Starting And Expanding A Business

Consulting...

The Power of Accepting Credit Cards

Today’s marketplace is extremely competitive. With both e-commerce and electronic processing, businesses must provide customers with convenient payment options. Payment options have become as important as the quality of product or service you sell. Research shows that consumers increasingly choose credit, or debit cards as their preferred method of payment. A business owner should also note that people who use credit cards usually spend more on impulse purchases.

In order to accept credit and debit cards a business needs a Merchant Account to process credit cards. To open an account, the requirements are often strict. The riskier the business the tougher it is to open an account.

What raises the level of risk and makes the Merchant Account more difficult to obtain?

1. Businesses operating on the Internet are considered risky and banks are often reluctant to provide Merchant Accounts to these e-commerce businesses. This is due to the often high rate of charge backs, in which payment for products, or services must be returned to the customer because the card was used fraudulently, or the purchase was otherwise disputed.

2. There is less perceived risk the longer you have been in business. A start up will be considered riskier.

3. The type of product, or service you offer will have an effect on the perceived risk. Retail sales are generally considered less risky than sales of intangible products such as downloadable software, or consulting services.

4. High-volume sales, or sales of big-ticket items are generally considered riskier by Merchant Account Providers. The more money you make per month, the bigger the credit risk.

5. As in all things financial, your personal credit history will play a role.

To counter these risks, Independent Sales Organizations (ISOs) have begun to act as the middleman. These companies allow higher risk businesses the opportunity to obtain Merchant Accounts. ISOs absorb some of the risk for the bank by taking on responsibility for charge backs should a vendor go bankrupt. In addition, because ISOs are not banks, they are not subject to the same strict laws under which the Merchant Account Provider operates. This means, they can offer Merchant Accounts to businesses that would otherwise be turned down.