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ASSESSING THE RISK INVOLVED IN THE OFFSHORE PAYMENT PROCESSING INDUSTRY

The credit card processing industry is ruled by two major companies, the MasterCard and the Visa credit card. The associations of these companies make all the laws regarding credit cards. Any bank that wants to issue credit cards to it customers must first become a member of any one of these associations.

MasterCard and Visa assess risk involved by relying on the historical data. The largest component of their risk assessment formulas is the level of probability of getting charge backs. A chargeback occurs when the card holder does not agree that a transaction is done by him. Therefore, he files for a charge back with his credit card issuer and once a report is generated by the investigating agency the result of the chargeback may be to with draw the transaction from the user’s account which is a very costly affair. The merchant bank can ask the merchant for some proof of the transaction. If any proof is provided by the merchant then the proof will travel up the chain till the card holder and the dispute will be resolved. The point to make here is that whether the verdict will go in favour of the merchant or the cardholder there is considerable amount of effort involved by various agencies which costs a lot of money. Therefore, any business which has a high level of chargeback is considered very risky by the associations.

Very obviously, those businesses where the card holder is physically not present at the point of sale will have high levels of chargeback because of high probability of fraud. Direct marketing and web based merchants are the best examples. Next component that increases the risk factor is the size of the average ticket. Higher the average ticket the higher the risk involved is. New merchants are also riskier because of the less processing experience that they have. There are many other factors to assess risk in the industry. Several businesses become unacceptable for the merchant services in the United States because the risk level, as assessed by the banks, is unacceptably high. For example, gambling and betting websites are exceedingly risky because the card holders who have lost money while playing may feel cheated and file for a chargeback, even though the website played according to the rules. On the other hand, the adult content websites are also considered extremely high risk businesses due to high level of chargeback’s. The chargeback’s occur because the customers refuse to accept that they have used the services of the website, due to humiliation and disrespect, and therefore, apply for chargeback.

The Credit associations of all the payment processors are required to monitor the chargeback levels of all their merchants. The processing companies have to pay huge penalties if the levels of chargeback’s exceed a certain limit. The processors will promptly pass on this cost to the merchants who are directly responsible for this penalty. If the merchants fail to pay or the level of chargeback’s continue to be high then the merchant’s account will be terminated.

Contact one of our helpful account representatives to assist you in the setup of a high risk merchant account or offshore merchant account for a high risk merchant.