Sales Volume and Merchant Account Approval

Monthly sales volume is a factor in determining the amount of risk associated with a merchant’s credit card processing. Monthly sales volume is defined as the dollar value of Visa and Mastercard sales that are processed by a merchant per month. Additional card brands, such as America Express, generally do not count toward a merchant’s sales volume.

Obtaining approval for a merchant account is very similar to obtaining approval for an unsecured loan because every dollar processed is a dollar in potential chargeback liability for the acquiring bank. If the merchant cannot pay back the chargebacks, the bank is responsible. Just as it is usually easier to get approved for a smaller loan amount than it is for a larger one, it is generally easier to get approved for a lower monthly volume merchant account than a high volume merchant account. In many cases, a high volume merchant account is more difficult to approve.

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. In many cases these factors are present in high volume merchant accounts, or the high sales volume heightens the amount of risk attached to these factors because there is larger amount of money in play and thus higher stakes, resulting in a classification as high risk credit card processing.

Higher processing volumes can result in higher chargeback ratios if the merchant is also a high risk credit card processing business type, the business model calls for large numbers of continuity, recurring billing, or installment payment plan transactions, or if the merchant lacks the customer service infrastructure to handle the increase demand caused by high numbers of transactions. High volume merchant processing can also translate into higher numbers of chargebacks, which can result in larger fine amounts from the card associations and entrance of the merchant into the associations’ chargeback monitoring programs.

High volume credit card processing can increase the likelihood of merchant failure and / or inability to pay chargebacks and / or fines. Merchants generating high volumes of credit card sales can often have high marketing and other costs and while there may be a lot of revenue passing through the merchant account, the merchant does not always have high margins. Any interruption of cash flow or settlements can have very detrimental effect on a high volume merchant’s ability and / or willingness to continue processing.