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US-Based Merchant Account

May 31, 2022 • by shall

Understanding how merchant accounts work if you operate in the United States and have a business overseas requires you to understand the many different types of merchant accounts available.

However, it’s also crucial to understand that specific industries, especially those with high chargeback rates, are prohibited from setting up a merchant account.

Let’s take a look at two different merchant classifications:

CMM Merchants

Chargeback-monitored merchants (CMM) are merchants that meet the following criteria:

  • 50 or more chargebacks per month
  • Chargeback-to-transaction (CTR) ratio greater than 0.5%

ECM Merchants 

Excessive chargeback merchants (ECM) are merchants that don’t fit into the CMM classification and meet the following for two months in a row or more:

  • 50 chargebacks or more in each of the two months
  • 1% or higher CTR

If you have a CTR of 1% or higher for three months in a row, you’ll be required to close out your merchant account.

Rules for Processors and Merchants

Payment processors must do their best to ensure that they follow the rules set by MasterCard and Visa. Processors must monitor merchants to help limit:

  • Chargebacks
  • Reimbursement fees
  • Violation assessments

Processors have a right to scrutinize new applicants and reject their requests to open a new merchant account. Certain activities are known for high fraud and chargeback rates, so they won’t be considered. These include:

  • Illegal activity
  • Online pharmacies
  • Adult industries
  • Online gambling
  • Credit repair agencies
  • Escort services
  • Get-rich-quick companies
  • Lotteries
  • Collection agencies
  • Sport betting
  • Etc.

A few of the rules that go beyond chargebacks include:

  • Transactions
  • Security
  • Minimum and maximum transaction amounts
  • Risk assessment and mitigation
  • Excessive chargebacks
  • Questionable merchant audits
  • Alerting members of a high-risk merchant
  • Data integrity

Merchants also have the responsibility of monitoring their customers for fraud. If a high amount of fraud occurs and is a continual problem for a particular merchant, they may be required to close out their account.

Processors also have a right to request a merchant close their account if they have a high chargeback or fraud ratio.

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