of these had a happy ending but others did not.

Money under your mattress

With cryptocurrencies, you can accept digital payments that go directly into a wallet that you—and you alone—control. Then, it’s impossible to get your cryptocurrency account frozen; it’s really like storing them under your own (digital) mattress.

This of course requires that you use a wallet that holds the coins itself, and not a custodial wallet—which a third-party manages for you. It’s why so much emphasis is placed on controlling your own keys, otherwise you won’t get all benefits.

I’m not advocating either way; just realize there are trade-offs with controlling your own keys or not. If you want the ease of use of a custodial wallet, then you’ll sacrifice control of your account.

With cryptocurrencies, at least you have a choice and a possibility to avoid your account getting arbitrarily frozen.