If you have been a business owner for any length of time, you have discovered very quickly the importance of taking either debit or credit cards as a form of payment.
Although more Americans are carrying less paper dollars on their person, they are still making their everyday purchases in the form of plastic. Since more people are leaving their checks at home, businesses that accept credit and debit card payments are more likely to increase sales versus those that don’t.
In order to process these credit and debit card payments, businesses must have a merchant account.
What is a Merchant Account?
A merchant account is an account into which you move funds from your customer’s debit or credit card purchases after they have been processed. Although you don’t have direct access to these funds, they are actually transferred directly into your business banking account. This can take from 1 to 2 days.
In your merchant account, you will also get credit and debit processing services that can come from a third party or the very organization who has granted you the merchant account. Other features may include check processing services, online account reporting features, services to make sure your account is PCI Compliant and a lot more.
Are You a High Risk or Low Risk Account Merchant?
Before you can begin researching merchant services providers, you need to ask yourself a few questions about the business you run.
Merchant service providers have developed their own criteria to categorize businesses in terms of their perceived risk. Based on this criteria, they assign merchants to one of two categories: High Risk and Low Risk. Which do you fall under?
Here are the typical characteristics of a Low Risk Merchant:
- You accept only one type of currency
- Your payment page is hosted by the payment service provider
- Average monthly sales volume is less than $20,000
- Average credit card transaction is less than $500
- Products sold include low-risk books, stationery, clothing or household goods
- Your country is considered low risk (USA, Canada, Western or Northern Europe, Japan or Australia)
- You utilize 3D Secure to prevent fraud
- Your returns and payments are greatly minimized
Here are the characteristics of a High Risk Merchant:
- You accept multiple currencies
- Average monthly sales volume is more than $20,000
- Average credit card transaction is more than $500
- You sell goods and services to countries that are associated with high levels of fraud (anywhere outside the USA, Canada, Western or Northern Europe, Japan or Australia)
- You have bad credit history
- You offer recurring or subscription payments
- You are on the MATCH list due to excessive chargebacks
- Your main product offerings are high risk software, digital, tickets, seasonal items
Based on the criteria set by the merchant service provider, a High Risk Merchant must deal with higher prices than Low Risk Merchants.
High risk merchant service providers typically charge higher than average fees and have strict contract conditions to mitigate any risk. Some include rolling reserves in their contract, which means that they hold a percentage of your daily revenue for a set time, returning it when other funds become available.
It’s important to take the time to research merchant service providers thoroughly based on your category. Although it is easy to open a merchant service account, it is also easy to make bad decisions that can cost you thousands of dollars. Look at their features, pricing schedules and contract terms to determine your business needs.