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6 Considerations for a Merchant Account Processing Limits Increase

Posted by Alex Neir on Tue, December 13, 2011 @ 01:21 PM
Merchant Account Processing Limits

The successful approval of any merchant account application is dependent upon the merchant account processing limits that are stipulated within the account application. The merchant account processing limits establish the boundaries for which the account must remain. Processing limits are defined with two account attributes.

  • The monthly processing volume
  • The high ticket or sale amount

Most businesses will estimate these attributes when establishing a merchant account to ensure room for business growth. However, if these attributes are exceeded the processor has the right to hold the excess funds until the overage is investigated and the processor is comfortable.

If your business’s monthly volume and high ticket amount have grown beyond that stated on your application, you can request a merchant account processing limits increase.

The acceptance of a limits increase is subjective so it is important to understand the factors considered for an increase.

  • Business Banking Balance
  • Business Credit Score
  • Business Processing History
  • Recurring Billing
  • Industry and Transaction Method
  • Reason for the Increase

Business Banking Balance – This is the amount of balance you are carrying in your business account from month to month. The underwriting department will want to see a strong balance in the account over the entire month. Not just the beginning and the end. This reassures the bank that if the increased limits result in chargebacks the business has funds available.

Business Credit Score – The credit score for the applicant(s) will always be investigated to ensure the applicant(s) are meeting their financial obligations.

Business Processing History – The business’s processing history will be reviewed to make sure the account has been managed correctly. The underwriting department will look to see if the account has exceeded the processing limits (soft limits) in the past. Chargebacks and refunds will also be looked at to determine how customers are behaving. Clean processing history is extremely important for an increase in processing limits to be approved.

Recurring Billing – Businesses that engage in recurring billing or automated re-billing are subject to higher levels of chargebacks and will undergo more stringent review for a processing limits increase.  

Industry and Transaction Method – Certain industries are considered more risky and will have tighter processing limits to protect the processor for chargeback liability. Additionally the transaction method will be considered when reviewing a processing limit increase. Retail, card present businesses will have an easier time than internet based businesses.

Reason for the Increase – The underwriting department will want and explanation as to why the business is asking for a processing limits increase. Has the business expanded product lines, delivery channels etc.

Business growth is the goal of every business. Excellent business management is the key to growing the limits established by your processor as a protection from liability. If you would like to request a processing limits increase, please contact our friendly staff at (800)917-8026.

Tags: Merchant Account Soft Limit, Merchant Account Processing Limits, Merchant Account Underwriting

Reducing ChargeBacks with Credit Card Best Practices

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

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

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

Why is a merchant account a line of credit?

Posted by Alex Neir on Wed, February 02, 2011 @ 02:44 PM
Why is a merchant account a line of credit

Why is a merchant account a line of credit?

2 Reasons:

  1. The way merchant accounts are underwritten
  2. Charge backs

How is a merchant account underwritten?
When a business applies for a merchant account they indicate the volume (dollars processed via credit card) they would like to be approved for. For our example we’ll use $50,000 a month as the volume being applied for.

The bank/processor underwrites the account much the same way banks underwrite any loan application. A credit risk profile is generated based on the volume requested and ultimately determines whether or not the business is approved for the merchant account.

It can be confusing as to why a “credit” risk profile drives a merchant account approval. After all, the business is collecting funds directly from the customer who purchases good and services with their credit card. Credit risk is between the credit card issuer and customer. Why is the business scrutinized for credit liability for the customer’s use of a credit card? In order to answer this question it’s important to understand the concept of a charge back.

What is a charge back?
A charge back occurs when a customer contacts their credit card issuer and disputes a charge on their statement. When this occurs the card issuer refunds the money to the customer and then investigates the claim to determine if the customer deserves to keep their money. All customers have the ability to institute a charge back on any credit card and on any purchase that has occurred over the previous 18 months.

Now, let’s relate this back to application for $50,000 a month in processing volume and why the merchant account is a line of credit. When the business is approved for the merchant account they have the ability to collect $50,000 a month in credit card payments from their customers. Funds collected from customers are typically deposited the next day into the businesses bank account. So at the end of the month the business has collected $50,000.

Now, worst case scenario, all customers charge back the following month. The bank refunds the money to the customers and is on the hook for that money until the investigation completes. At that point if the customers “win” the bank must recoup the funds from the business. The $50,000 becomes a line of credit extended to the business on behalf of the bank.

So in conclusion, a merchant account is a line of credit because of the credit liability associated with possible charge backs.

If you would like help opening a merchant account please contact our friendly and helpful staff at (800)917-8026.

Tags: Why Is A Merchant Account A Line Of Credit, Merchant Account Underwriting, Chargebacks