Merchant account and electronic commerce. Key criteria and possible benefits
Lately the interest of Russian entrepreneurs to payments and acceptance of payments for goods and services via internet shops has dramatically increased. West Union Group, having great experience in arranging internet business worldwide, proposes appropriate solutions for this kind of business issues.
Nowadays there are two ways to make a purchase via internet: you can pay with a plastic card such as MasterCard, Visa, AmEx or use an electronic currency – WebMoney, Yandex.Money, PayPal, MoneyBookers etc. Owners of internet business usually take into consideration this business peculiarity and provide customers with maximum payment variants to increase their competitiveness.
Usually there are few questions arises in case of using electronic currency. This can be easily explained as contractual relationships are conducted directly with the vendor of electronic currency. An exception is only PayPal as this payment system has specific requirements to the status of residency of an account beneficiary.
As a rule there are many alternative ways as well as pitfalls to organize acceptance of payments from plastic cards. To provide such a payment to a company which activity is an internet trade - so called merchant account is to be open. Merchant account is a bank account which gives an opportunity to accept clients’ payments from credit or debit cards for goods and services provided via Internet. The main difference between a bank account and a merchant account is that merchant account has a web interface which makes it possible to pay for goods and services just inputting data from a plastic card without making a bank transfer.
A bank or a company which processes card payments assign a unique identification number to a company what allows differentiating millions of business units worldwide (Merchant Identification or Merchant ID). This unique number follows every card payment which is conducted at a web site. Identification number for working with plastic cards also comes along with a client’s current bank account which allows as a result transferring payments from a plastic card to a merchant account and then eventually to the current bank account.
However it should be noted that money transferring from a plastic card to a current bank account through merchant account almost never conducted the same day. Usually a processing center which serves merchant accounts puts timeframes on money movement: about 2-3 weeks for start-up projects and for primary steps of cooperation. Later in accordance with a preliminary agreement it is possible to cut this timeframes. To implement this, clients should submit a detailed description of business process, prove publicity of a company (advertisements, professional brand-book, publishing in press, a list of contracting parties etc.) and prove that a company performs long time at the market. At the moment there are some cases of cutting the timeframe of money movement till one day. Processing companies put timeframes in order to create a kind of safety fund to disburse payments to Visa and MasterCard companies. The payments are conducted as fines for so called chargebacks. The scheme of chargeback payments can be shortly described as follows:
1. Cardholder disputes the transaction announcing the bank-issuer of credit card
2. The issuing bank forwards a notice to an acquirer
3. The processing center of the acquirer in most cases notifies the web-based resource that provides goods or services (merchant)
4. Web resource decides on the validity of refund implementation claims and notifies the equirer.
5. The acquirer after considering the decision of web resource sends this information back to the issuer.
6. The issuer makes a refund to the cardholder or contacts Visa or MasterCard for rendering a decision about financial responsibility
7. The money is returned to bank account of a cardholder or payment for goods or services is conducted.
Fine sanctions for a great number of chargebacks are set by the companies Visa and MasterCard to an acquirer and its processing center. In most of the cases an acquirer shifts the fine burden to a company which holds a merchant account taking needed sum from the 2-3 weeks frozen floating assets.
A fine for each chargeback, in case the great number will attract attention of one of the acquirer associations or an emitting bank, can reach up to 100 USD however it usually doesn’t reach 30-40 USD. To sum up, we can define three main causes of chargebacks occurrence: technical causes, fraud causes and providing bad quality services and goods.
Thus, it is a web resource or merchant account which is in charge of decreasing the number of chargebacks. Connection to sms service which serves to eliminate activity of so called carders (defrauders who steal card account details) is one of the most common ways of their prevention. It is also common practice to use constantly renewing database of persons who continually conduct chargebacks, different complex schemes of purchaser authorization. Some processing centers in order to protect web resources from carders and fines develop their web interface of payment acceptance so that it looks like a system of electronic currency purchasing. However, this approach doesn’t satisfy many clients. As a rule clients of such web interfaces are providers of distressed goods and services. Below you can find a list of business units which are usually considered to be distressed:
• Internet casino
• Lonely hearts clubs
• Contents which suppose age limit
• Net marketing
• Tobacco trade
• Unlicensed pharmacy
• Travelling agency
• Plane tickets agency
• Web design agency
If the system of web recourse protection is safe enough and goods and services are of good quality it is a right decision to choose a traditional processing center. A processing center also registers a merchant account for a classic offshore company registered at Belize, Bermuda Islands, Panama, Singapore, Hong Kong, British Virgin Islands and Costa Rica. The fact that a processing company is ready to defray expenses of chargebacks means that it’s possible to decrease rate of interest taken by banks or processing centers for acquiring service. The current rate norm is 3-6%. The more precise interest rate is defined depending on the company activity. Practically rate decrease can reach maximum 0,8%.
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