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Reducing ChargeBacks with Credit Card Best Practices

Posted by Alex Neir on Thu, September 08, 2011 @ 12:21 PM
Chargebacks

Reducing ChargeBacks with Credit Card Best Practices

Chargebacks are an inevitable business dealing when it comes to businesses accepting credit card payments. It almost always consists of a client saying that he/she did not obtain items for which they paid. Reducing chargebacks can save a business time and money by implementing certain guidelines:

  • Businesses should make sure that there is a refund/cancellation policy in place that ensures that the buyer has to agree before buying a product or service.
  • A business should tell their buyers what name to expect to show up on their credit card statements. This could prevent not only this chargeback but also other down the line.
  • Collecting CVV2 numbers during payment will help to reduce chargebacks because it will ensure that the person doing the buying has the actual card there in front of them.
  • The use of an AVS, or, Address Verification service will allow businesses to further authenticate the validity of the cardholder.
  • Businesses should make known to their customers the increased threat of fraud from developing nations. These nations and their practices are the cause of most chargebacks being contested.
  • Businesses should also provide an excellent form of buyer support. Almost all disputed charges will be because of a poor, uneducated customer encounter. If the business supplies their consumers with high quality expertise and value, then the probabilities and risks of having a charge being disputed minimizes greatly.

Unless businesses continue to provide education and support to their consumers, charge-offs will continue to rise. The only deterrence is to provide an excellent source of customer service and ensure that the consumers themselves are prepared going into any purchase they make.

Tags: High Risk Merchant Account, Merchant Account Underwriting, Chargebacks

Merchant Account Funding Delays - Explained

Posted by Alex Neir on Tue, June 14, 2011 @ 07:04 AM
Merchant Account Funding Delay

Merchant Account Funding Delays - Explained

A merchant account funding delay is the result of the merchant service provider holding funds that would normally be deposited into the businesses bank account. Typically the delay is the result of a temporary hold of funds due to exceeding the soft limits on the account or to reduce the risk associated with a particular business.

Merchant account funding delay due to exceeding account soft limits

When a business signs up for a merchant account part of the application asks for estimates on the total dollar amount to be processed each month, the average sale amount and the high sale amount. Each of these figures represents a soft processing limit for the merchant account. It is very important to give accurate estimates for these figures when you set up the account. The reason, your processor reserves the right to hold funds that exceed any of the processing soft limits on the account.

If a funding delay is implemented, the reason is the result of increased risk associated with the account. When a merchant account application is reviewed for approval by the credit card processor the criteria for an approval involves the evaluation of the information provided on the application. The processing volume, average sale and high sale amounts provided on the application are weighted heavily when the application is approved. If these limits are exceeded the risk profile for the business changes and the processor will hold funds. For example lets say a business is approved for an account with a monthly processing volume of $30,000, an average sale amount of $100 and a high sale amount of $1000. If the business runs a single transaction for $3,000 in a given month the high sale amount has been exceeded and the processor may hold the entire $3,000. Now, this hold will not be permanent as the processor my require additional authorization from the customer in order to complete the deposit. Another example is if the $30,000 monthly processing limit is exceeded. Any amount above the limit is subject to a hold.

It is good practice to remain within the limits of the account. If, however, you need to exceed the soft limits on the account, it often works to preemptively call into your processor and explain the situation for exceeding your limits. Most processors will see this as good management and allow for an excess amount to be run.

Merchant account funding delay to reduce the risk of a particular business type

This type of merchant account funding delay is usually called a reserve or rolling reserve. A reserve will be placed on an account if the account is perceived to be high risk. Typically for these types of accounts the reserve will be disclosed up front and will be a condition for approval. The reserve amount will specified in an addendum to the merchant agreement. Each month a percentage of the total sales volume will be held until the reserve amount is fully funded. Once the reserve amount is fully funded all remaining funds will be deposited in the business bank account. 

