by JLGCHIA
There are several ways in which a merchant account may be categorized. A terminal based on non-terminal based merchant account, in which the distinction is based on whether a physical terminal is required to swipe the credit card or not. The terminal is connected to a phone line which connects the terminal to the credit card processing backend, in order to carry out a transaction. The growth of cellular phones and popularity of wireless options has created a new market for wireless terminals which use a CDMA or GMS chip to communicate with the processor wirelessly. This means that a merchant is not bound to his or her sales office or outlet in order to accept a customer order. Non terminal accounts include internet merchant accounts, telephone and mail order merchant accounts, in which credit card data and authorization can be transmitted electronically without swiping the card. For instance, in case of telephone merchant accounts, a touchtone telephone is used and the button presses are recorded and translated into credit card processing data.

Another way to look at merchant accounts is based on their risk profile- typically low risk and high risk merchant accounts will be treated and assessed differently by merchant account providers and third party credit card processors. Low risk merchant accounts are applicable to those merchants who are in a business that does not involve a high risk of chargebacks or are in a business that is not considered high risk by most banks. For high risk merchants, a high risk merchant account is required. These high risk merchants are usually in the high risk business classification and typically also in the high volume category. In most cases, these high volume businesses will also get flagged by a domestic bank and may need to go offshore for a merchant account that provides adequate services as well as security.
It is possible for a high risk merchant to obtain a domestic high risk merchant account, but they may need to provide a huge security deposit in the form of a cash bond or indemnity bond. For a new business, this may be nearly impossible, and even for an established merchant who is able to provide a track record, the high value of the bond may not make good business sense.

Why is a high risk business classified as such? Primarily due to the high risk of chargebacks involved. A chargeback is a reverse charge on a merchant due to a claim by the buyer, typically due to suspicion of credit card fraud or non-delivery or defective delivery of the product ordered. Especially in case of intangible products such as software, the risk of chargebacks tends to be high. In addition, some types of businesses such as online gambling are outside the regulatory purview of the law of some countries. Banks or merchant account providers in those countries will flag such businesses as high risk. Other businesses selling adult entertainment products, online dating services, tobacco, online auctions, travel agents etc are also in the high risk category. With such high risk businesses, tangibility of the product is also an issue, which leads to debates on whether the product was delivered and whether it was defective. Auction sites are most susceptible to credit card fraud, accounting for about 44% in the first half of 2005 of all internet related fraud. For instance, Ebay, the world’s leading auction site, tracks about USD 1 million per day in fraudulent auctions.

For a US citizen to open an offshore merchant account, there are certain guidelines and requirements that need to be met, as per the Fraudulent Disposition Act under the US department of Treasury. For instance, the person or company in question must not have any litigation pending. In addition, the person’s or company’s liabilities should not exceed the value of their total assets and must have sufficient funds to pay to its creditors. Furthermore, an offshore merchant account could be considered fraud if it is intended to cheat creditors or to avoid existing criminal offences. An offshore merchant account must hence be a well evaluated business decision, rather than an avoidance mechanism.

Jennifer Loganathan is the President and CEO of Stradafee Limited. Stradafee is a leading international payments company based in New York. Stradafee is a retail and electronic payments provider specializing in ecommerce and Internet merchant account solutions. Stradafee also offers high risk merchant accounts and offshore merchant account options. Stradafee can help businesses of all industries and sizes. For more information on credit card processing visit www.stradafee.com.

Article Directory: Article Dashboard