TABLE OF CONTENTS
Card brands, such as Visa and MasterCard, assess risk levels before boarding a merchant. Due to an acquiring bank processing card funds on behalf of merchants, MasterCard and Visa delegate this risk review to them.
Merchant’s Risk Review
Determining merchant risk is not clear-cut. There are numerous factors to carefully consider and weigh. These factors include:
- High dollar transactions
- Lack of prior processing history
- Excessive fraud or chargeback disputes
- Unusual shifts in processing volumes
Merchants portraying the above behaviors automatically raise a red flag for the acquiring bank and, therefore, Visa and MasterCard. Despite working with so many merchants, these two giant card brands have the resources and technology to flag risky merchants with ease. If your risk level is considered high, it will be a tedious process to locate a processor willing to board your business. And even then, you run the risk of being caught in unfavorable merchant terms or high rates.
The reason MasterCard and Visa determine merchant risk is not to terminate business from the ability to accept electronic payments but to ensure compliance. A merchant with a high-risk level is likely to make them lose more money in the form of excessive chargebacks or fraudulent transactions.
Monitoring Risky Merchants
Both Visa and Mastercard utilize complex security monitoring processes to seem out and review suspicious merchant activity. These processes don’t just assess new merchants; the monitoring continues for approved and boarded merchants. If any unusual activity is spotted, it is reported, and the merchant must ensure all card brand rules are being followed to not risk losing their processing account. The objective is to make sure transactions are authorized, secure, and compliant.
Visa uses its Global Risk Standards to determine merchant risk level. Mastercard has a similar Business Risk Assessment. These programs aim for all merchants to be proactive in their compliance. This allows for optimal merchant growth while minimizing the card brand’s risk.
Acquiring Banks are Liable for a Merchant’s Activity
Earlier, we set the stage on why Visa and MasterCard aren’t directly affected by a risky merchant. The risk review lies with the acquiring banks. Should a merchant go bankrupt or receive numerous chargebacks, the acquiring bank must make good on every transaction. The Visa and MasterCard systems consider the bank underwriting the merchant as the acquiring bank. To safeguard acquiring banks from high risk, MasterCard and Visa set strict standards. They also charge more for high-risk transactions. Before agreeing to partner with a merchant, acquiring banks ensure a merchant meets the minimum requirements provided by Visa and MasterCard. This is done with the acquiring banks’ underwriting process before approval. Many acquiring banks also limit the amount of high-risk merchant account they can have within their portfolio at any given time. This helps balance their risk levels and ensures they remain a healthy and productive acquiring bank moving forward.
This article is brought to you by Payment Savvy – a leader in the high-risk merchant processing space. Since 2010, our custom and compliant payment solutions ensure your business can grow for minimal cost. Give us a ring today to meet Your Payment Partner™.
High-Risk Business with Stripe, PayPal, Square, Venmo
Certain activities, or the industry you work in, may cause payment processors to characterize your merchant account as high risk. It isn’t uncommon for some businesses to process online payments and get higher-than-average returns, but your reputation and industry play an important role. Having your merchant account suspended will undoubtedly lead to revenue loss and…
Instant ACH Transfers Online
Our current era has been shaped by digitization with a fundamental impact on all sectors, including banking and finance, where it has brought unprecedented convenience, security, and efficiency. The backbone of these developments is none other than America’s Automated Clearing House (ACH) which facilitates seamless electronic transactions between banks and financial institutions within its network.…
A Comprehensive Guide to FedNow
The Federal Reserve Bank is currently developing a new instant payment service called “FedNow” that will allow financial institutions to make instant payments. The FedNow Service will begin operating in July 2023 and it is the first U.S. government-created and -backed portal that will enable financial institutions to send and receive payments in real-time 24…