To many traditional retailers, the idea of opening an eCommerce shop may look very appealing. For one, there are less overhead costs—no rent to pay, less labor to account for, property taxes, etc. You don’t have to worry about taking care of a brick and mortar shop, and if you want to shake up the look of an eCommerce shop, all you need to do is know a little coding. With the eCommerce industry in the United States growing at a rate of 15% over last year, more and more entrepreneurs are looking to get into the digital commerce sector.
However, eCommerce offers merchants unique challenges. There are problems of logistics, fulfillment, inventory management, web design and user experience that immediately spring to mind. But what most digital merchants fail to take into account is how they are going to be able to collect their profits. In order for customers to make purchases through your eCommerce shop, they can’t just shove cash into their USB ports. Customers will need to use credit card, debit, or digital wallet payments to make transactions.
Payment Processing Challenges in eCommerce
eCommerce allows customers to complete orders from the comfort of their own homes, and sometimes, in the comfort of their own underwear. When they use digital payment options, verifying the identity of the cardholder is challenging. Cybercriminals have a multitude of ways to lift unsuspecting consumers’ credit card information. As a result, the eCommerce industry is rife with credit card and electronic payment fraud.
Banks and payment processors have sophisticated methods to protect their customers from fraudsters, but merchants are usually the ones who have to pay when a fraudulent purchase is made. Getting credit card payment processing in the eCommerce industry requires more careful selection and consideration of a merchant account—a business bank account where credit card purchases are processed.
Many of the popular eCommerce platforms like BigCommerce, Amazon, or Shopify offer their own payment processing methods and aggregate merchant accounts to accept credit cards. However, there are usually a high amount of processing fees linked to these types of merchant accounts. Further still, there are certain types of businesses, industries, and billing models these aggregate merchant account providers will not accept.
eCommerce: A Risky Business?
When payment processing providers assess eCommerce businesses for risk, they focus on a few features. Here are a few factors that contribute to your risk profile:
- Prevalence of Credit Card Fraud
- Reputational Risk
- Card-Not-Present Payments
- Legal and Government Regulations
- Recurring/Subscription Billing
- Bad Credit Merchants
Many eCommerce businesses bear one or more of these factors. Therefore, before eCommerce business owners look into opening a merchant account, they need to know what to avoid to prevent getting their merchant account frozen.
Aggregate vs. Dedicated Merchant Accounts
PayPal, Stripe, Square, and Amazon Pay all operate through aggregate merchant accounts. This means several merchants share one merchant account with a collective set of fixed fees. If one of these businesses happens to see a higher rate of chargebacks due to fraud, the payment processor will lock them out of the merchant account essentially putting a freeze on their funds.
With dedicated merchant accounts, each merchant account is designed for the specific business. Usually, rates will be negotiated and fixed in these types of merchant accounts, so if an eCommerce business is hit with a rash of friendly fraud, or an abnormal amount of credit card chargebacks, it is less likely they will have their accounts frozen. Naturally, the rates are higher in dedicated, high risk merchant accounts, but it is better in the long run because if your merchant account is frozen or shut down by an aggregate payment processor, your profit flow will stop for weeks, even months.
What’s an eCommerce Merchant to Do?
Although eCommerce businesses can be lucrative, they do have their own set of challenges, particularly in payment processing. Before launching an eCommerce shop, business owners should do thorough research on the best types of merchant accounts for their business model or risk losing the ability to accept credit card payments. There are businesses that specialize in payment processing and merchant account solutions that can work on businesses’ behalfs to get a dedicated merchant account at decent rates. If you need solutions for your eCommerce business, get the right merchant account before you open shop.
