Risks in Merchant Account Sales
Applying for a merchant account is not easy.
Financial institutions, for instance, have incredibly stringent standards when it comes to account applications.
Although third party processors are not as strict, they also employ safeguarding measures.
The reason for these standards is simple: merchant account sales also have their own risks.
This is connected on how the credit card processing procedure works.
When a card transaction is processed, the merchant account provider pays the retailer for the goods or services bought using a credit card.
Despite the verification procedure, however, problems can still occur after the acquirer (or the credit card processor) has already paid the merchant or the retailer.
The problems that could happen after credit card processing constitute merchant account sales risks.
In other words: if a business is susceptible to these risks, no account provider will accept their merchant account application.
But what exactly are these sales risks? The most serious among these risks-at least for the acquirer-is the contingent liability risk.
This happens when the goods or services offered by a merchant falters or defaults; hence, giving the consumers the right for a refund.
For instance, a cable company offers a two-year subscription promo for subscribers who pay using their "plastic", but even before the first year, the cable company seizes the service.
If the transaction is done using cash, the company can simply give subscribers their money back directly, but since the deal was done through card payments, refunds were made by the card provider and the card processor.
Another sales risk is the risk for fraud.
Obviously, this happens when a credit card processing company processes a card that was not authorized for usage by the real owner.
Like the liability risk, the acquirer becomes liable for this problem.
Business need to consider these involved (or probable) sales risks before applying for an account.
Some establishments are more prone to these risks than others, making certain businesses not prime candidates for merchant account applications.
Of course, this can be solved by a solid sales and business history and, for smaller establishments and newly established businesses, third party processors.
Financial institutions, for instance, have incredibly stringent standards when it comes to account applications.
Although third party processors are not as strict, they also employ safeguarding measures.
The reason for these standards is simple: merchant account sales also have their own risks.
This is connected on how the credit card processing procedure works.
When a card transaction is processed, the merchant account provider pays the retailer for the goods or services bought using a credit card.
Despite the verification procedure, however, problems can still occur after the acquirer (or the credit card processor) has already paid the merchant or the retailer.
The problems that could happen after credit card processing constitute merchant account sales risks.
In other words: if a business is susceptible to these risks, no account provider will accept their merchant account application.
But what exactly are these sales risks? The most serious among these risks-at least for the acquirer-is the contingent liability risk.
This happens when the goods or services offered by a merchant falters or defaults; hence, giving the consumers the right for a refund.
For instance, a cable company offers a two-year subscription promo for subscribers who pay using their "plastic", but even before the first year, the cable company seizes the service.
If the transaction is done using cash, the company can simply give subscribers their money back directly, but since the deal was done through card payments, refunds were made by the card provider and the card processor.
Another sales risk is the risk for fraud.
Obviously, this happens when a credit card processing company processes a card that was not authorized for usage by the real owner.
Like the liability risk, the acquirer becomes liable for this problem.
Business need to consider these involved (or probable) sales risks before applying for an account.
Some establishments are more prone to these risks than others, making certain businesses not prime candidates for merchant account applications.
Of course, this can be solved by a solid sales and business history and, for smaller establishments and newly established businesses, third party processors.
