Average Ticket and Merchant Account Approval

The average ticket is a factor in determining the amount of risk associated with a merchant’s credit card processing. The average ticket is determined by dividing a merchant’s total sales in dollars in a specified time period (usual a month) by the number of transactions. This calculation yields the merchant Average Sale amount charged on a credit card. The average ticket is a predictor of account activity, interchange fees, and the level of risk associated with the account. A high average ticket can make it more difficult for a merchant to obtain approval for credit card processing.

In general, the higher the average ticket, the higher the risk to the acquiring bank. The risk factors that are most important to the bank are a higher incidence of chargebacks, a higher incidence of crossing the chargeback thresholds set by the card associations resulting in fines and sanctions, and a higher incidence of merchant failure and inability to pay chargebacks and/or fines, and fees associated with the merchant account. These factors can combine to make some merchants a higher risk and thus harder to approve for a merchant account.

If the sale amount is high, the cardholder has more at stake in the transaction. If something goes wrong with the sale, the cardholder is more likely to initiate a chargeback. Also large sale amounts are usually connected to more complex transactions that carry additional risk factors, such as future delivery or a custom build. There is more that can go wrong with the sale. Combine a high priced sale with a more difficult to successfully deliver product/service, and the acquiring bank can reasonably expect to see higher numbers of chargebacks. Some examples of merchant types with a high average ticket and a more complex transaction are: vacation packages or cruises, furniture sales, custom made products like golf clubs, and search engine optimization.

A higher average ticket also makes it more likely that a merchant will cross chargeback thresholds set by the card associations. It is very easy to go over a 1-2% limit of chargeback volume to monthly sales volume when getting only one or two high dollar amount disputes can skew the ratio. The higher likelihood of fines, sanctions, or audits can result in a higher underwriting standard for merchant account approval.

Chargebacks on high average tickets are also more likely to put more strain on a merchant’s cash flow and put the merchant in financial distress. Merchants selling high value products and services with long lead times usually have higher costs and are less able to absorb losses from chargebacks. The failure of only one or two sales can have a disproportionate effect on the merchant’s financial viability. The increased chance of the merchant failing, going out of business, or  being unable to pay fines, fees, or chargebacks.