Monthly Volume – or MV – is the maximum monthly dollar volume that a merchant is allowed to process for all Visa and MasterCard sales transactions. The monthly volume that a merchant processes is important for underwriting consideration and also helps to determine exactly what type of documentation will be required in the merchant’s file. Transactions with American Express, Discover, Diner’s Club and the other major credit card brands are not included into the calculated monthly volume.
Volume limits protect the underwriter of the sales transaction. Of course, merchants receive money when a client or customer makes a purchase, but the underwriter is ultimately responsible for it. If the merchant has a large number of chargebacks and has insufficient funds to cover all of them, the underwriter will have to repay the credit card issuing bank (cardholder bank). Since there is a substantial risk, the underwriter will analyze a typical monthly volume and average ticket price of a merchant and use all of this information to identify any suspicious account activity.
Risk Assessment, Fraud Protection
The underwriter will usually, and importantly, place a monthly limit on the merchant’s credit card processing as a safeguard against fraud and the losses they could easily incur as a result of that fraudulent activity. The underwriter will take into account a merchant’s business type, the company owner’s personal credit history, the firm’s product or service category – such as high risk categories like adult entertainment, online dating services, lotteries and pharmaceutical sales – and how long a merchant has been in business.
Volume limits can be a huge challenge for a merchant. If a merchant exceeds the volume limit that has been set up, an underwriter can freeze that merchant’s funds and stop processing all sales transactions immediately. Many businesses have run into this treacherous problem. It can damage the reputation of the company and result in a serious loss, not only of short-term sales but overall business down the line, as well as goodwill. In many cases, a business may not be able to secure another merchant account after the original account has been frozen for this reason.
Fees and Charges
Average merchant monthly volume often determines a minimum monthly fee when setting up a merchant account. The purpose of a minimum monthly fee is to encourage a certain monthly volume to be achieved by the merchant. Some merchant banking solutions might require a minimum monthly fee. For example, if there is a minimum monthly fee of $1000, it may mean that the amount of a merchant’s monthly volume discount rate must be at least $1000. Therefore, if for a certain month, a merchant’s monthly volume discount rate is $800, then that merchant would need to pay an extra $200 to make up the $1000 minimum monthly fee. If the amount of a merchant’s monthly volume discount rate is more than $1000, then that merchant will not need to pay any extra.
Monthly merchant sales volume can directly determine the discount rates that a merchant ultimately pays a service provider every month, along with credit scores, business type and average ticket sales.
Minimums and Maximums
Often electronic commerce companies look to online credit card
processing accounts for their small-scale internet businesses. This
happens because small electronic commerce companies will, almost always,
not survive by using a traditional online credit card processing
merchant account. Most regular merchant account providers and local
banks have a monthly minimum volume. That means that a registered
electronic commerce business must process a minimum total sum of
earnings so as to remain registered.
For example, if the minimum monthly volume for an e-commerce merchant service is $3,000, and an online retail shoe shop processes $4,000 through its online credit card processing gateway, that shoe merchant shall be eligible to remain with their service an extra month. However, if a merchant with a new online t-shirt shop makes $1500 per month, that merchant account will be terminated (“Terminated Merchant File” status), since that internet company hasn’t processed the minimum of $3,000 in sales transactions.
Small merchants, along with their small online businesses, cannot afford to damage their credit card processing histories, which is why they turn to e-commerce merchant accounts specializing in small merchants. Low processing volumes are a huge challenge for small electronic commerce businesses. Merchant accounts that little businesses have typically don’t have a minimum volume policy, or it is pretty low and flexible. This is the wonderful benefit of electronic commerce merchant accounts intended small electronic merchants and businesses.
Third-party processors and merchant accounts allow electronic commerce merchants, which includes those that do small volume internet business, to use and join up one merchant account for them all. The benefit of procuring a third-party online credit card processor is that one typically doesn’t have monthly minimum processing volume limits, or truly opportune small volume processing policies. Third-party electronic commerce merchant accounts typically have no monthly membership fees, which allow merchants to save money on preliminary setup costs, as well. However, discount rates and processing fees for third party merchant account services cost more.
E-commerce merchant accounts for small businesses and merchants, because of their higher rates and lower monthly volume restrictions, may prove to be inconvenient once the business flourishes and the volumes rise. Be sure to see about changing account types and the payment of requisite fees when the time is right, to stay on track with timely payment processing as your company grows larger.