s a merchant level salesperson, you call on merchants to sell them processing solutions. Frequently, they ask you questions: Why should I change processors? Can you give me a rate that's better than my current processor? Why does it matter who my processor is?

After a lengthy presentation, you convince them that your company is the right choice. They sign on the dotted line, you send in the application, and ... the processor declines it. Sometimes merchants are an unacceptably high risk for your processor.

It's your job to know why, not only so you're not surprised another time, but also so you can help future merchants get underwritten.

The basics of underwriting and measuring risk are fundamental in this industry. As a sales representative, you and every one of your merchants should understand the guidelines used by a processor when deciding to accept or decline merchant applications.

In this article, the first in a three-part series on merchant-level training, I'll discuss the process of underwriting and, once the processor approves a merchant, how the process of processing credit cards works.

Next month, this column will address merchant level risk protection, and in April, it will explain how to read a merchant statement and unlock the earning potential it contains.

All Merchants Are Not Created Equal

In underwriting, certain clear differences exist between merchants. These distinctions, many of which you can easily correct or minimize, often make the difference between a processor approving your application or declining it.

(And if certain merchants seem like risky prospects according to underwriting guidelines, use this information to manage their expectations so they won't be blindsided by an acquirer's rejection.)

Acquirers categorize merchants according to potential risk. By answering the following questions, you will determine the category into which your merchants fall and help them improve their risk rating.

· How Likely Is a Chargeback? This is a question in which the answer varies from industry to industry. Take the example of a restaurant: Restaurants rarely face chargeback issues because when patrons are unhappy with their meals, they will likely request changes or replacements to their entrees rather than leave the restaurant, go home, wait a few days, and then call their issuing bank to request a refund.

Compare this to a retail store, where returns and chargebacks are much more common, and you'll see why having a low risk for chargebacks can put your merchants on the fast track to an acquirer underwriting them.

· Is the Merchant Selling a Product or a Service? If a merchant sells tangible objects, things you can pick up and hold in your hands, it's easy to prove that customers received the items for which they paid.

The risk that the items will be charged back is much smaller than it is for say a cleaning service, where customers and merchants might have very different definitions of what constitutes an acceptable delivery of service.

· How Is the Product Delivered?

This question and the next one are particularly important for MO/TO and Internet merchants. If the merchants in question routinely ship items to customers without requiring a signature, customers can very easily say that they never received the package and then charge it back, whether this is true or not.

Merchants who require signature confirmation on deliveries are a much smaller risk for underwriting.

· Is the Card Present?

This is crucial, and not only because it saves your merchants the higher card-not-present processing fees. By getting an imprint or signature or using a wireless terminal to swipe the card wherever the transaction takes place, merchants will be much more attractive underwriting prospects.

Beyond Underwriting: Merchant Business Basics

Once processors approve merchants for underwriting, assign an appropriate risk level to them, and set them up with downloaded equipment, they're ready to begin processing.

This is the point in the process when many of you as sales representatives take yourselves out of the equation. You've made the sale, now it's time to sit back and watch the residuals roll in, right?

Wrong. This will work in the short term, but you'll quickly lose your merchants to attrition if you don't work to keep them satisfied after the sale.

One way to do this is to make sure that they understand the process: what goes into choosing an acquirer and what your company can do for them that the competition can't.

Use this information to walk your merchants through the basic processes of processing; let's face it, many of us could use a refresher course, too.

When a card is swiped or keyed into a terminal, software or gateway, the system dials out to the front-end computers for authorization and receives an approval code, a decline message or a call center message (this is only used when the card is listed as lost or stolen or the cardholder is over his credit limit.)

Let's assume the transaction goes through. When the merchant "batches out" at the end of the day, this creates a settlement file listing all of the electronic transactions that affect a merchant's daily balance and sends it to the back-end bank.

The bank reconciles this file by posting transactions to the cardholder and processing payments to the merchant's bank account.

The next step varies from acquirer to acquirer, but here's the way it works at Cynergy: A mirror file of this batch is sent to the acquirer and filtered through the risk department, which flags unusual transactions according to preset criteria.

Risk personnel then comb through the flagged transactions, trying to determine if they're valid or not.

If it seems unlikely that fraud has occurred, the transaction is released with the rest of the batch and the merchant gets his money with no interruptions.

If the risk department decides that a transaction looks suspicious or high-risk, it calls the merchant to get supporting documents and holds the funds until it completes the investigation, 270 days maximum. Highly suspicious transactions can be immediately reversed if a thorough investigation finds evidence of fraud.

Merchants need to know that if they're involved in fraud, transactions that result in excessive chargebacks, or Visa/MasterCard violations, they can be placed on what is known as the "MATCH" list, the Member Alert to Control High-risk Merchants list. Most acquirers will refuse to process for a merchant who appears on this list.

This is tough material to explain to your merchants, but if you understand it and help them understand it, you'll receive fewer questions and hear fewer complaints in the future.

Most importantly, you'll understand how an acquirer protects your money and your merchants' money.

Next month, this column will focus on the ins and outs of risk, including chargeback protection, recognizing fraud and protecting funds for you and your merchants.

Nancy Drexler is the Marketing Director of Cynergy Data, a merchant acquirer that provides a wide array of electronic payment processing services while continually striving to develop new solutions that meet the needs of its agents and merchants. In addition to offering credit, debit, EBT and gift card processing, along with check conversion and guarantee programs, the company offers its ISOs the ability to borrow money against its residuals, to have Web sites designed and developed, to provide merchants with free terminals and to benefit from state-of-the-art marketing, technology and business support. Founded in 1995 by Marcelo Paladini and John Martillo, Cynergy Data strives to be a new kind of acquirer with a unique mission: to constantly explore, understand and develop the products that ISOs and merchants need to be successful and to back it up with honest, reliable, supportive service.
For more information on Cynergy Data, e-mail Nancy at nancyd@cynergydata.com .