Do you really need multiple merchant accounts? It may not be the first thought on the mind of entrepreneurs. But cashflow is one of the most common issues businesses face when starting out. Many early-stage high-risk merchants face payment processing limits which stifles potential growth. When those limits have maxed out, sales grind to a halt. No sales mean no cashflow.
Securing a few merchant accounts is a tactical decision. It helps you secure more monthly processing volume and avoids potential operational bottlenecks. Additionally, new businesses can add more orders and scale. Monthly sales caps become less troublesome. And the risk is not concentrated in one account.
In this article, you will learn when it is time to secure more merchant accounts. As well as what the advantages are of doing so. It doesn’t matter if you’re a startup or a high-risk business tied to one merchant account. Enjoy the read, listen and learn!
Which scenarios call for more merchant accounts?
There are several key components that go into operating an online business. One of them is simplifying customers’ payment options so the most revenue can be earned. Securing extra merchant accounts can solve several problems for high-risk businesses. Yet many owners fail to spot the opportunities to do so. For example, acquiring banks commonly set limits on monthly sales volumes for startups. This lessens a provider’s risk in the case of high chargebacks and fraud ratios. Securing another payment channel allows sellers at the beginner stage to circumvent these early volume restrictions.
In other cases, a merchant account may only accept certain transactions. For instance, you may be selling to European customers, but your bank may only convert domestic US transactions.
With another merchant account, you may be able to secure processing for more credit card types. Offshore merchant accounts also allow secure processing for international orders. These accounts can increase payment options for your global client base. Reducing the amount of declined transactions in the process.
These are a few of advantages of gaining access to several merchant accounts. But there are still negative side effects.
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The pros and cons of multiple merchant accounts
As mentioned, there are various benefits to securing extra merchant accounts. They include (but are not limited to) the following:
Reduce excessive surcharge fees:
Do you own a brick-and-mortar shop plus an online store? Then you may need two types of accounts: card-not-present (online) and card-present (offline). If you process CNP transactions through your CP merchant account, hefty surcharge fees can be incurred. Setting up two independent accounts may reduce the charges you pay.
More currency options can be offered:
Are you selling your products and services to international markets? The more accepted currencies you have, the higher your sales are likely to be. Let’s say your initial acquiring bank only accepts US and Canadian dollars. By landing offshore payment processing in Europe, you could gain access to Visa and Mastercard payments in Euros, British pound, and Krona. You will also have access to other payment methods (e.g. debit options) that are better at converting customers in those markets. This increases the likelihood of checkout conversions and higher revenue for your online business.
Lessen risk presented by chargeback and fraud:
High-risk merchants in the e-commerce world often suffer from elevated chargeback rates. Those selling subscriptions or nutraceuticals are especially vulnerable. By procuring more than one merchant account in various jurisdictions, you can lower your chargeback rates. Customers are more likely to provoke a chargeback for a foreign transaction. Thus, the chances of a dispute will be lower if you are a local merchant in your customer’s market.
Secure protection against the unexpected:
Acquiring banks are unpredictable. They can close your account without forewarning. They may change their internal policies overnight and decide that your industry is not within their risk appetite. Even if the reasons are unfair and you have a clean processing record. With no merchant account, your payment processing will grind to a halt. Two merchant accounts are better than one. You can limit the damage of one terminated account. Allowing continued growth in the other while looking for another solution. PayPal and Stripe sometimes make brash policy changes. Those shifts may affect your company, leaving you scrambling for another solution. Don’t lose sales and customers. Make sure you always have a backup payment channel.
Gain processing for several websites or locations:
Many acquiring banks only allow one URL (or one location) per merchant account. This restriction helps manage risk. More websites raise the chance of chargebacks. If you have several product lines and would like revenue separated, having individual merchant accounts for each will allow you to process credit cards. Also, it will help clearly identify revenue for each business line without difficult and timely reconciliations.
