10% reserve required by card processor

Has anybody received this requirement?

[sportcaster]

We have recently set up a shopping cart on our website and the bank handling our internet merchant card services wants to hold onto 10% of our sales for the first six months, and then return those funds to us. Is this standard in this industry? Has anyone else had a similar requirement? When I spoke to the new account rep she said it was for 'risky accounts', but could not say what was risky about our business (we sell exercise equipment). She said she would check with the bank, but could not offer any more details.

[tolachi]

My take is that if you haven't shopped around enough to know whether or not this is standard you are probably getting burnt on you cc fees. Getting the right merchant account can save you a lot of money over the course of a year.

[Macro]

sportcaster, you are probably in the UK. It's normally only in the UK that banks try that on.

There are some sectors - like PC component sales - that are tradionally risky for card companies. But they try to stretch that to any sector if you aren't up to arguing your case. It means that they either get one big lump-sum that they hold as security ... or they get to make delayed payments. Either way using "security" as an excuse to hold up your money is what banks do. If you do fall for that make sure you agree with them a date at which the arrangements will be reviewed. Try for 12 months. In those 12 months if there are no chargebacks you have a good case to argue for them to lift the restrictions.

What they do also look at is the net worth of the company. You need to add to that (speak to your accountant) bottom line figure to strengthen your case.

[sportcaster]

We are located in the US, not the UK. The fees quoted by this company are quite low compared to other merchant card services we have contacted, and they were recommended by our shopping cart site. Our financial position is good and we have been in business for 34 years. The funds would be held for six months and then returned to us.

I'm not sure why the bank would need to hold on to any funds. Anyone have any ideas?

[bcolflesh]

I'm not sure why the bank would need to hold on to any funds.

So they can earn free interest on your money.

[Morocco]

What type of products are you trying to sell?

[sportcaster]

We are selling exercise equipment for golfers. Each unit sells for $275, which is about average for mail order exercise equipment.

[Macro]

The bank would argue that they need to hold on to funds in case they get a sudden rush of chargebacks. Consider this scenario: A new company sets up. They offer a product at an incredibly cheap price, take tens of thousands of dollars in orders and initially ship a few units but then stop shipping altogether. The card company deposits all this money in the company's bank account. The company pays the directors hefty salaries for the month and then they file for receivership. The credit card company will have to foot the bill to refund all the angry cardholders who received no goods.

Our financial position is good and we have been in business for 34 years

Show them what the net worth of the company is relative to the amount they are processing for you. If the monthly transactions are less than 10% of the company worth then they shouldn't require a deposit/delay. And do shop around and see what other providers have to offer.

[Macro]

There are a few companies in the UK who have done this. One company - which I shall not name - was advertising camcorders at ridiculously cheap prices last year (it turned out later that they were selling at below cost). People didn't believe the prices but the first few customers actually got the goods at those silly prices. Word caught on. A lot more people started ordering from them. Even other traders figured it was cheaper to buy from these guys than to buy from official distributors. People started getting greedy and ordering 20 x Sony 950Es, thinking that if they could get a £1800 product for £600 they'd have no problem selling it. Once the volume of sales built up.... you've guessed it! Bam, they closed shutters one day and cleaned up several million pounds.

[Morocco]

That initial freezing of funds is sometimes standard with some banks. A merchant's Gateaay/Processor should never touch your money. If you are refering to your aquiring bank, these incidents happen more times than you can believe. It usually occurs within smaller banks that have little experience with online merchants.

[moose606]

We have never had this requirement imposed upon us by our merchant account. I guess it's time to go shopping?

[Macro]

We have never had this requirement imposed upon us by our merchant account

Neither did we. Till we had one really busy month and Barclays Merchant Services suddenly got cold feet. After running a zero fraud/zero chargeback account for 6 years we were suddenly "high risk" and they wanted £20,000 as security. I went ballistic, gave my Barclays Business banker a piece of my mind and he finally got it resolved with BMS.

Never having had the requirement imposed before is no guarantee that your bank will not suddenly get "clever" ideas.

[Morocco]

Just curious, what was your method for getting it resolved?

[Macro]

what was your method for getting it resolved?

I didn't. I told my business banker to talk with BMS and sort it out .. or else. It's a pretty decent account for him and they've made a fair bit out of us. I'm sure he didn't want me to take the account elsewhere. He called back within 48 hours to tell me to ignore the letter BMS sent.