Sell more product, gain more customers, add more revenue, make more money and have peace of mind. One would think it’s that easy. If you’re one of the many online entrepreneurs who use a payment gateway, merchant account, and shopping cart to process sales, growth can cause some unexpected roadblocks that you need to be aware of, especially if you are considered a high risk merchant.
Merchant accounts are generally approved for a certain maximum ticket amount, but more importantly, a specific monthly maximum as well. If you go over your maximum ticket amount you may be at risk of being shut off. Gateways sometimes also have limits built in by the reseller that can cause unexpected declines at the least opportune times.
Processors are liable for a merchant’s refunds and chargebacks; if for any reason the merchant doesn’t have those funds available, the processor has to dig into their checkbook and cover for the merchant. As a result, processors look at volume in two ways: the glass half full where more volume is equated, potential profit is made, or the glass half empty where more volume is equated with more liability.
Most processors are willing to review a merchant’s account to see if more volume is an acceptable risk. Often (but not always) to conduct a thorough review, they will ask to see 3 months of bank statements, current financials, and a YTD Profit and Loss statement. This information will help them determine if the merchant can support a potential hit that could come through refunds or chargebacks.
For example we had a recent client who contacted us for advice on the following situation, he had a clean history, with only one chargeback and two refunds in 800 transactions over three months. He provided the review analyst at the processor (one of our recommended processing partners that we helped set up for him at the same time we set up this his gateway) 3 months of bank statements and a current profit and loss statement. However, since he had only three months of history, and was in a high risk industry (in this case a business opportunity product) the analyst agreed to a 150% increase in his monthly volume, and instituted something called a rolling reserve.
What is a Rolling Reserve?
A rolling reserve is like a forced savings account, where 3% to 20% of deposits are set aside and returned in the future at some point (assuming they were not used to cover losses). Often those deposits are returned in a “rolling” fashion: the funds held in month one are returned in month seven; the funds held in month two are returned in month eight, and so on. As you can see, in many cases, funds are returned within a short six-month period. At times the reserve can even be reduced or eliminated in the future, provided the merchant continues to have a clean history.
Gateway Based Load Balancing
Another option we have seen many merchants use when a business is experiencing an extremely rapid rise in volume, and an increase in max monthly is not enough, is to bring on a second processor for the sole purpose of accommodating more sales volume, a different product type, or a maximum sale amount the existing processor is not comfortable with. That will spread the risk around, and reduce the overall exposure for any given processor. That may be especially useful if someone is using the NMI (Network Merchants Inc) payment gateway. Using the normal NMI login, a merchant can integrate multiple processors and split the total monthly volume between them any way they determine, by dollar, by SKU by sale amount or by custom field. For example, with three processors, they might put 50% through Processor A, 25% each through Processors B & C. (Or any other pre-determined ratio: 33/33/34; 60/25/15, etc.) This makes managing daily tasks seamless through multiple processors. By using one login, merchants can simplify tracking refunds, voids and the other admin duties that come up from time to time. One of the more common reason this is done is due to differences in products. A merchant may have a $30 monthly business coaching product through one processor and be near his maximum volume, this same merchant may then want to launch a $1000 weekend seminar program. The processor that is processing the $30 sale may not be comfortable with the $1000 sale, so in a situation like this the merchant could obtain a second account through a more risk tolerant and likely more expensive processor, set up 2 merchant accounts within the gateway, and automatically send large sales to the risk tolerant processor and small sales through the lower cost processor and manage everything through one gateway log in. You should always make sure you are not violating any merchant account or terms and conditions when performing load balancing. Seek the advice of counsel or your merchant account loss prevention / risk management departments before you begin managing multiple accounts.
We recently had another merchant in the high risk E-Cig industry (who uses NMI as his gateway) get his volume raised from $30k a month to $80k, and his reserve only went to 8%. Since he expects further growth at that level, and his current processor will not approve any more volume we have referred him to a second processor that we will then add to his NMI gateway once his additional application is approved.
Know your limits
It is ultimately up to you as the merchant to know your maximum ticket limits, and your monthly volume limits. Going way over your limits can cause missed deposits, held funds and even account shut downs, it can be catastrophic for your business. As you grow and approach your limits, know that you have options. Most processors are willing to work with you to help your business mature. Just be prepared to provide documentation for an analyst to review. Most importantly, don’t wait until the last minute to talk with your processor. Reach out to them before you need the increased volume. And please, feel free to reach out to us for some friendly advice, we know all the major players in the industry and can often give some solid guidance to folks experiencing their first growing pains.