Why Ecommerce Merchant Accounts May Cost You More
Ecommerce merchant accounts are special bank accounts that accept and hold funds from credit card transactions, usually ones processed over the Internet by online retailers and other businesses that do a significant portion of their sales and money-moving in cyber space. Ecommerce merchant accounts can be established directly with banks or MSPs (merchant service providers), or they can be set up via an ISO (independent service organization) that is backed by a bank. As with most choices, there are pros and cons associated with both banks and ISOs.
The main benefit of setting up an ecommerce account with a bank is that most banks are secure and reliable financial institutions that are required to have substantial insurance and highly regulated and monitored investment schemes. The main drawback with banks is that they are extremely selective in deciding which businesses are eligible to receive ecommerce merchant accounts because these Internet businesses often present greater risks than their in-person counterparts. Independent service organizations offer greater flexibility and are less selective, but because they accept greater risks than banks do, they must charge a premium for offering their services to riskier businesses in order to cover their losses. So with an ISO, you are more likely to be approved for an ecommerce merchant account, but you can expect to pay more than you would for a merchant account established directly with a bank.
The risk associated with providing an online business with an ecommerce merchant account is actually older than ecommerce itself, because Internet-based businesses are essentially the updated form of mail-order businesses. In both cases, there is greater risk because the merchant does not have a physical credit card to scan, and cannot require the customer to sign for purchases. However, online businesses do have other ways to combat fraud, such as requiring the customer to include the card’s billing address, or to type in a security code found on the card itself.
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