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Credit Card Transaction Risks For Different Entities
It has become quite evident that technology has made our lives easier. Standing in the 21st century, we cannot imagine our life without technology. Everything has got a good shape with the help of technology and the payment system is not an exception. If we look a couple of years back, the credit card transaction was completely a new thing. As a matter of fact, it has really made our transaction process easier. But, everything has positive as well as negative aspects and credit card transaction is not an exception.
Businesses across various industries are now accepting card payments online. But, you might be surprised to know that processing credit card transactions is not as easy as it looks. There are certain sectors involved in credit card transactions. They are merchants, credit card issuer and credit card network. Well, there are different types of risks for different entities and we will make a brief breakdown of these things so that you get a concrete idea about the credit card transactions.
However, before getting into the credit card transaction risks, one must know how a credit card transaction works. So, have a look at the following points:
Consumers swipe the card on the credit card machine and then the merchant sends the information to the credit card network.
After that credit card network passes the information to the credit card issuing company
Credit card issuing company checks the credit card transaction. Based on the available balance, they either approve or decline the transaction.
After that, the company sends the information to the credit card network.
The credit card network passes the information to the business owner and thus, a credit card transaction is completed.
Well, the entire transaction process is completed within a second and there are so many risks inextricably related to the transaction process.
Risks For Credit Card Issuing Bank
Well, the credit card issuing bank generally provides the credit card to the consumers and sets the credit card limit for the customers. Credit card issuers believe that cardholders will repay the credit card debt. But, the problem arrives when the cardholder does not repay the credit card debt and in such a case, the issuer faces problems and loss in their business. However, as a merchant, you have to pay a certain amount for each credit card transaction and it is called interchange fee. This is something that helps the credit card issuing companies to deal with the loss.
When a cardholder does not pay the credit card debt, the issuer checks all the personal credits of the customer and they decrease the credit card limit. They can even lock the credit card.
Risks For Merchant Processor
You need to pair your business with a merchant processing solution in order to accept credit card payment. You have to submit all the required documents and after that, the merchant processor takes a maximum of one week to approve your account. Well, there are certain things working behind it. If you are having a high-risk business, the merchant processor might not approve your account. On the other side, low-risk businesses get easily approved by the payment processor.
Well, the entire process can take up to one week as the merchant processor generally checks credit score, financials of the business, and many more before approving your business. A credit card processor has to evaluate all the risks before approving the merchant account. Along with it, the processor has to determine the processing rate.
If your business is completely new and you are trying to develop a reputation, your business belongs to a high-risk business. In such a case, you need to contact a high-risk credit card processor. A high-risk credit card processor provides all the facilities that a normal merchant processor offers. But, here the processing fee remains on the higher side.
Risks For Merchants
A merchant holds the most critical position in credit card transactions. If you are a merchant, the primary risk for you is the chargeback. Yes, you are carrying the financial responsibility and if any customer disputes the transaction, you have to refund the entire transaction amount. Well, many do this intentionally for getting a refund and this is considered as fraudulent activity. Therefore, in order to mitigate this risk, you have to monitor every transaction. If you notice any fraudulent activity, you can contact your merchant processor company.
However, as a businessman, you have to be honest. If you don’t deliver the correct product or if you are unable to deliver the desired service, the customers can raise a chargeback and dispute the transaction. In such a case, you have to refund the amount. In case of excessive chargebacks, you have to pay penalties and you might lose your merchant account.
Not An IPS Merchant?
If you want to elevate your business to the next level, you need a reputable merchant processor. In such a case, International Payment Solutions will be an ideal choice for you. With years of experience, this virtual platform can give you technologically advanced payment terminals. So, what are you waiting for? Get in touch it IPS today.