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  1. #1
    Join Date
    Nov 2003
    Location
    Mother Earth
    Posts
    84

    Where to get a merchant account with bad credit?

    A customer asked me where to get a merchant account with bad credit? How much does it cost? Can one still get those low 2-4% rates with bad credit, what does one have to do if they have bad credit to get a good and solid merchant account? What about credit card processing for high risk transactions like casino, lotto and porn sites? WHo offers the best rates? Best processing, who is the most trusted in the industry. How does charging back work, when is it considered you have had too many charge backs etc...

    Thanks for your help,
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  2. #2
    Join Date
    Jul 2003
    Location
    Castle Pines, CO
    Posts
    7,189
    It depends on the credit. Everything credit card processor is different. It depends on who the underwriter is. There are a lot of processors out there that handle people with bad credit but you first want to check out a processor that does not. Why pay the extra money if you do not have to.

    You should be aware that there are over 45,000 banks in the US and less than 1% are able to actually process credit card transactions themselves. Most contract with a third party to do it. Then the bank becomes a middleman passing on additional cost to the merchant. Here are some more facts & figures you need to know about banks:
    [list=1][*]Banks decline more Merchant Account applications for credit card processing than Merchant Account Providers. In addition, the application process is usually much less intensive with a full service Merchant Account Provider.[*]Banks are in the banking business, Merchant Account Providers are in the credit and ATM/debit card processing business.[*]Banks outsource credit card processing and focus on lending and deposits.[*]Banks often have conservative pricing with higher transaction rates & fees because the Merchant Account business is an ancillary service. Merchant Account Providers have to offer competitive pricing because this is the only business they are in.[*]Banks are less likely to risk chargebacks and fraud. Because banks typically farm out their credit card business if there is any additional maintenance like administrative costs from chargebacks, you are in greater danger of losing your Merchant Account. Merchant Account Providers are much better prepared to take on risk through loss prevention and chargeback departments.[/list=1]
    As far as cost - if you consider applying to a "regular" credit card processor - there should be no application fee. There might be some type of a set up fee to get it started, whether it be your account or the gateway. And you should still be able to process at a normal rate of 2.25%. This is of course you are not processing something high risk & there again - a lot of processors have something different for those. Some consider furniture high risk while some do not.

    As far as porn, expect to pay about $2,000 up front. This money will got to Visa/MasterCard. But the processing rate will be the same unless you go to a third party processor. And here, you can now expect to pay up to 15% for a discount rate and possibly even have a reserve.

    Gambling is even a bit more difficult because to one extent - no services are involved.

    Your Money Can Be Held Back By the Merchant Account Provider An ounce of
    prevention may be worth a ton of headaches. When you filled out your Merchant Account Application you were asked the type of business you have, the monthly volume of sales you anticipate, and the average order size you anticipate. The reason Merchant Account Providers run a credit report on you and are concerned about your business type and sales volume is because ultimately the Merchant Account Provider has to make good your charge backs if you are not able to.

    Should you declare bankruptcy, not ship your product, provide your service inadequately or even be running fraudulent credit card orders the Merchant Account Provider could really be hurt. Because of this, a “Loss Prevention” department will watch your processing activities and has a good idea of the types of businesses that have greater risk to the Merchant Account Provider. A Merchant (or the sales rep) may describe the business differently than it really is in order to get the Merchant Account Application approved more quickly. Once the Merchant Account Provider finds this out, they may hold your funds until everything is straightened out.
    Spikes in your processing above your average daily approved sales volume estimate and much larger average order sizes than you were approved for will also concern the Merchant Account Provider. Trouble sometimes arises when a Merchant is stacking up credit card orders waiting for their Merchant Account to both be approved and setup properly. The Merchant finally goes live and keys in a bunch of orders the very first day. Alarm bells go off. The lesson learned is to make sure your business description, monthly volume estimate, and average order size (or average ticket) are all correct. If you have more than one business make sure you set up each business properly and separately. The expense to do this is not great compared to the risk. The right kind of credit card terminal, as example, permits multiple Merchant Accounts.

    Chargeback Risk The customer who paid you with a credit card has up to six months to dispute the charge. Should they not be happy with the product or service, they would typically call you and negotiate a resolution. Should you decide to give the customer a credit than you will typically pay your Merchant Account Provider the same rates and fees that you paid when you accepted the charge – even though the money is flowing OUT of your account. Worse yet, the customer may still be dissatisfied after calling you because you felt a credit was not justified. The customer may not call you at all. In any event, the customer has the right to dispute the charge and write a letter to the bank that issued them the credit card they paid you with. The bank will contact the Merchant Account Provider who will then contact you to “retrieve” the signed receipt or possibly other evidence of the sale. This is called a “retrieval request” and usually costs $10 or more. The Merchant Account Provider may “charge back” the amount which also has a fee of $10 or more. Consumer Protection Law will usually side with the consumer and not you.
    Should the order be a Mail Order / Telephone Order (MOTO) or an Internet order than your defense is very weak because you may not have a signed receipt. Make sure your “Descriptor” includes your phone number. This is the name of your business which the customer sees on the credit card statement they get showing the charge. If your phone number is included the customer will have a greater likelihood of calling you first to resolve the dispute. This could save you both a Retrieval Request fee and a potential Charge Back fee.

  3. #3
    Join Date
    Aug 2003
    Location
    Chesapeake, VA
    Posts
    3,381
    When you talk about "bad credit" - it helps to define exactly how "bad" the bad credit really is. One person's opinion of their credit being "bad" is not necessarily the same as the next person's definition.

    About the only type of bad credit that will preclude someone from getting a merchant account is an open bankruptcy. That is basically an automatic decline at virtually every ISO and bank.

    That being said, the tolerance for creditworthiness just vary quite a bit from one processor to another, just as Corey mentioned.

    It is not uncommon at all for merchants to be approved by many processors when they have bad credit in the form of late pays, deliquent debts, maybe some charge-offs, etc.

    Most of the time, you can be approved at the regular rates and fees. Sometimes, a processor will utilize a "rolling reserve" whereby a certain portion of sales (say 5-10%) are held back for a period of time (usually 3-6 months) and then released back to the merchant on a rolling basis.

    Other processors will just increase the funding time on the account by a day. I'd suggest applying for a regular merchant account and just asking the processor about their specific policies regarding credit prior to submitting the application.

    You may be very pleasantly surprised at how easy it is to obtain a merchant account even if your credit is not the best.

    Now - with respect to the latter part of your question about the best source for casino, adult & gambling-type processing... my advice to you is be VERY, VERY, VERY careful.

    There are a lot of "high risk processors" that are really just brokers for various banks and processors, and there are also many scams going on for high risk processor. I have seen situations where merchants have been bilked out of thousands of dollars in setup fees, where merchants were never paid by their "high risk processor" or where other issues arose.

    In addition, -most- of the truly legitimate banks and high-risk processors only want to deal with high volume accounts that are doing at least $500,000 USD/month or more. They don't even want to mess around with smaller accounts.

    So - I wish that I had a nice, easy answer for you on the latter part of your question but the high risk processing industy is a real minefield and unless you are going to focus on it, my advice is to stay away from it and don't put your reputation on the line unless you know what you are doing and getting into.
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