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10 Tips for Getting Your High Risk Merchant Accounts

Taking credit card payments is an important part of most businesses. If you’ve got a new or unproven direct response business, diet pills, penny auctions, info products, etc… you probably fall into the high risk category.

Why, a number of reasons. A couple are…a lot of direct response businesses are poorly planned. They’re started by individuals very often on limited budgets, with mediocre products, and limited customer service. There’s seldom a plan for managing growth, and dealing with customer service to keep chargebacks down.

What ends up happening is customers get mad when they receive a less than satisfactory product after reading, watching, hearing and responding to powerfully persuasive direct response advertising. Though much could be done to remedy this with good followup and good customer service that isn’t always the case. Not to mention sales funnels with 5 or 6 upsells sold to customers under less than up front terms piss people off.

Sure, multiple upsells and less than transparent terms will bring in a lot of cash fast but the model sucks for sustainability. When people get mad and companies fail to refund their money either because of a lack of customer service or by simply refusing customers do what are called chargebacks. A chargeback is when the customer disputes the transaction with their credit card issuer.

In questionable situations credit card companies are most likely to side with their customers. It’s in their interest. Anyhow, merchant accounts have chargeback thresholds based on card issuer thresholds which are somewhere in the range of 1%-2.5% depending on the card issuer.

The bottom line is once you get too many chargebacks the merchant processor will terminate your account.

Another issue that can cause problems with merchant processors are excessive refund periods and guarantees. Naturally, a lifetime guarantee is a much higher risk to the processor than say a 30 day return period.

Before I give the 10 tips for getting your high risk merchant account here are a couple more factors to consider.

Merchants also have a holdback threshold. This is your money they keep in reserve to cover their risk and is a percentage of your receipts based on risk of chargeback and refunds.  Depending on the merchant this can be very high. It’s crucial to note this money is not available during the hold-back period. This can cause big problems when the merchant processor is holding funds you need to run your business.

All that said, and in addition to the 10 tips below. Keep in mind you have to sell the merchant processor on your business. Whether that means having all your ducks in a row, or getting them excited about the earning potential of the business.

Oh yeah, one more thing. It’s also good to have multiple merchant accounts you can turn on. Sometimes if you’re running big campaigns a number of sales will look fishy and the merchant will shut down processing until they figure out what’s happening. It’s also good to stay in communication with the processor and let them know when you’re ramping up marketing.

Anyhow…without further adieu…10 tips for getting your high risk merchant account.

1. History and Experience – Describe the length of time you’ve been in business and any firsthand experience you and your team have dealing with credit card transactions (refunds, chargebacks, fraud management).

a. What is your history with merchant processors? Have you had merchant accounts before that we’re well maintained or have they been terminated? (i.e. you can’t be on the Match list).

2. About your team – executive summaries, accomplishments, highlight any experience related to type of business and transactions, organizational diagram, and anything that will lend credibility to you keeping in mind the whole idea is for the processor to mitigate risk.

a. About operations – Do you have an operations manual? How does customer service work? What customer service plan is in place to handle problems that arise? Do you have contingency plans?

b. About marketing – Fraudulent affiliate and arbitrage has created many problems for merchant processors. If using affiliates do you hand select them, or how does that work? What other methods/channels do you use?

3. Credit Risk – Your personal and/or business credit history/rating

4. Proof of income – Tax returns and bank statements

5. Financials or sales projections – the more money is involved the more the merchant processor is risking. For instance, high volume from multiple individuals will increase risk of fraud. More to keep track of and better chance of something slipping through the cracks.

6. Fraud Risk – Is especially important with this type of business. How will you manage this? Do you have systems in place to rapidly identify and prevent fraud.

7. Contingent Liability Risk – lifetime guarantees, act of god i.e. fire, flood, earthquake, theft, employee sabotage.

8. All about your product – i.e. what is it? How is it delivered? What is your supply chain? How to you track fulfillment?

9. About your technology – i.e call center, servers and data storage, fraud controls, data theft controls, etc…

10. How will you manage growth?

Finally, here is a list of problems I’ve witnessed related to merchant accounts…food for thought.

  1. Bad products
  2. No solid plans or systems for managing growth
  3. No cushion when the merchant processor holds funds for up to 6 months
  4. When funds are withheld it’s hard to make payroll, staff start getting cut and there are fewer people to issue refunds and handle customer service issues resulting in poor customer service and increased chargebacks.
  5. Not having enough money in the bank creates a situation where money needed for operations is diverted into marketing to sell more products to get out of the hole the company is falling into. Company is hedging bets that marketing will pay off, but this doesn’t always happen.
  6. Technology and communications bottlenecks (i.e. could be something as simple as a wrong number on a contact page preventing customers from contacting you. Leading them to believe and report you as fraudulent or seek chargeback. But could also be more serious problems such as site or server is down and affiliates campaigns are still running. Call center problems wondering why phones aren’t ringing during the middle of a campaign when refunds and CS issues are most likely.)
  7. Here’s another interesting one – Usually Customer service has a high turnover rate. Problems can occur if offices are located in an area too small to acquire and train new customer service reps as needed. Could even be in a metro area but because customer service positions typically pay low reps can’t afford the commute.
  8. Misleading or failing to keep the customer happy throughout the process. Not conducive to longevity.

If you have experiences or you’re a merchant processor and want to weigh in I’d love to hear from you. So go ahead and post a comment below.

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4 Comments »

  • Company logo design said:

    Nice tips. These tips will surely help me to reduce risk for my mechant account. Thanks for the post.

  • Credit business opportunity said:

    You may be able to get loans using your personal credit, so why bother building business credit? It’s best to keep personal and business matter separate. Building business credit works so why bother building business credit and it’s used differently. You can also protect yourself by building business credit.

  • Sell business credit said:

    You may be able to get loans using your personal credit, so why bother building business credit? It’s best to keep personal and business matter separate. Building business credit works so why bother building business credit and it’s used differently. You can also protect yourself by building business credit.

  • Mehedi said:

    This information is really useful. I have also faced this situation. Every people want to protect their business economic transition. Because it is a valuable think to everybody like as me. Some of people are falling there credit card processing problem specializing in high risk accounts. It’s another solution can be to help form specialized person. If you want to know more visit this link High risk merchant accounts.

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