In short: Before a new business can sell anything, it has to be able to get paid, and payment laws and rules are a founder's first legal hurdle. Identity checks, processor agreements, card network rules, chargebacks and reserves all exist for good reasons. Together, they can freeze a young business that hasn't done anything wrong. This article maps those rules, shows what the data says and explains the changes I'd push for.
Ask people why new businesses fail and you'll hear the usual answers: not enough money, bad marketing, a weak idea. I think we miss an earlier failure. It's the business that never really got to start, because it couldn't get paid reliably.
What red tape am I talking about?
When I explain the policies I care about, I start with the groundwork: faster payments. First, what does it take for an entrepreneur to get set up to accept payments, and then to accept them at real volume? Second, what does it take to actually start a store and get access to high-demand products? A lot of entrepreneurs can't go out and buy a huge catalog up front. They don't have the capital, and a lot of policy also stands in the way.
I call these the rails of a business. You can have a great product and willing customers. If the money can't move from them to you on time, none of it matters.
Why is getting paid a legal issue at all?
Because every payment passes through a stack of rules, and each layer can stop it.
Layer 1: Identity rules ("know your customer")
Banks and many payment providers must verify who they're doing business with. In the US, FinCEN's Customer Due Diligence rule requires covered financial institutions to identify and verify the beneficial owners of the legal entities that open accounts (FinCEN). That's an important protection against money laundering and fraud. It also means a brand-new company with a new address, a new owner and no history gets extra scrutiny.
Layer 2: The processor agreement
When you sign up with a payment processor, you agree to its terms: what you can sell, how disputes work and when it can hold your money. Most founders never read this contract until something goes wrong.
Layer 3: Card network rules
Card networks set rules for merchants and monitor dispute rates. A business with too many disputes can face added fees, holds or the loss of card acceptance through its processor.
Layer 4: Chargebacks
A chargeback happens when a customer disputes a charge with their card issuer. Even when the seller did nothing wrong, each one takes time, costs a fee and counts against the account's risk profile.
Layer 5: Reserves and holds
To manage risk, processors may hold back part of a seller's revenue, often called a rolling reserve, or pause payouts after unusual activity. For a new business, a sudden spike in sales, which should be good news, can look like risk.
What does the data say about small businesses and money?
Access to funding is a recurring problem, even in the largest economy in the world. In the Federal Reserve's 2026 Report on Employer Firms, based on the 2025 Small Business Credit Survey, 60% of firms applied for financing in the prior 12 months. Of those applicants, 42% received the full amount they sought, 36% received some or most, and 22% received none. The most common reason for seeking financing was to meet operating expenses, at 56% (Federal Reserve Banks).
In other words, more than half of small firms that apply for financing walk away short, and the money is most often needed to keep the doors open. When payments are slow or frozen, that gap gets wider.
The same pattern shows up globally. The World Bank's Business Ready (B-READY) project benchmarks economies on how well their rules and public services support businesses, including business entry and financial services (World Bank). Its first report found that economies generally perform better on writing regulations than on providing the public services that make those regulations work in practice.
What's changing for the better?
Faster payment infrastructure is arriving. The Federal Reserve launched the FedNow Service on July 20, 2023, enabling participating banks and credit unions to send instant payments any time of day, any day of the year (Federal Reserve). In announcing the launch, the Fed said that over time, small businesses should be able to manage cash flow more efficiently without processing delays (Federal Reserve).
Instant rails are a start. They don't solve holds, reserves or onboarding delays on their own, but they show what's possible when payment infrastructure is built for speed.
The other side: why these rules exist
I want to be fair here, because this is a policy argument, not a complaint.
Payment companies carry real risk. If a seller takes payments and doesn't deliver, the processor can end up paying for refunds and disputes. Fraudsters do open new accounts, run up charges and disappear. Identity rules exist because money laundering is real. Some holds prevent genuine harm to customers.
So I'm not arguing against controls. I'm arguing for controls that are:
- Predictable: published criteria, so sellers know what triggers a hold
- Explainable: a specific reason when an account is restricted
- Appealable: a fast path to a human who can review the case
- Proportional: based on the seller's actual sales and delivery record, not only on how new the company is
What would better payment policy look like?
- Clear, published criteria for reviews, holds and reserves.
- Time limits on reviews, so payouts aren't frozen indefinitely.
- Risk models that use real data: delivery confirmations, refund history and customer service records, not just company age.
- Faster appeals with a human on the other end.
- Broader access to instant payment rails for small businesses through their banks.
- Simpler onboarding for low-risk businesses, with stronger checks reserved for higher-risk activity.
The founder playbook: how to get paid with fewer problems
You can't rewrite the rules yourself. You can make yourself much easier to approve and much harder to freeze.
Before you apply
- Form your business entity and get your tax ID first
- Open a business bank account in the company's name
- Make sure your website clearly lists your products, prices, refund policy and contact details
When you apply
- Describe your business accurately. Mismatches between your application and your website trigger reviews
- Tell the processor your expected monthly volume honestly
Once you're live
- Ship quickly and upload tracking for every order
- Use a recognizable billing descriptor so customers don't dispute charges they don't recognize
- Answer customers fast. A quick refund costs less than a chargeback
- Warn your processor before a planned sales spike, like a launch or a holiday promotion
- Keep a second payment option ready in case your primary one pauses
How this fits my work
▸ Where I stand, and where I could be wrong
Faster payments is the first of the five positions I've published in my advisory work on SDG 8 & 9: I want small sellers paid in days, not months. It connects directly to SDG target 8.10, which calls for strengthening the capacity of financial institutions to expand access to banking and financial services for all (UN). To be fair to the other side, payment companies carry real fraud risk, and some holds prevent real harm. My argument isn't to remove controls. It's to make them predictable, explainable and appealable. I'm speaking for myself here, not for the UN or any council.
FAQ: payment laws and small businesses
Why do payment processors hold money from new businesses?
Because they carry the risk of refunds and disputes. New accounts, sudden sales spikes and high dispute rates can trigger holds or reserves.
What is a rolling reserve?
A portion of a seller's revenue that a processor holds for a set period to cover potential refunds and chargebacks.
Do small businesses have to follow "know your customer" rules?
The rules mainly apply to financial institutions, but they affect small businesses when they open bank and payment accounts and have to verify their identity and ownership.
What is FedNow?
The Federal Reserve's instant payment service, launched in July 2023, which lets participating banks and credit unions send payments in seconds, any time.
How can a small business avoid payment holds?
Describe the business accurately when applying, ship quickly with tracking, respond to customers fast and warn the processor before planned sales spikes.
You can't build a business on payments you're not allowed to take.
What is Robert Nikic's view on payment laws?
Robert Nikic's view is that payment access is the first rail every business needs. Strong fraud controls should stay, but they should come with clear criteria, time limits and human appeals so honest small businesses can get paid in days, not months.
This article is general information, not legal or financial advice.
Related reading: Robert Nikic on Business Law and Policy: Build Rails · Robert Nikic on Getting Paid Without a Lawsuit · Robert Nikic on Payment Fraud · Why Small Businesses Can't Get Credit, and What SDG 9.3 Says
