Picking the right credit card processing option for your eCommerce storefront is one of the most important things to get right before you launch. In this blog, we break down the different types of merchant account providers, and what types of businesses they cater to.
Credit Card Processing For Ecommerce
As ecommerce stores continue to grow their online presence, companies will continue to seek out the best ways to process credit cards online. With many different types of solutions available, it’s important to find a sustainable payment processor that suits your business needs. For some companies, mainstream providers like PayPal or Square will work, while others may need custom accounts that cater to unique business types.
For each business owner it’s important to consider regulations in your industry and how customers will transact online. For example, if your company sells high ticket items like jewelry or medical services and you experience chargebacks, your merchant account requirements would be different than an ecommerce store that sells a high volume of smaller items and has fewer chargebacks. You should also consider if your product has legal restrictions or brand associations. Some merchant account providers don’t allow certain verticals to operate. Industries such as CBD, Firearms, or Adult Dating are flagged as restricted by mainstream processors. In order to keep your company running online, you’ll need to make sure your payment processor fits your company’s needs.
Selecting The Right Merchant Account Provider
The question for merchants remains, which company is best for me to use on my website? With so many options, and the varying needs of different businesses, there are a number of well-recognized companies that provide solutions based on what you’re looking for. Assume you’re a startup company on Shopify selling standard items like t-shirts. In this case, your best bet is to find an aggregate payment processing company. These types of companies are well known. Square, Stripe, and PayPal all fall into this category. There are some key benefits to picking a mainstream provider if your company meets the qualifications.
What’s A Payment Aggregator?
The term payment aggregator refers to large payment processing companies who combine merchant accounts together in order to offer services such as instant approval. Because an online business doesn’t have to open a separate bank account, they can start processing online immediately. The aggregator reviews a company website and services later on to make sure they are adhering to the Terms and Conditions of the original agreement.
Companies who offer unique products like CBD, Vape, or other legally restricted items may have problems maintaining an account. Mainstream aggregators don’t allow many types of business they consider high risk. Instead, they prefer combining accounts of sub-merchants into larger groups. This also allows the payment processing company to share the risks among many merchants.
The big players in the industry are set up to onboard you fast. Enter your business information and you’re taken to an approval screen almost instantly. This helps you get your store up and running fast. If timeliness is imperative, you’ll be able to secure credit card payments that same day. That way you won’t miss out on potential sales. The caveat to instant approvals is postponing the review process. These companies will look at your website, product pages, and sales funnel to make sure everything is up to standard according to their regulations. If they see something they don’t like, they can instantly drop your account, and may even permanently ban your business.
High Risk Merchant Accounts
These types of merchant accounts are custom-suited for companies in high risk industries. Merchant account providers like PayKings adapt to requirements that other companies aren’t suited to take-on. They leverage their relationships with various banks to find the perfect solution. For example, CBD businesses aren’t supported by aggregate payment providers. In order to sell in this vertical, you’ll have to look at alternative companies who have different standards.
Their team will help you gather the necessary documents like Certificates of Approval and make sure your site is up-to-standard. In the case of the CBD industry, a bank may ask that you take down health claims that aren’t supported by the FDA. High risk processing companies are well aware of the different types of businesses that are allowed or banned. If you’re not certain about where your company stands, contact a high risk merchant account provider to learn more.
In order to stay competitive, large-scale processors maintain pretty standard rates. These fees are usually around 2.9% of your processing plus $0.30 per transaction. It’s difficult to find a lot of options cheaper than this unless you have higher sales volume to leverage for lower rates. Once your company grows, you’ll be able to reduce fees by contacting different merchant account providers and seeing which can offer you the lowest possible rate.
In contrast, high risk merchant account providers provide custom fees. These fees depend on the type of business you run, your processing volume, the number of years you’ve been operating, and a handful of other factors. You’ll have to learn where your business stands to see what kind of fees you’ll be charged.
Card Not Present vs. Card Present Transactions
Unlike retail transactions, online credit card payments require customers to enter their information digitally to make a purchase. This is called a “card-not-present” transaction – almost every purchase made on an ecommerce store falls into this category.
The best way to think of card-not-present transactions is to view it from the perspective of the businesses accepting the payment. At a brick-and-mortar store, a clerk can see and interact with the person and card available at the time of the purchase. In contrast, this is a “card-present” transaction. In this case, a cashier can get your signature, pin number, and even ask for identity verification to make sure you’re the card owner. These types of verifications add an increased level of security to the purchase. In contrast, card-not-present transactions only require you to enter information into a website. This increases the chances of fraud associated with this type of purchase.
Why Does Payment Processing Risk Matter?
Banks who process the transaction between a business and a customer recognize different levels of risk. Moreover, certain industries have higher rates of fraud than others. If it turns out the transaction was fraudulent, they will handle it in different ways. One way is to return the money to the customer, for example, if they were the victim of credit card theft. Alternatively, if the bank feels a merchant is at fault, they will refund the money to the customer directly – this is called a chargeback. Banks have to contribute extra time and resources in order to review and process these disputes.
Why Chargebacks Occur
Chargebacks can take place for a number reasons, but ultimately it’s because a customer wants their money reimbursed after a purchase. Before filing an official dispute, banks advise customers to try to work out the issue with the company. An easy way to avoid chargebacks is to offer a refund. Although, this may not always be the best option for a merchant. A person can take advantage of a business by asking for a refund in circumstances where it shouldn’t be rewarded. For example, a customer may claim an item wasn’t delivered, and they hope to keep it and their money. This strategy is recognized in the payments industry and is called friendly fraud – a common scheme companies should be aware of and ready to counter.
Accepting Payments Online
The key to accepting payments online is finding the right merchant account provider that suits your business. Your online payment processor should answer any questions you may have and know each aspect of the industry you’re in. Shop around and see if you qualify within the Terms and Conditions of mainstream merchant providers. If you find your company falls into a unique high risk category, then be sure to find a trusted payment processor. They will walk you through the approval process to get your business accepting payments fast.
And of course, if you need an expert eCommerce consulting and development services, CodeClouds is a great choice. Not only can we create and customize any kind of eCommerce site you may need, we can help you find solutions for things like high risk payment processing from partners that we’re confident can deliver solutions for you.