Merchant Account Reviews

Understand All the Risk with Merchant Services

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Understanding the Risk:

It is important to know that any bank or ISO that offers merchant services to merchants assumes the risk of financial losses. A merchant account is in essence an unsecured credit line. Here's an example: A customer orders a $1,000 table, which will not be delivered for two weeks, from a furniture store and pays with his credit card. processes the $1,000 transaction and deposits the funds into the merchant's bank account within 2 business days.

Two weeks pass and the cardholder finds that the furniture store has gone out of business without delivering the table. The cardholder calls his Issuer to initiate a chargeback on the grounds that the merchandise was never received. Visa and MasterCard rules state that in the event of an Issuer initiating a chargeback, the Acquirer is immediately required to return the $1,000 to the Issuer to be placed back on the cardholder's card.

The Acquirer will now have to collect the $1,000 from the merchant. As the merchant is no longer in business and chances are that there are not enough funds in the bank account to cover the chargeback of $1,000, the financial responsibility lies with the ISO/MSP ( There may be more than $100,000 worth of orders taken that were not delivered to customers all subject to legitimate chargebacks. Since these funds MUST be returned to the cardholders and the merchant cannot cover this amount, the entity that underwrote the merchant account (i.e. bank or ISO/MSP) will have to assume the liability, taking a $100,000 loss in the process.

As you can see, a an Internet merchant account is similar to an unsecured credit line with risk of fraud, non-delivery and non-payment of charge backs.

Credit Underwriting:

Every merchant service provider wants to keep their exposure to losses to a minimum. recognizes that merchant relationships are our most important assets. However, we expect our merchants to understand that since grants an unsecured credit line to merchants and accepts liability, that we have the right to protect our safety, liquidity and profitability. Therefore requires due diligence to properly underwrite all new accounts. Based on this, underwriters make credit decisions to accept or decline accounts (or sometimes accept with conditions).

Underwriting decisions come down to the probability that we stand to take a loss due to either:
  1. Merchant Failure The merchant is unstable or insolvent and may quickly go out of business and whereby the probability of charge backs is high.
  2. Fraud Applications from criminals using stolen identities and/or other ways merchants intend to steal money from us.
  3. Chargebacks The merchant does not deliver the goods and/or services as promised resulting in cardholder disputes.

This information has been provided by USMS.

Credit Card Processing Articles
  1. Why Should you Accept Credit Cards?
  2. The Different Types of Merchant Accounts
  3. How to Avoid Credit Card Processing Downgrades
  4. Merchant Account Responsibilities
  5. The Different Types of Credit Card Machines
  6. What is a Merchant Account?
  7. Why Avoid Credit Card Terminal Leases?
  8. 3 Ways to Save Money on Credit Card Processing
  9. Credit Card Processing Checklist
  10. Pros & Cons of Credit Card Processing
  11. What to Expect in Your Monthly Statement
  12. The History of Credit Card Processing
  13. Recent History & Future of Credit Card Processing
  14. The Different Organizations of Merchant Services
  15. The Glory Details of Disputes, Retrievals & Chargebacks
  16. Understand All the Risk with Merchant Services
  17. Factors & Guidelines to Merchant Service Underwriting
  18. The Life Cycle of a Credit Card Transaction

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