Merchant Accounts

An acquirer is a bank or a financial institution that is authorized by the Card Associations to serve merchants. It is licensed to provide merchant accounts to qualified businesses, enabling these businesses to process payment card transactions.

What Does an Acquirer Do?

The acquirer is contracted with a processor through a merchant agreement to perform the following duties:

1. Issue merchant accounts
2. Obtain funds from the cardholder’s issuing bank and deposit them into the merchant’s account
3. Assess fees to the merchant on behalf of the processor, issuers, and card brands.
4. Monitor risk and implement revenue holds when necessary

Also referred to as:

Acquiring bank
Merchant’s bank
Merchant Acquirer

An acquirer provides a merchant account so a business can accept and process payment card transactions. The merchant account is where the acquirer deposits funds received from issuers.

Obtaining a Merchant Account

Merchants must apply for a merchant account. The application process can be facilitated by either the acquiring bank or an independent sales organization (ISO) like Catalystpay.

There are various things that will be taken into consideration as part of the application process:

o The type of products or services the merchant offers
o The sales method (such as in-person, online, phone order, etc.)
o The payment method (such as recurring billing, free trial offers, single sale, etc.)
o Past processing history (or personal credit history if there is a lack of processing history)
o Perceived risk (usually determined by analyzing chargeback activity)
o Number of processing applications the merchant has previously submitted

Not all merchant accounts are the same, and not all banks provide merchant accounts. Some merchants will need a high-risk merchant account.

Merchant accounts come with pre-determined limitations, such as sales volume and transaction volume. As a business grows, more merchant accounts will be needed to accommodate the increase in sales and volume.

Maintaining a Merchant Account

Merchant accounts are valuable assets and should be treated as such. Merchant accounts can be revoked if terms of the merchant agreement aren’t upheld.

The most common reason for losing a merchant account is excessive chargebacks.

Some merchants are considered high-risk because they have the potential to be a financial or regulatory liability for the acquirer. These merchants need a specific type of merchant account.

How is Risk Evaluated?

Merchants are evaluated before receiving a merchant account to determine how much risk the business poses to the acquirer. Several variables are taken into consideration. The following are some, but not all, of the characteristics that are considered risky:

· The merchant is registered in the MATCH or VMAS List database because previous merchant accounts have been terminated.
· The business is new and has very little payment processing history.
· The merchant’s industry is known to have a high rate of chargebacks or is classified with an MCC the card brands have deemed high-risk.
· The merchant sells products or services using a subscription billing model or free trial offers.
· The business sells to international customers in certain high-risk countries.
· The merchant sells custom goods.
· The merchant has a high average ticket amount.
· The sales model includes delayed or future delivery of goods.
· The merchandise the merchant sells poses a reputational risk to the acquirer.

High Risk Merchant Accounts

High-risk merchants aren’t eligible for traditional merchant accounts. They must contract with a payment processor that offers high-risk merchant accounts.

There are both pros and cons of payment processing with a high-risk merchant account.

High-risk merchants typically pay more in transaction processing fees and chargeback fees to compensate for the danger they could potentially cause to the payment processor’s bottom line. They are also more likely to have money held in a reserve. However, high-risk merchants are usually allowed a higher chargeback-to-transaction ratio.

Describes merchant’s business type, transaction type, or business name. For example, MCC 0742 is used for any merchant providing veterinary services. Other MCCs are used by a single business, such as 3000 for United Airlines.

If a merchant sells multiple items or services, the MCC will describe the item or service that has the highest annual sales volume.

MCCs are managed by the card associations and assigned by the acquirer when the merchant account is created.

Examples include:

4131 – Bus Lines
5072 – Hardware Equipment and Supplies
5139 – Commercial Footwear
8651 – Political Organizations

A billing descriptor describes a payment and helps the cardholder identify the transaction on his or her bank statement. If the cardholder doesn’t easily understand the billing descriptor and recognize the transaction, a chargeback might be initiated.

Quick Facts About Billing Descriptors

o For most processors, the default setting for billing descriptors is the merchant’s legal business name. If the business’s legal name is different from the “doing business as” name, the descriptor should be updated to reflect something customers are familiar with.
o Descriptors can be anywhere from 20-25 letters, however, the length of the descriptor will depend on the issuing bank. Some issuers will truncate the descriptor so the full message won’t be displayed. This can cause confusion. Abbreviations can be used to avoid truncated descriptors and convey a more accurate message.
o Descriptors might include the word “pending” or another similar phrase until the transaction is settled.
o Depending on the length of the business’s name, a descriptor could also include the business’s phone number. This helps increase the odds the customer will contact the merchant with issues instead of the bank. The phone number listed should be operational and managed 24/7.
o Some processors offer dynamic descriptors. A dynamic descriptor will include the standard descriptor, followed by additional, transaction-specific information. For example, a descriptor would be “S&S Auto”. A dynamic descriptor would be “S&S Auto/FordTransmission”.
o Descriptors are set on a per-MID basis. Each merchant account will have its own descriptor.