If you own a business that processes large credit card transactions, there is something you need to understand about the merchant processor’s risk in handling your digital payments.
When you accept a credit card payment, the money doesn’t simply move directly from your customer’s bank account into your business bank account with no risk to anyone in between. The acquiring bank and processor can have financial exposure if a transaction later becomes a chargeback, refund, or other loss.
How Processing Holds Can Happen
If you don’t have enough money in your bank account to cover the chargeback or refund, the processor has to cover it. The processor then will put a hold on your account and keep future transactions until your account can cover the overage. Should a business close its doors before covering the chargeback or refund, the processor is out the money.
How Underwriting Evaluates Your Business
On the application for a merchant account, there are questions about average ticket, volume, and highest ticket. They want to understand the profile of the business to understand their risk in accepting your merchant account.
That’s why during the application process, underwriting may ask you for copies of your recent bank statements to evaluate if you are worth the risk of covering potential chargebacks and refunds or other losses on high tickets. If you carry a high enough balance in your bank to cover your frequency of unusually high tickets, you get approved for payment processing.
If your bank balance does not warrant covering this exposure, the processor may limit your transaction high ticket limit to a lower amount.
When a Reserve May Be Required
Sometimes, in order to approve your application, the processor requests a reserve amount up front to cover those high tickets.
If your profile gets approved and you start processing and then, later, a higher than normal high transaction is processed, the processor may put a hold on your account until they verify with the cardholder that they indeed purchased something from the merchant. They may review your account to determine if they want to raise your high ticket profile.
They also have the option of enforcing a reserve amount on you. They can keep your transaction amounts until the reserve is satisfied before resuming funding of your transactions to your bank account.
What Happens When Processing Volume Suddenly Increases
Imagine a business that normally processes $50,000 a month and suddenly begins processing $200,000 a month because it landed a large contract. From the merchant’s perspective, that’s great news. But from a risk-management perspective, the processor may want to understand why the volume increased so dramatically and whether the transactions are consistent with the merchant’s normal business activity.
Visa’s current acquirer risk standards specifically identify significant changes in processing activity, processing history, chargebacks, fraud, and the merchant’s business history as factors that can affect underwriting and risk decisions.
Why an Experienced Merchant Services Provider Matters
This is where having an experienced merchant services provider can make a difference. With high-pressure telemarketing, merchants may get persuaded to sign up for a quick approval and get stuck in an awkward position down the road when that slam-bam processor starts holding your money.
Merchants with high tickets thank Electronic Money Company for hand-holding them through proper procedures to make sure payments flow easily into their bank accounts without interruption.
When both the merchant and the merchant sales office understand the proper underwriting, then the application process and future flow of monies goes through without a hitch.
Need Help With Your Merchant Services?
Give us a call at 505-296-2847 if you are having such an issue with your current merchant services provider, and we can help you fix the situation.
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