merchant account credit card processing credit card merchant account
low cost merchant account informationInformation on high risk merchant accountsCredit card processing servicesTutorial on how credit card processing worksGlorssary for merchant account processing industryMerchant Account Useful Linkshow to contact The Merchant Account AdvisorC. M. Albert's The Merchant Account Advisor Home Page

How Merchant Account
Applications Are Evaluated

When you begin submitting merchant account applications to merchant account providers, it helps to be aware of exactly how they will likely be evaluating you and your high risk business.

In this, the final section of The Nine Minute Tutorial, we will look at three aspects of merchant account applications:

the risks providers are trying to minimize

the factors they consider

what they will require of you in order to accept you as a client.

Evaluation of Merchant Account Application


Sidenote: Before reading on about merchant account applications, you should review the earlier parts of The Nine Minute Tutorial.

The Risks The Providers Evaluate

From the perspective of the provider evaluating merchant account applications, three risks must be considered. 

First, what is known as the credit risk. This is the risk the provider takes that you may in future not be able to pay them what you owe them, be it for monthly fees, discount rate and per-transaction charges or lease payments. Besides your personal credit history, the other major consideration here is the volume of business you will be doing. 

Second is the risk of fraud - more specifically, the risk of chargebacks. If you recall from our previous discussion, when your customer files a dispute with respect to a purchase, saying for example that someone else fraudulently ordered the goods using his credit card information, the provider is required to reimburse the customer's bank for the loss. The provider then seeks to recover from you, the merchant, through a chargeback. So, providers evaluate your business to assess the risk of fraud, looking primarily at the type of goods or services you sell. 

The final risk most providers may evaluate when reviewing merchant account applications is the risk associated with the type of guarantees and warranties your business provides its customers. If for example you offer a two-year money back warranty, and you go out of business, the provider may face claims as a result of your unhappy customers.


The Factors The Providers Consider

In order to assess the three risks and determine both your suitability for a merchant account and the rates they should charge you, providers will look at a number of factors revealed in the merchant account applications and supporting documentation they receive. 

1. Background Checks. After receiving merchant account applications, most providers then perform credit checks on the applicants and, if it is a corporation, perhaps a number of the company's senior officers. Some providers may require credit references from suppliers. They will also look to see how long you have been in business and, if you have had a merchant account before, what your chargeback experience reveals. 

2. Your Products or Services. Tangible products are viewed more favorably than both services and intangibles (such as Internet downloadable products). It is far easier for customers to file disputes regarding the latter. Similarly, products that are to be delivered in the short term are less risky for providers than products with a future delivery date. As well, traditionally it has been easier for retail merchants to obtain merchant accounts than for Internet-based businesses, but this has changed considerably in recent years. 

3. Average Order Size/ Average Monthly Sales. Generally speaking, in your merchant account applications, you should estimate these conservatively, to reduce the perceived risk to the provider (but don't mislead the provider). The higher the estimates, the higher the risk to the provider, and it may then require that a reserve be set up to cover the risk. 

4. Location of Your Business. Many providers are set up only to work with U.S.-based businesses. 

5. Your Website. It is possible that the provider, when evaluating merchant account applications, will view your website to verify the product, pricing and return policy information you submitted.


What The Providers Can Require of You

At an absolute minimum you can expect that, in addition to submitting your merchant account applications, merchant account providers will require from you that:

you submit a copy of a properly filed 'Doing Business As' name, or your incorporation records

you have a U.S. checking account 

if you intend to sell on the Internet, that your website is operational 

you have a U.S. postal address 

a copy of some marketing materials, displaying your return policy

Most merchant account applications will also ask whether you are in bankruptcy and whether you hold any convictions relating to credit card fraud. 

Those are the likely minimum requirements. But after reviewing merchant account applications, providers may seek additional information and documentation from those applicants whom they perceive may present a higher than average risk; for example, applicants selling high ticket items or anticipating high sales volumes. For these, any number of the following may be required:

tax returns 

above average or excellent credit history 

references from suppliers 

evidence that the business has already been in operation for a number of years 

Finally, if your business is not based in the United States, you may have to incorporate a U.S. company, maintain an inventory of products in the U.S. and meet some other requirements established by the particular provider.


It really is possible for almost any business to obtain a merchant account. Remember though, that as the perceived risk increases, so will the fees you'll be asked to pay.


This discussion of merchant account applications has brought to a close The Nine Minute Tutorial.

NEXT: It's now time to take a look at some of the best merchant account services available. Select the section that's right for your business:

Low Cost Merchant Accounts for low-cost real-time processing, telephone and mail order processing or retail solutions

High Risk Merchant Accounts for high volume accounts, for those with credit problems, international and offshore accounts

Other Online Payment Services for electronic checks, shopping carts, wireless processing and processing without a merchant account


Copyright © 2002-2005 The Merchant Account Apply for Merchant Accounts Online