Transaction Rates Explained

When you're evaluating merchant agreements, looking to start a new business or change service providers, one of the biggest things you want to look for are low transaction rates so that accepting credit cards doesn't hurt your business' bottom line. However, it can help a lot if you know what you expect upfront.

In essence, there are three main risk classifications that merchant banks use to determine your rates. They are: low risk, moderate risk, and high risk. The most important determining factor in assessing risk is the likelihood of chargebacks; that is, the merchant bank worries about losing money when a customer disputes a transaction. Certain businesses are more likely than others to face chronic problems with chargebacks. Other, established companies, sometimes have histories that indicate a big risk to processors, while others have very positive records that indicate reliability. Regardless, knowing how you rank can prepare you to better understand your transaction rates.

Low Risk

These businesses almost always handle their credit card payments in person, swiping the customer's card through a machine and obtaining a signature record that can be saved and used to prevent chargebacks. Grocery and convenience stores, contractors and other service providers, restaurants, bars, and others who sell goods and services locally can expect lower fees – the merchant bank expects few issues with your account and as a result, they can pass their savings on to you.

High Risk

Adult-oriented websites and live entertainment, gambling and casino operations, travel agencies, and mail order/telephone order are the industries most likely to be labeled as high risk. Because the customer is usually not present, nor is his or her credit card physically swiped through a machine, it is easier for these types of charges to be disputed. The questionable moral nature of some of these businesses also makes the merchant company somewhat wary of potential legal issues. In order to protect the bank, they charge companies in these industries higher fees to compensate for expected chargebacks and other problems. On the plus side, these businesses are usually quite lucrative and can handle the added costs without too much strife.

Moderate Risk

Some industries fall in between low and high risk, and they, too, will have fees dependent on their classification. Some of the factors used to place a business on this level include transaction histories, the company's credit rating, whether they are targeting a national or international market, and how far in advance they bill their clients for services not yet rendered. New or unestablished companies may also be subject to slightly higher rates, especially if they are processing without a card present.

Even so, despite what these risk levels indicate, and no matter what your company does or sells, we have experience finding the best rates and most comprehensive services. Apply for an account today!