Business & Finance Electronic Commerce

Merchant Accounts and the Concept of Risk

Starting up your own business will open your eyes to a whole host of subjects you never realized existed. As is the case with merchant accounts, you might prefer you never found out about them! This is because they can be difficult and costly to get based on a concept known as risk.

You've come up with a great idea for an internet business. You are going to create an online MLM program. The cost per transaction will be low, which means you hope to do a large volume of business and pull in the big bucks. While the ultimate success of your business is up to you, there is little doubt that it is going to have a merchant account issue. Why? It is going to be classified as a high risk business.

What is a high risk merchant account? It is one where the financial company behind it expects there to be problems based on what other companies in similar niches have gone through. MLM businesses tend to be high risk. eCommerce sites tend to be designated high risk as well. When the high risk designation is given, it can be very hard to get an account. Even if you do, the fees will be very expensive and chargeback penalties could be extreme. A chargeback, by the way, is when a customer demands a refund and is given it.

What results in a business being designated high risk? There are a number of factors. The first is the field you are in as mentioned above. The second is the volume of business you do, the more the worse in this case. The third is the credit profile of the business as well as its principal owner if it is a smaller business with only one or two owners. Obviously, the credit report for Bill Gates isn't considered with a company the size of Microsoft!

What if you can't get a merchant account or the fees are just too obnoxious? Many businesses look for aggregators that will handle the transactions for them. Online examples include groups like PayPal and Google Checkout. In truth, these groups are often the only access to credit card processing and the like for many businesses.

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