The Lowdown on High-Risk MCC Codes: What You Need to Know

If you are a business owner who accepts credit card payments, you may have heard of Merchant Category Codes (MCCs). High-risk merchant category code is a four-digit number assigned by payment card networks such as Visa and Mastercard to identify the type of business or service a merchant provides. 

High-risk MCC codes will clearly indicate that the business is operating in an industry that poses a higher risk of financial loss or fraud. So, does this mean high-risk MCC codes are scary? 

No! They may make it harder for businesses to obtain quick merchant account services, as they are considered higher risk and may face additional scrutiny or fees. Some providers may even refuse to work with businesses that operate in high-risk industries. But it is important to correctly identify the high-risk MCC  your business falls under to avoid business disruptions later. 

Merchant Category Codes or MCCs are used for determining interchange fees, tax reporting, fraud prevention, and compliance monitoring and those are critical business areas for high-risk merchants. Interchange fees are the fees that merchants pay to the card-issuing banks for each transaction. They vary depending on factors such as the type of card, the type of transaction, and the risk level of the business.

Don’t Choose Wrong High-Risk MCC

If you are running a high-risk business, such as online gambling, adult entertainment, or cryptocurrency trading, you need to be aware of the importance of choosing the right high-risk merchant category code (MCC) for your transactions.

Choosing the wrong high-risk MCC can have serious consequences for your business, such as higher fees, lower approval rates, increased scrutiny from regulators, and even termination of your merchant account. 

For instance, if you’re running an online gambling website and are incorrectly categorized as a low-risk business, you may be approved for a merchant account with lower fees and requirements than those in the high-risk category. However, when chargebacks and fraud inevitably occur, you could be left with hefty fines or even a frozen account. Choosing the correct high-risk MCC code ensures that you have the appropriate fraud prevention measures in place, and that you’re working with a provider who understands your industry and can help you mitigate risks.

High-risk MCCs typically draw attention from regulators and law enforcement agencies, who monitor business transactions more closely and have stricter rules and regulations on such businesses. For example, some high-risk MCCs are subject to special reporting requirements under the Bank Secrecy Act (BSA) or the USA Patriot Act, which aim to prevent money laundering and terrorist financing. But remember these are necessitated in your sector and there’s really no escaping them. Find a payment solution partner like TickleCharge who have experts on-board to help you make sense of these regulatory frameworks without disrupting your business. 

How to find the best high-risk MCC for your business?

The first step to finding the best high-risk MCC for your business is to consult the merchant category code list provided by the payment networks that you want to work with. The merchant category code list is a comprehensive document that contains all the available MCCs and their descriptions and classifications. You can find the merchant category code list on the websites of Visa and Mastercard. (If a merchant or marketplace sells more than one type of merchandise or has more than one line of business, it must use the MCC that best describes the business with the highest sales volume (measured in local currency) to process all Visa sales.)

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The second step is to compare the different high-risk MCCs that match your business type and activities and choose the one that best reflects your products or services and minimizes your risk exposure. For example, if you are selling adult products online, you may want to choose a high-risk MCC that specifically relates to adult entertainment or online dating services, rather than a generic one that covers all types of e-commerce or retail sales.

The third step is to verify with your merchant account provider that they support the high-risk MCC that you have chosen and that they can offer you competitive rates and terms for processing your transactions. You should also check with your merchant account provider if they have any additional requirements or restrictions for accepting your high-risk MCC, such as requiring a reserve fund, a security deposit, or a personal guarantee.

Managing Risks as a High-Risk Merchant

If you are a merchant with a high-risk MCC, you may be wondering what you can do to reduce your risk and lower your costs. Here are some tips:

1. Choose a merchant account provider that specializes in high-risk businesses. They may have more experience and expertise in dealing with high-risk MCCs and offer more competitive rates and terms. Some examples of high-risk merchant account providers are TickleCharge, Soar Payments, and Durango Merchant Services. 
   In 2019, the Federal Trade Commission (FTC) ordered a payment processor to pay a $1.7 million penalty for processing unauthorized and fraudulent transactions for high-risk merchants. The payment processor had reportedly failed to adequately screen and monitor high-risk merchants, which resulted in significant losses for consumers.
    
2. Implement fraud prevention measures such as address verification service (AVS), card verification value (CVV), and 3D Secure. These are tools that help verify the identity of the cardholder and reduce the likelihood of fraudulent transactions.
    
3. Provide clear and accurate information about your products or services, your refund policy, and your contact details on your website and receipts. This can help prevent customer confusion and dissatisfaction that may lead to chargebacks.
    
4. Respond promptly and professionally to customer inquiries and complaints. This can help resolve issues before they escalate to chargebacks.
    
5. Monitor your chargeback ratio and take steps to reduce it if it exceeds the acceptable threshold set by the payment network. The chargeback ratio is the percentage of transactions that result in chargebacks. The acceptable threshold varies by payment network but is generally around 1%. You can reduce your chargeback ratio by following the tips above and disputing chargebacks that you believe are invalid.

Choosing the wrong Merchant Category Code (MCC) for your high-risk business can have serious consequences. It’s crucial to partner with a reliable payment provider who can help you navigate the complexities of high-risk processing and manage associated risks, such as being locked out of your merchant account or banned by payment networks for non-compliance. 

Payment networks have specific rules and guidelines for certain high-risk MCCs, and failure to follow them can result in penalties, fines, or even suspension of your account. For example, if you’re in the e-cigarette industry, you must adhere to age verification laws, advertising restrictions, and other regulations. If you’re categorized as a low-risk business and your provider isn’t aware of these requirements, you could face serious consequences. Choosing the correct high-risk MCC code ensures that your provider understands your compliance obligations and can help you stay on the right side of the law.

What to do if you encounter any problems with your high-risk MCC?

If you encounter any problems with your high-risk MCC, such as being rejected by a merchant account provider, being charged excessive fees or commissions, being subjected to excessive audits or reviews, or being terminated by a payment network, you should not panic or give up. Instead, you should take the following steps:

1. Contact your merchant account provider and try to understand the reason for the problem and negotiate a possible solution. Be polite and professional and provide any evidence or documentation that can support your case.
2. If you cannot resolve the problem with your merchant account provider, consider switching to another one that can offer you better service and support for your high-risk MCC. You may want to consult online reviews, ratings, testimonials, or referrals from other high-risk merchants who have used different merchant account providers.
3. If you cannot find another suitable merchant account provider or if you are banned by a payment network, consider alternative payment methods or platforms that can accept your high-risk business. For example, you may want to use digital wallets, cryptocurrencies, prepaid cards, or peer-to-peer transfers that do not rely on traditional payment networks or banks.

Choosing the right high-risk MCC for your business is crucial for ensuring smooth and successful transactions and avoiding unnecessary risks and costs. By following the tips and advice in this blog post, you can find the best high-risk MCC for your business and enjoy the benefits of running a profitable and compliant high-risk business.

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