Merchant acquirers that fail to follow Visa Inc.’s safeguards to prevent processing certain high-risk merchants’ transactions face paying $100 per charge-back on top of regular penalty fees under a program Visa announced to its acquirers in March.
Online merchants Visa is targeting include those selling acai or health-related teas, teeth-whitening products, colon cleansers, glucose strips, Internet-based work-from-home schemes, and services offering government grant money.
Though many merchants selling these types of products “provide quality customer service, there are also many that do not,” Visa notes in a March 31 bulletin to acquirers.
Often the issue follows an online consumer purchase. The primary complaint about an unscrupulous merchant involves the “negative option” feature that requires consumers to cancel or opt-out of a recurring charge for future products or services, Visa says. On a checkout screen, these merchants may pre-check consent boxes that bury the details of the recurring billings in their websites.
Such merchants create 20 times the number of consumer disputes compared with the average e-commerce merchant, Visa says.
Acquirers that see enough charge-backs to warrant placement into Visa’s High-Risk Merchant Charge-back Monitoring Program face paying the extra $100 fee and may be liable for charge-back activity for up to 120 days from when the merchant account is terminated.
The extent of these practices is difficult to determine because deceptive merchants typically move to different acquirers as their charge-back rates increase, says Martin Elliott, Visa head of issuer and acquirer risk.
But acquirers are becoming savvier at preventing merchants from using the payment system for nefarious purposes, Elliott says. “Domestic acquirers are redoubling their efforts to monitor their merchant activity and do the proper underwriting they need to protect themselves,” he tells PaymentsSource.
U.S. acquirers are not the only ones that should be on the alert for deceptive merchants. “We see these types of practices on a global basis,” Elliott says. “The merchant will try to move around the world to obtain processing relationships.”
Acquirers and the sales agents setting up merchant accounts can take simple steps to reduce the likelihood of working with such merchants, Elliott says.
“Don’t let yourself be caught off guard,” he advises. “If the application says the merchant is selling one product and the processing [data are] saying something else, you need to quickly jump on that.”
Essentially, acquirers and sales agents should ensure they follow proper underwriting procedures for evaluating a merchant’s risk, Elliot says.
To avoid Visa’s high-risk programs, cagey merchants might change their merchant category codes or use multiple or offshore acquirers. Sales agents also should review what the merchant is selling, and read the terms and conditions the merchant places on the consumer to ensure a reasonable person could understand them, he says.
A high-risk merchant may be appealing for the profit margin on each transaction, but acquirers should be wary of the risk, Elliott says. “A deal that is too good to be true … probably is,” he says.
