Six out of ten retail transactions involve a credit or debit card. Consumers are far less likely to use cash or cheques these days, especially when shopping online. Internet shopping is based on electronic payments because sending cash or a cheque through the mail takes too long. As a result, every business that sells goods and processes payments electronically must apply for a merchant service account.
Merchant service accounts are offered by banks and other financial institutions. Like savings accounts a person must actually apply for them. Unlike savings accounts, there is a decent chance that the applicant will be denied. Why is this?
Processing credit/debit card payments can be a risky business, especially when they are completed on the internet. The number one killer of online businesses is the chargeback. A chargeback occurs when a customer requests a refund from his credit or debit card company.
The bank or financial institution that provides the merchant service account and oversees all transactions must then determine whether or not a refund is warranted. If a refund is granted, the service provider will charge the merchant for all costs associated with the chargeback.
The provider may also choose to raise the transaction rates and services charges on merchants that have an unusually high number of chargebacks. In rare cases, the provider may also terminate the account of a high-risk merchant.