Merchant Account Fees and Problems

A merchant account that enables one to process credit cards for their online business is essential.  In fact, finding a reliable processor is an absolute prerequisite for online business.  The idea of relying upon checks or money orders for an online business is laughable at best.  Customers must be afforded the convenience of using major credit cards in order for them to even consider making a purchase.

Merchant account providers dislike chargebacks as much, if not more, than merchants.  Every chargeback requires effort on their part and forces them to undertake investigatory action as well as dealing with the logistics of the cancellation.  Merchant account providers make their money, in many cases, from taking a percentage of total sales from their subscribers.  When chargebacks cancel sales, they take money from the merchant account provider as well as the merchant.

In response, most account providers will charge significant fees to those who suffer chargebacks.  Often and understandably these fees are in excess of the revenue the processor would have gained from the straight sale of the product.  Chargeback fees can add up and further deleteriously impact a merchant’s bottom line.

Returning to the example of John Acme:  A chargeback may cost John an additional forty dollars in fees and penalties.  His profit, already reduced to a paltry $1,000 is now reduced all the way to $920 (remember, there were two chargebacks lodged).  The idea of a relatively small fee in the face of a chargeback may not seem that important, but when one considers the way a chargeback cuts into the bottom line on its face, these additional expenses take on added meaning and can be a source of additional frustration and/or hardship.

Additionally, merchant account providers do not want to associate themselves with questionable businesses.  A significant percentage of chargebacks will be viewed with great suspicion on the part of the provider.  When providers take into account their costs in dealing with chargebacks, as well as the potential for future problems, it is understandable why they feel they need to take a hard line with merchants who frequently encounter chargebacks.

This hard line approach can be manifested in the outright cancellation of a merchant account.  If the number and value of a merchant’s chargebacks rise to a level exceeding a fixed percentage of the total business conducted, the account provider will cancel a subscriber’s account.