Last week we received a call from a merchant asking for a new merchant account: their business was opening the following day. As a new business owner, they had been inundated with all of the things that have to happen to get the doors open and adding the credit card terminal had slipped their mind. When we mentioned an approval process- they were surprised. Why would they have to be approved to be able to accept cards? Let's find out!
Whenever a business elects to accept credit cards as a form of payment, they are asked to complete an *application. That application is underwritten, just like getting a loan. Business types, ticket sizes, refund & return policies are considered. Online web sites & warranties are reviewed and yes, the credit worthiness of the signers are taken into consideration. But the real question is why?
When a consumer uses a credit card, they have additional protections. They can dispute any credit card purchase up to 6 months beyond any warranties. So credit card processing companies have to consider if a business owner can sustain potential disputes before an account is approved. Some of the items they consider are:
- Business Type: traditional face to face businesses carry substantially lower risk than 'card not present' ones and there are some business types that experience losses or disputes on a regular basis (memberships, marketing & modeling agencies, for example). So underwriters have to consider business types before approving any merchant account. Most processors have a Prohibited Merchant's List so they do not have to consider the types of accounts that tend to have huge problems & losses.
- Ticket Size: the larger the transaction size, the harder the account is to approve. If a business were to have lots of disputes, they could sustain heavy financial losses and underwriters have to consider whether a business owner can afford the losses before approving accounts.
- Length of Warranty: because credit card transactions can be disputed up to 6 months beyond any warranties, a business owner has to have a strong background to support longer warranties. Underwriters have to consider what would happen if a business were to go under and customers wanted their money back? Because of the additional protections afforded to cardholders, the processor would have to make the returns to disgruntled customers. A business owner with weak credit history and an extended warranty period will have to prove they can handle the long term promises they make to their customers before a merchant account will be approved.
- Credit Worthiness: with small ticket sizes and face to face card activity, the credit worthiness of a business owner is not as critical to the approval of their merchant account. When you begin adding higher risk transactions, higher ticket sizes and a weak credit history- underwriters get nervous and could require additional supporting documents or decline the merchant account all together.
We are happy to report that the merchant who called the day before their location opened was able to get their account approved and set up just in time for their Grand Opening! Now they know, just like you, that all merchant accounts have to be approved and many of the reasons why! Feel free to contact our office if you have any questions about merchant accounts; we are happy to be of service. 1-888-249-9919
*There are several options in the market place that allow individuals and business owners to get a merchant account- presumably with NO CREDIT CHECK (ours is PhoneSwipe) and in the short term, this is true. But, as soon as any activity is registered, the processors behind these options do underwrite the accounts eventually. This is why there are some cases where monies are held- and they are not released until the business owner can support their credit card processing activity.