A story of Acme Exercise Galaxy
Banks and merchant account processors take a risk when they sign up a merchant and the higher the risk, the higher the fees.
For example, let’s say Miriam is surfing aroung the Internet for a new high definition video downloadable exercise program. At your website, Acme Exercise Galaxy, she is wowed by your spectacular sales description and a virtual demo, and your return policy. She gladly plunks down $249.95 + s/h with her MasterCard.
- You can’t see her.
- You can’t swipe her credit card.
- You can’t capture her signature.
- You receive your money within in two-three days from the bank.
- However, she doesn’t have to make a payment for 28 days.
- Who takes the “float” of $249.95 + s/h? The processor.
Usually, all goes well. Miriam downloads the video and pays her charge card.
- But, what if Miriam says she was never able to download the video?
- What if wouldn’t work on her video player?
- She wants her money back. She says that she sent you an email, but never got a response.
- She calls her MasterCard office and tells them the story. She files a chargeback.
- Guess what? The bank is not happy with you. You didn’t refund her money. You now must refund the money. If you have too many chargebacks, around 1%, you may be put on list of bad performing merchants and may not be able to get a merchant account from anywhere.
Or what if the merchant, not you in this case, is in a downturn, and doesn’t have the money to give refunds?
The card company will refund the money to the purchaser, but since they can’t collect from the defunct merchant, they absorb the loss. They are not happy!
Underwriters assess merchant risks for merchant account providers.
If the underwriter thinks the merchant is too risky, they will turn down his business or require a rolling reserve of 10-20%. This reserve will be used to fund possible returns and chargebacks.
For a multi-million dollar business, that’s a hefty chunk out of cash flow.
That is why eCommerce (along with mail order and phone order) sales are considered risky and are charged higher card processing fees. Many merchant account providers won’t even accept these high risk merchants.
Because I work with a number of merchant account providers, I can find one that will accept an eCommerce merchant.
Fill-in the contact form and I will get back to you ASAP.