When it comes to e-commerce, fear of fraud is at the forefront of everyone’s mind.
Even the good things about e-commerce can also raise risk levels for card processors.
E-commerce has dramatically shifted market competition and opened up international sales potential for a vast number of businesses.
Even a tiny mom and pop store can maintain a website that sells to the other side of the world. It’s easy. However, the one fatal weakness that designates e-commerce merchant accounts as being considered high risk is what is known as CNP, or card (or cardholder) not present.
What does Cardholder Not Present (CNP) mean for your business?
A smaller retailer conducting business from a bricks and mortar storefront relies mostly on in store sales for business. Customers step into the store and are attended to by a sales clerk, assistant or representative.
That face to face interaction helps to confirm ID and identify some fraudulent transactions before they happen. Chip and pin helps to authenticate the cardholder, although it is not entirely foolproof. CCTV is also used at checkouts to capture images of customers.
None of these basic barriers to fraud exist for online sales. They are entirely “card/cardholder not present”. Instead, the software systems of card processing companies attempt to identify red flags that indicate fraud, such as the address not matching the real customer’s designated address, as well as many others.
While these fraud detection and prevention systems have become ever more sophisticated, they can only go so far in preventing crime. Criminals are notorious for developing new techniques and systems are always just one step behind.
Abuse of returns and refunds policy is a major risk
This thorny problem for retailers is a balancing act between offering customers a no-quibble returns or refund policy and exposing the business to fraudulent activities and chargebacks.
Intense competition means an e-commerce business must not only appear to offer a seamless and trouble free returns policy, it must be seen to do so on social media and store review sites as well.
Product returns and refund policies are extremely important, along with clear pricing and shipping policies as business differentiators. Get it right and you are a step ahead of the competition. But without tight control it can easily bleed your bottom line or see your merchant account terminated.
Typical scams that abuse return policies – return fraud
Genuine customers will always generate a stream of returns and refund requests, as well as occasional disputes that can turn into chargebacks. That is to be expected and is no more than a cost of doing business.
Merchants operate a delicate balance between minimizing criminal opportunities while providing superb service for loyal customers.
The less than genuine scenarios in e-commerce include:
- Wearing clothing and then returning it, known as “wardrobing”
- Returning stolen merchandise instead of the genuine original article and claiming a cash refund
- Claiming the item never arrived or was never ordered and demanding a cash refund
What charges and fees apply to an e-commerce merchant account
There is no standard menu of account or transaction costs for businesses engaged in e-commerce. There are many additional variables, such as the industry it operates in and any previous history of card payment processing.
Underwriters at the acquiring bank assess each application individually. They try to calculate the level of risk posed by approving a merchant account to the specific e-commerce business. That helps them determine what level of charges should be applied to cover potentially fraudulent transactions and occasionally loses.
All high risk merchant accounts have higher operating costs than so-called “low risk” businesses. As an approximate rule of thumb, expect transaction charges of between 3% and 5% and possibly higher monthly fees as well.
Must I use my business bank for my e-commerce merchant account processor?
No – your merchant account acquiring bank need not be the same as the bank where you hold your business accounts. Unsurprisingly, most business owners start their search with their own bank. Not all banks handle card processing services for high risk industries or for e-commerce.
Why you need a payment gateway for an e-commerce merchant account
For regular retail outlets, the merchant account provider is often the business bank. Typically it supplies card swipe devices that link directly to the bank’s own systems.
There is a different scenario for e-commerce websites. When a customer makes a purchase and check out, a piece of software accepts the customer’s card details securely, transmits them to the acquiring bank’s systems, and sends the response back to the website to say “paid” or “declined”.
This is the payment gateway. Usually it’s supplied by an expert payment gateway service and is configured to the requirements of the acquiring bank’s system. A good system should offer fraud management tools, advanced security methods and omnichannel capability.
Your industry is also a factor in a high risk e-commerce merchant account
Even if you believe your business to be safe and almost mundane, your prospective e-commerce card payment processing service may have a very different and surprising view.
Many industries are considered high risk for a variety of reasons. We have described them in more detail and explained why 60 industries are considered high risk merchants for credit card processing services.
Some of these suffer from above-average incidents of fraud and others are known to have high chargeback ratios. Even reputable high ticket value businesses may represent a risk too.
Common examples that come as no surprise are firearms sales, sales of CBD related products, adult services and online gambling. But others like self-storage, moving services and background checks are not obvious candidates for risk to the lay person. Bank underwriters have a different perspective.
Adding the perceived risks of one of the listed industries to the acknowledged risks of e-commerce may act as a double whammy. However, each bank and card processing company has its own criteria for assessing risk and for applying fees and charges.
This means that a business owner must accept the fact that applications may be rejected and understand that he or she must persevere until a suitable service is found. There is a card payment processing service for every legitimate e-commerce business – you only have to have the patience to find it.
This is where expert advice can short-circuit the process and chop weeks off the time taken for searches and failed applications.
The best way to get an e-commerce merchant account
By now you may be wondering how you can identify a reputable e-commerce merchant account service provider that will not cost the earth in terms of charges and transaction fees.
This is where we at SecureGlobalPay come into the picture. Our greatest asset is the network of acquiring banks we have built up over the years. We know that ecommerce merchant accounts are considered high risk and we specialize in connecting them with acquiring banks who handle that category of service.
It means that we can usually match an application from an e-commerce business owner with one or more card payment processing services who are likely to accept a proposal. This approach takes the hassle out of finding a suitable merchant account for your business.
Your next step – lock in a high risk e-commerce merchant account
Apply today. Click here to access our online application form. We would expect to give you a status update in 2-5 days.
Alternatively, you may wish to find out more about the process or your specific business requirements first. Our payment processing experts will be delighted to take your call on 1-800-419-1772.