Penny auctions have become an attractive way to make a profit in an online-only context. Penny auction websites can be set up with ease, if you have a good code, and are relatively automatic in operation assuming you can ship your items in a timely fashion. The trick is setting up a penny auction merchant account. US Banks as a rule of thumb won’t open a penny auction merchant account, creating complications for your credit card processing.
How Penny Auctions Work
Penny auctions are set up to have bidders bid in small increments, like a penny, on a given item. Each penny is charged to the bidder’s account and will increase the time remaining on the auction. The idea is that a bidder can get an item for far less than its retail value while the site operator receives a cumulative total of ‘penny bids’ that exceed the cost of the single item.
Why Penny Auctions are High Risk
Penny auctions are considered high risk for two major reasons. The first is the chargeback rate. With so many small transactions, chargebacks accumulate quickly through sheer volume. Unfortunately, customers that don’t understand how penny auctions work, or customers unhappy they lost out on an item, will frequently cancel their transaction creating a chargeback. This escalates the costs associated with chargebacks dramatically. Chargeback management is a major issue for penny auction merchant accounts.
The second factor is that many banks and institutions consider penny auctions little more than online gambling or a scam. Banks will over-protect their reputation, as their industry demands, so they will probably not do business with a penny auction website and open a merchant account.
Alternatives for Penny Auction Merchant Accounts
If you want your penny auction merchant account to be approved you’ll have to go online or offshore. Finding an experienced, reputable team is the key. eMerchantBroker for example has been rated with an A by the Better Business Bureau and is a three-time top credit card processor by TopCreditCardProcessors.com. Our team has years of experience finding merchant accounts for penny auction sites that are tailored. Our flat 3% chargeback rate and competitive rates will get your penny auction merchant account open and running while keeping you in business.
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