What You Need to Consider When Applying for a Merchant Account
Looking for a Merchant Account can be a challenging subject especially for small businesses who are looking for the first time. Terminology and jargon can often be confusing.
The recent boom in E-Commerce has made it absolutely vital for Merchants to be able to offer their Customers a safe and secure way to purchase Goods and Services online, using their Debit and Credit Cards.
Here are several factors you should consider when you are comparing rates, terms and offers.
1) How will the Customer Pay
What Merchant Account are you looking for – will Customers be purchasing goods on your website in a Card Not Present scenario (this is commonly referred to as E-Commerce) as the Customer is not physically present when the transaction takes place. Another Card Not Present transaction scenario is where a transaction is taken over the telephone and keyed into a Virtual Terminal. This is referred to as a MOTO transaction. Other businesses may need to accept E-Checks or ACH processing.
Other Merchants will also look for third party processing or alternative forms of payment such as an E-Wallet. The most important point is to really consider which payment methods will suit your customers the most appropriately.
2) Processing Volume
Any financial projections have a direct influence on the rates and terms that you will be offered during your search for a Merchant Account. Smaller businesses may be charged high fees due to the size of volume so it is important to find a provider that does not discriminate in this sense and values your business for what it is. You will need to understand how to manage monthly sales volumes, increases and such – and indeed how fluctuations affect your merchant accounts.
It is very important to be aware of the security protocols in place set by the Payment Card Industry (PCI) Data Security Standard, referred to as PCI DSS. Interestingly PCI DSS originally began as five separate programs operated by the different card schemes (Visa Card Information Security Program, MasterCard Site Data Protection, American Express Data Security Operating Policy, Discover Information and Compliance and the JCB Data Security Program). The council was formed on 15th December 2004 in order to ensure that all Merchants meet minimum levels of security when they store, process and transmit Cardholder Data.
Along with PCI-DSS – Merchants should consider Fraud Screening and Scrubbing features provided by their Acquirers, Gateway PSPS or Third Party Merchant Account Providers in order to protect their Businesses from Fraud, Chargebacks and other items. Preferably any package offered would include tools to assist in early identification and indeed prevention of fraud.
Merchant Discount Rates (also known as Processing Fees) are costly and a drain on your resource, there is no way of getting around that. However fees can vary wildly – depending on the sector of business you are in. High Risk Merchant Accounts are often very expensive as the Acquiring Banks have to take into account what is known as the Risk Factor. For example if you are Shipping Goods – there is a Risk of Non or Late Delivery which can then lead to Chargebacks or even non-tangible goods such as online advertising or similar where you can also be at risk of Chargeback. The lower the fee the better for you. It is important to find a transparent provider and ensure you have the facts and figures down in writing before you begin. Ensure you understand all associated rates, fees, transaction fees and any other hidden costs such as Chargeback Costs and additional costs for going into the Chargeback Program, Retrieval Request fees etc.
If the Merchant Account Provider quotes you a price based on tiers – ensure that you ask for a clear breakdown of exactly what this is based on.
A Chargeback is when money is returned to the Customer because something has gone wrong with the transaction. Visa and MasterCard both have different sets of Reason Codes for Chargebacks to cover the reason for the Chargeback – for example Reason Code 30 (Visa) – Services/Merchandise Not Received.
It is very important to provide information and documentation to fight or contest Chargebacks to prove that the cardholder received the services or merchandise – or the information relative to the Reason Code that you receive.
If your Business Model is likely to have a large number of Chargebacks then you are most likely to be classed as a High Risk Merchant. Visa and MasterCard have ratios of Chargebacks acceptable to a Merchant (CNP).
Visa calculate the Chargeback Ratio during the same month, Number/Volume of Chargebacks divided by Transaction Number/Volume and MasterCard calculate Chargebacks based on the previous months Transaction Number/Volume divided by Chargeback Number/Volume.
There are also Chargeback Programs for Merchants with Excessive Chargebacks with associated costs, fees and fines. Merchants with very high Chargebacks could also find their Account Terminated and on the MATCH Program so they need to be taken very seriously.
6) Customer / Technical Support
You need to ensure that the Company you are considering has a dedicated Customer and Technical Support Department and Staff. E-Commerce processing is a 24 hour business, if your Customers cannot make payments on your site then you will be losing money. This is not a 9 to 5 business. Ensure that you have all access to necessary information and technical support to keep your business running smoothly and to be able to resolve any issues that arise as soon as possible.
7) Merchant Account Applications
Applications can often take weeks to go through the Acquiring Banks. Know Your Customer and the Business Model firstly must be taken into consideration. Then the Business Plan and Processing History will be thoroughly reviewed along with other documentation and required items. The Application then goes to Credit and Risk and the underwriting department before you will receive and offer or rejection. It is important to disclose any information during the submission of your application.