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INTERESTING FACTS ABOUT ACCEPTING CREDIT
CARDS ONLINE
The primary requirement to accept credit
cards (offline or online) is the
merchant account. It is an understanding
between a financial institution or bank
and a merchant. Home based and small
businesses experience several
difficulties to obtain a merchant
account and online businesses face a lot
more.
The reason for this is: Internet
transactions do not happen at the POS or
point of sale. They come under the “non
face to face” category of transactions.
Since, you are not seeing the customer
there is no way to easily ascertain the
customers identity, therefore, there
isn’t a way to make sure that the card
is being used by the legitimate owner.
Therefore, this exposes all the internet
merchants to a high risk of fraud.
Adding to the woes of internet
businesses, the credit card firms give
their customers an option to file for a
chargeback. A chargeback happens when a
customer contests the charges on his
credit card. When this happens, the
merchant has to pay the entire
transaction amount to the bank with a
chargeback fee which can cost the
merchant about $30 or even more. Also,
he will not be able to get his
merchandise back as it costs money and
time to track the fraudster. For
example, suppose you sold a book which
costs $20 and later the card holder
files for a chargeback, then you have to
pay back $20 together with the
chargeback fee of about ten dollars
costing you $30. Also, you may not get
your book back which will take the total
loss incurred to fifty dollars. $50
dollars for one transaction!!! Imagine
what chargeback’s can do to you and your
company.
As a result, most banks take a reserve
amount from you while giving you
merchant status. According to historical
reports, the chargeback level during
face to face transactions is 1%. The
potential is much greater with “non face
to face” transactions such as internet
transactions, thereby increasing risk
for both the merchant and the bank.
Therefore, the banks take stringent
steps to minimize their risks. Any
business that has applied for merchant
status must fulfil several criteria’s
set by the bank. Some of the factors
that they consider are cost of items
being sold, volume of the business,
refund policies, debt load, credit
history, and tax returns, experience,
and cash reserves. Other sources of
income are also a factor.
If you run a high risk business then you
will most probably not get merchant
status from any bank. You have to obtain
merchant account from a “High Risk
Processor”. They charge high rates and
higher transaction fees because they
take more risks.
Other Expenses
The expenses due to chargeback’s are the
biggest concern for any merchant who is
looking to open a merchant account.
Chargeback’s result in huge financial
losses. Moreover, those merchants who
have a high number of chargeback’s will
have their merchant account terminated.
Some other expenses that a merchant has
to be careful about are hidden costs.
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