Of course, these advantages are great. But, there is one potential drawback of operating multiple merchant accounts. It can appear as if acquiring banks can terminate an account without much of a reason. Yet in some instances, there are serious causes for termination such as:
- Data breaches
- Processing transactions on behalf of a third party
- Excessive chargeback ratios
- Excessive fraudulent transactions
- Collusion in fraudulent activity
- Money laundering
- Non-compliance with PCI guidelines
Committing one of these serious indiscretions, can result in major implications for your business. When accounts are shut down under these conditions, business details appear in the MATCH database for Mastercard. Otherwise known as Terminated Merchants File (TMF) for Visa. Payment providers share these records. Preventing you from gaining any new merchant accounts. When other acquiring banks and payment processors find out, they may cease their partnership with you. The absolute best-case scenario is retaining your merchant accounts. But this would be at disadvantageous terms to reflect the elevated risk factors of your business.
3 Strategic solutions for merchants operating one merchant account
Think strategically about payment processing capabilities. One merchant account could leave you struggling to fulfill orders as monthly sales caps become an issue. Here are three strategic solutions to increase your payment processing capabilities.
1. Diversify payment options
Banks put limits on new merchant accounts to guard against risk. Yet many companies outgrow these limits. You may be limited to processing USD $15,000. Then you might reach that level quickly. Sometimes within 30 days of launch. Thus, it pays to have alternative arrangements in place. To allow continued trading when credit cards are no longer an option.
Consider adding ACH or e-check processing. They allow high-risk merchants to continue to accept transactions after a monthly sales limit is reached. The added benefit is that the rate of chargebacks via these payment methods is far lower than by credit card. Which is great if you’re selling high-ticket items. These methods will also help build more processing history. This is useful when requesting an increase in sales volume from your current provider. It’s also beneficial when applying for secondary merchant accounts.
2. Dedicate special attention to chargeback ratios
If there’s one thing acquiring banks hate, it’s issuing persistent chargebacks to disgruntled customers. Thus, pay special attention to ratios. There’s no point increasing a monthly sales cap if chargebacks go through the roof. Your account will likely be terminated if that is the case. You’ll also be losing valuable sales revenue. So, ensure to analyze your fraud levels and determine the cause to avoid further losses.
Log in to your merchant account portal and review transactions with a fine tooth comb. By flagging and refunding suspect transactions before they become chargebacks, you can keep your ratio under 1%. You will also impress your provider with your proactive approach. If you manage to keep fraud at industry-beating levels, you will secure a limit increase and keep more of your hard-earned sales dollars. You’ll also dazzle other providers when applying for more merchant accounts. You will benefit from better rates and lower reserves as well!
3. Look offshore for processing
High-risk business owners often hold back on offshore merchant applications until they are more established. This is a smart approach. Offshore merchant accounts are much less strict than their domestic counterparts. The simple process of acquiring an offshore account will surprise you.
Not only do you receive increased payment processing limits, but you can also accept different currencies. What’s more, you get to eradicate those pesky decline codes from international banks. You can also keep your revenues domiciled in an offshore jurisdiction. Which comes with beneficial tax allowances with proper planning. Lastly, your business will be open to extra markets. One merchant account set up in Bulgaria or Latvia grants you access to over 30 European countries.
Multiple merchant accounts are the key to fast scaling
Brand new merchants have a lot of issues to overcome to become successful long term. Also, seasoned merchants that add products need room for expansion. Regardless of what level you’re at there are two big hurdles. The first is securing enough payment processing channels. The second is earning enough revenue for more than one merchant account. Initial merchant account processing limits can be very restrictive. Thus, it makes sense to explore your options as a high-risk merchant.
Look to other payment solutions such as ACH or e-check payment solutions to help build processing history. Plus, explore looking offshore if there’s a need to expand your payment processing capabilities globally. Finally, monitor chargeback ratios like a hawk. Excessive fraud may get your company MATCH-listed or TMF’d. By sticking to the rules and building clean processing history, you are bound to be successful.