Choosing a Merchant Account Provider

Rick Henkin

On the surface it seems that choosing a merchant account provider (so that you can accept electronic payments online) is just a matter of deciding which company has the lowest discount rates. The reality is that there's a lot more to consider than just that.

Understanding the Merchant Account Provider's (MAP) viewpoint

The MAP takes on a lot of risk. The agreement is that you, as the merchant, will fulfill and deliver whatever it is you are charging your customer's credit card for. The risk to the MAP is that if you don't fulfill what you are charging the card for, the card holder will request a chargeback (he will dispute the charges). If the card holder wins, and you are financially unable to honor the chargeback, the MAP is ultimately responsible. Under Visa and Mastercard rules, the MAP is 100% responsible for all of your transactions. Multiply this by the total number of merchants they may be working with and the potential for liability is enormous.

This is the reason that when you apply for a merchant account, the MAP will run your personal credit report, look at your FICO scores and look to see if you own any real estate or other assets. They are looking for stability and payment history. This also has a direct effect on the discount rates you are charged and whether or not there will be a reserve on the account. (Quick note- chargebacks should be not confused with refunds where the merchant is simply refunding the transaction).

Other factors the MAP considers are the amount of expected monthly sales volume, stated refund policies, whether or not the customer is paying now for future services such as a subscription, and the MAP's history with your industry.

Understanding the Merchant's viewpoint

As the merchant, you want to give up as small a percentage of your sales as possible. More importantly, though, you want to make sure that you receive the funds from the sales as quickly as possible. Typically, funds arrive 2-4 days after the transaction, but the MAP may request a hold back or a reserve.

A reserve is a percentage of each sale that's held in escrow (it's your money) for a stated period of time before it's released to you. This is to protect the MAP in case of chargebacks or fraud. For example, if you have a 25% 180 day rolling reserve and you typically do $100K/mo. in sales, it would take until the 7th month before you'd receive the $25K from the 1st month. The reserve percentage can be negotiated once you've established a history with the MAP. In the meantime, If your account has a reserve on it and you have affiliate partners, it could cause you a lot of trouble if you don't have the funds available to pay commissions.

Another critical item for merchants is technical support. Sometimes, glitches just happen on the Internet or you might have a transaction that's not going through and you need help. Having 24/7 tech support is extremely important as is a very supportive customer centric support staff.

How do I reconcile the 2 viewpoints?

Communicate.

Your MAP is comprised of people. Get to know the important ones, like the risk department personnel, not customer service. Tell them what you're doing, ask for their advice. It's really all about personal relationships. Even though you'll probably never meet these people in person, you can still establish a relationship with them via telephone. Try to be on a 1st name basis with the risk department or underwriting department.

Find a MAP with in-house risk and liability.

On the Internet, there are a lot of 3rd party providers who don't do any of their own risk or liability processing. The term for them is Independent Sales Organization (ISO). Try to find a company that has it's own risk and liability department.

Strengthen your refund policy.

Return and Refund policy exposure is important to your MAP and should be important to you as well. If you have a year long return policy and do $100K/mo. in sales, the potential for returns is huge. Same thing applies to a guarantee. You need to find that happy medium between offering an incredible return/guarantee policy meant to encourage sales and one that your MAP can live with. Make sure your sales/order page has the refund policy clearly written on it or a link to it.

Make your contact information easy to find.

Your complete contact information- name, address, email, and customer service phone number should be prominently displayed at the bottom of your web pages. At the least there should a link and the full information should be displayed on the sales/order page. That not only helps your MAP, but it helps your customers as well.

Find a MAP that understands Internet sales

You also want to find a MAP that understands Internet sales. You might launch a new product or service that spikes your sales for a few days or a couple of weeks. This is even more likely to happen with joint venture partners.

A lot of the MAPs, especially if they are brick and mortar banking institutions, may not understand how you can go from $25K in sales per month to over $100K in a couple of days. To them, it's a red flag. They're concerned about fraud and their liability. They may not really comprehend Internet marketing and find it hard to take your projected numbers seriously.

Sell high quality products with real perceived value.

A high quality product is a big factor with your MAP. The higher the price, the better quality it needs to be. Physical products are one thing and you're not allowed to charge the customer's card until the product is going out. Future service products like subscriptions or online training are another thing and represent a real area of concern for the MAP. The best way to deal with this is to communicate with the risk department and let them see what the customer will be receiving in return for their money.

Call your MAP ahead of time about a product launch.

If you're planning a product launch that will result in a sales spike, start calling your MAP at least a month ahead of time and keep following up. Speak to the director or supervisor of risk or if you can't reach them, ask for the director or supervisor of underwriting since those two communicate quite frequently. Don't speak with an analyst, they can answer questions but can't make decisions.

Tell them you're close to a launch and want to verify that they know. Discuss anticipated volume even though this might result in a review of pricing or terms. If it's a physical product, let them know that you'll be getting signatures on delivery. That goes a long way toward reducing their anxiety. Don't wait until the last minute to discuss these things. The last thing you want is to have to postpone your launch.

Prepare for a call from the risk department during the launch.

If you get a call from the risk department during the product launch, give them full compliance and disclosure. Be cordial, you'll get a lot further being pleasant and helpful than surly and nasty. Keep in mind, that your MAP has the power to suspend your account if they feel they're risk is too great. A suspended account means lost sales and a perceived loss of integrity in the eyes of your customers.

If you do get a call, wait a few minutes before calling back and use that time to calm down, gather all of the information they might request such as your fulfillment company's name and phone number, client contact information in case they want to verify the order and anything else that can show them you're on top of everything and trying to be as helpful as possible.

Conclusion

Look at all you do from the MAP's point of view as well. They're not here too hassle you or keep you from doing business. Without your business, they wouldn't have any business. They just want to make sure that their exposure and liability is as low as possible.

You can help reduce their anxiety by communicating with them frequently, asking the best way to do certain things, and letting them know you're one of the good guys. Get to know each other.. Just like all aspects of business, relationships are what count the most.

At IncreaseOnlineProfits.com, our merchant account provider is PowerPay. Their phone number is 1-877-877-3737. Ask to speak wth Judd Smith at ext. 1110 and let them know that we referred you.

ARTICLE DATE: 2009-08-25
REVISED DATE:

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