Many businesses are adopting credit card payment options, as more and more consumers opt to make purchases using credit cards. It’s customary within the credit card processing industry, for the processing bank to insulate itself against financial loss risk brought by charge back. This risk is usually addressed by placing a reserve requirement on the merchant account. The reserve requirement makes it possible for the credit card processing bank to keep aside a little bit of money based on the card holder’s monthly business volume. It’s this sum of money that the bank uses to settle merchant fines and charge back’s, should the customer’s find themselves unable to settle these fines from their account.
Normally, reserves are pegged on what industry players classify as high risk businesses. Businesses are considered high risk due to their below average credit scores, merchants involved in international transactions and increasing charge back’s. Those businesses that accept payment using the card not present payment policy, such as eCommerce websites are categorized as high risk. A merchant account hold back is therefore the amount of money held from a merchant’s account by the processing bank for the sole purpose of creating a cash reserve.
Processing banks will normally ask for some form of hold back in order to establish a reserve, when handling a high risk merchant account. There are instances where the bank could waive these charges; this occasionally happens for promotional purposes hence the existence of merchant account with no reserve or high risk merchant account without a hold back.
For first time merchants, the costs associated with obtaining a merchant account are rather high. In that first time, merchant account applicants are advised that if they anticipate low sales volume during the initial stages of the account, they can then opt for 3rd party card processors. These 3rd party credit card processing companies are responsible for handling a business’s transactions on behalf of the eCommerce business. 3rd party credit card processors are sometimes referred to as free merchant accounts. These free merchant accounts can also be classified as merchant account with no reserve or high risk merchant account without a hold back. 3rd party credit card processors usually charge a percentage on each completed transaction.
The popularity of these 3rd party card processors among first time merchants is that, they require minimal upfront charges as compared to setting up a merchant account. A first time merchant is also able to do away with the additional costs associated with incorporating shopping cart software into their business website. First time merchants are advised to only establish a merchant account once they get to a certain level of earnings that enables them to maintain and operate a merchant account.
A high risk merchant account without a hold back is likely to attract higher fees and rates. With many card processing companies having to impose strict company regulation’s onto these types of account’s, they limit the provision of high risk account services to only a few providers within the industry. The provision of credit card processing solutions to high risk businesses is eMerchantBroker’s specialty. They aim at establishing long-term and profitable relationships with merchants and look forward to helping high risk merchants.