Out of all the types of merchant accounts a merchant could have, e-commerce would be considered the highest risk. That means any merchant looking to set up their website with a merchant account, and has no prior processing history on that website, should expect higher rates than a merchant swiping their cards in person. There are a few reasons why a new e-commerce website is considered high risk.
For one, neither the merchant or the merchant service provider know who’s actually using the card. In other words, there’s no way to actually know if that card was stolen. E-commerce is the easiest way for anyone to make purchases using a stolen credit card, and is by far the most popular platform in terms of occurrences. If a purchase was made using a stolen credit card, then that purchase was reported as fraud, a chargeback will occur, and either the merchant or the merchant service provider will have to pay for it. A way to avoid this type of fraud is to only allow orders where the shipping address matches the billing address, although this is not always ideal.
Another reason why e-commerce is considered high risk is age verification. Unlike a retail location where a merchant can check their customer’s identification, it is easy for a person to fake their age online. So, if a merchant is selling alcohol or tobacco online and a minor fakes their age and makes a purchase or uses their parents card, it definitely can lead to trouble. This will almost always lead to a chargeback, either the minor will say they never authorized the charge, or their legal guardian will, leaving the merchant or the MSP responsible. It is advised to have some sort of further measure than just making your customer agree they are of age or having them put in their birthday. IDology is a good tool to use. IDology will pull a quiz based on the cardholders information, like past addresses, leases, or nearby intersections that makes it a little tougher for any underage children trying to use their parents card.
Lastly, information on the website itself is very important. Having the pricing of products and a shopping card is not enough. To avoid chargebacks or a merchant service provider putting a hold on funds, there are a couple things a website needs to have before it’s ready for e-commerce. A return policy is absolutely essential. Some websites might have an ‘all sales final’ policy, but what happens if the product arrives damaged or gets lost in the mail? Those type of situations need to be clearly stated on the website. Contact information is also very important. If a product does arrive broken, or an order is mixed up, and a customer has no way to contact the merchant they will almost always issue a chargeback, meaning not only does the merchant have to return the customers money, but also pay a chargeback fee issued by the bank.
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