Tags: High Risk Merchant Account, Merchant Account Funding Delay, Rolling Reserve

High risk merchant account - explained

Posted by Alex Neir on Mon, June 06, 2011 @ 03:37 PM
High Risk Merchant Account

High risk merchant account - explained

So what is it that causes a merchant account to be considered high risk? A common question and while the answer may seems straight forward it’s actually a little more involved than you may think. Every merchant service provider will have underwriters with slightly different guidelines for business classification. That being said below is a list of the most common criteria that is evaluated to determine the “riskiness” of a business. 

Level of Chargebacks

A chargeback is when a customer calls their credit card issuing bank to complain about a charge on their statement. The level of chargeback’s for the business must be either, less than 1% of the total sales for the month and/or less that 100 chargeback occurrences. If either level is breached the business will be considered high risk.

Instances of Credit Card Fraud

Certain business types and industries have a higher level of fraud and fraud attempts. Industries such as on-line betting have high fraud instances and are classified as high risk. Additionally, it’s possible for a business to be approved as a low risk business only to have there account re-classified later if fraud attempts are not managed according to the guidelines outlined in the merchant service contract.   

Product or Service Paid in Advance

If your business provides future dated products or services in which the customer must pay in advance, this business model is usually classified as high risk. It has been documented that this business model increases the occurrence of chargeback’s and therefore creates more risk for the processor. Air travel, subscription services and membership services typically fall into this category.

Target Market Location

Any business with a target market located outside of the United States will be considered high risk. When processing international credit card payments it is difficult for a domestic merchant account to perform an address lookup for the credit card being charged. The address lookup is a basic fraud prevention measure. Without the ability to perform address lookups the business account will be classified as high risk.  

Sales Acquisition

The manner in which a business acquires sales and leads will be considered when classifying the business. Businesses that use aggressive sales tactics, over exaggerate results, use outbound telemarketing, multi-level marketing or fulfillment through a third party will be considered high risk.

Sales Transaction

Merchant account classifications will always take into consideration how the business intends to accept credit cards. Any business that is not swiping the customer’s credit card through a terminal will undergo more scrutiny. Additionally, any home based internet business will be classified as high risk.

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Tags: High Risk Merchant Account, Merchant Account Underwriting, Chargebacks

Do you need a high risk merchant account?

Posted by Alex Neir on Fri, January 07, 2011 @ 03:27 PM
High Risk Mercahnt Account

Do you need a high risk merchant account?

Selecting a merchant service provider for your high risk business is an important decision. It is very important to do a little homework on the merchant service provider you would like to use before submitting an application. Most merchants, high risk or not, don’t realize that by submitting multiple applications with many different credit card processors you are actually raising red flags associated with your business.

All merchant service providers (MSP), independent sales offices (ISO), member banks, credit unions, etc, use the same database to research businesses that are looking for credit card processing. If a number of applications for the same business name come into the system all at once, the application is typically rejected before it is even evaluated. Rejection is due to the fact that most underwriters will assume that the business has been shut down by a previous provider, can’t get a new account and are trying every provider possible. This is assumed regardless of the real situation.

What else can be done to increase the chances of an accepted high risk merchant account?

  1. Be honest about the nature of the products you sell and the services you provide. Full disclosure of your business is necessary to determine the best processor for your industry. Incorrect placement results in a declined account and all declined accounts end up in the master merchant database.
  2. Make sure that your business terms and conditions are clearly stated on your website check out page. Make sure your customers know what they are purchasing and what to expect if there is a re-bill.
  3. Offer more than one option for purchasing products and services. Give your customers the option to purchase everything up front in addition to a monthly re-bill.
  4. Maintain a cash reserve for the business. A large cash reserve demonstrates a healthy business and alleviates the sponsor bank's concerns about the potential for charge back liability.
  5. Keep your charge backs under 1%. If your charge back ratio (total amount charged back / total volume processed) exceeds 1% it will be very difficult, if not impossible, to get an approved merchant account. If you are able to get approved expect a large rolling reserve to be associated with the account.
  6. Include your customer service number as part of the line item description of your products on your customer’s credit card statement. This will help decrease chargebacks.

Regardless of your business type, selecting a merchant service provider that understands the high risk merchant account landscape increases your ability to get approved.

Tags: High Risk Merchant Account, Merchant Account, Chargebacks