Recently, the Visa high-risk fee for registration was raised, affecting the bottom line of merchants considered high-risk. In a landscape where payment processing fees are substantial, merchants must proactively tackle these challenges to protect their profits. This blog post highlights the updated Visa Integrity Risk Program (VIRP), which will soon introduce new high-risk tiers and associated pricing adjustments set to take effect in 2024, providing essential insights into the basics and what merchants can expect moving forward.
Understanding the VIRP is crucial for high-risk merchants, as it significantly impacts their success by ensuring the integrity and security of Visa’s payment system. The program mandates that acquirers and their associated entities, including payment facilitators, independent sales organizations (ISOs), and wallets, maintain robust controls to prevent illegal transactions.
What is Considered a High-Risk Business?
Determining whether a business is categorized as a high-risk merchant is based on several factors assessed by banks or payment service providers (PSPs). Some factors include monthly processing amount or volume, transaction type (international or local), or any inherent reason to consider the business a high-risk.
Volume plays a significant role, with high monthly processing amounts or a high per-transaction rate potentially leading to a high-risk classification. Engaging in international transactions increases the risk of fraud, which could prompt processors to label a business as high-risk. Additionally, a new business with no credit card processing history or a low credit score may elevate the risk status.
Certain industries inherently carry higher risks due to their nature. Subscription-based businesses, for example, often face a higher risk due to potential customer cancellations. Industries like gambling, entertainment, travel, pharmaceuticals, dating, cryptocurrency, subscription services, CBD and vape products, and debt collection agencies are commonly designated as high-risk due to the nature of their operations.
What is the Visa Integrity Risk Program?
On May 1st, 2023, Visa unveiled the Visa Integrity Risk Program (VIRP), which aimed to strengthen the integrity and security of its payment system by implementing updated requirements for acquirers and their designated agents. This program replaced Visa’s Global Brand Protection Program (GBP), initially appearing as a mere rebranding effort with minimal alterations.
However, upon closer examination, it becomes evident that Visa has made modifications, particularly in categorizing business types based on risk. The revised VIRP now divides high-risk merchants into multiple tiers, each tailored to reflect their perceived level of risk. These tiers classify businesses according to their specific risk profiles.
Understanding the Requirements for Visa Integrity Risk Program
Under the Visa Integrity Risk Program (VIRP), acquirers must meet certain registration requirements. All merchants operating in HIR categories must be registered via the high-integrity risk registration (HIRR) system. Acquirers seeking approval for Tier 1, 2, or 3 must undergo separate registration processes. Approval for Tier 1 includes Tier 2 and 3; Tier 2 includes Tier 3, and Tier 3 stands alone.
Previously, acquirers handling high-brand risk merchants under the GBPP program may continue processing Tier 1 and 2 HIR merchants if transactions were processed for these merchants within the last 12 months preceding April 6, 2023. However, separate approvals are necessary for each Tier 1 category merchant not currently processed.
Acquirers engaging third-party agents, such as ISOs, payment facilitators, or digital wallet operators, must register these agents to onboard HIR merchants. To ensure compliance with Visa requirements, they must conduct thorough due diligence on agents, including their onboarding and monitoring processes. These processes must undergo assurance and formal oversight at least annually.
An Overview of MCCs Under Different Tiers
Below, we have outlined the HIR MCCs, which specifically pertain to card-absent transactions, meaning those conducted without the physical presence of the card.
Tier 1:
High Integrity Risk (HIR) Merchants categorized as ‘Tier 1’ are the ones whose businesses operate in sectors with a heightened risk of illicit activities occurring without proper controls. These activities can potentially cause significant harm, either directly or indirectly, to individuals’ health, safety, and well-being. Industries falling under this tier may include but are not limited to:
- MCC 5967 Inbound Teleservices Merchant—Direct Marketing,
- MCC 7273 Dating Services, MCC 7995 Betting (including Casino Gaming Chips, Lottery Tickets, Wagers at Race Tracks, games of chance to win prizes of monetary value, Off-Track Betting, etc.),
- MCC 5122 Drugs, Drug Proprietaries, and Druggist Sundries,
- MCC 5912 Drug Stores and Pharmacies.
Tier 2:
HIR Merchants categorized as ‘Tier 2’ are the ones whose businesses operate in sectors with a heightened risk of illicit activities occurring without proper controls. These activities can potentially cause financial or other economic harm to individuals. Industries falling under this tier may include:
- MCC 6051 Foreign Currency, Money Orders, Non-Fiat Currency (like Cryptocurrency), Travelers Cheques, Debt Repayment, and Account Funding (not Stored Value Load—Non-Financial Institutions,
- MCC 6012 Services, Debt Repayment, and Merchandise—Financial Institutions,
- MCC 4816 Information Services/Computer Network,
- MCC 5816 Games—Digital Goods.
Tier 3:
HIR Merchants in Tier 3 include businesses beyond the scope of Tier 1 and Tier 2. If adequate controls are in place, these establishments can avoid non-compliance with relevant regulations or engaging in deceptive marketing practices.
- MCC 6211 Dealers/Security Brokers
- MCC 5966 Outbound Telemarketing Merchant—Direct Marketing
- MCC 5968 Subscription Merchant—Direct Marketing
- MCC 5993 Cigar Stands and Stores
What are the Visa Integrity Risk Program Charges 2024?
Visa, MasterCard, and other similar card networks have established particular criteria for high-risk businesses to handle the risks associated with their operations. Among these criteria is the imposition of a high-risk fee, which specific merchants must pay for credit card processing on the Visa or Mastercard networks. While the registration fee pertains to all high-risk merchants, the transaction fee is applicable only to select merchants.
This registration fee, which was $500 for both Visa and MasterCard, from April 1, 2024, will be subject to change by Visa under the Visa Integrity Risk Program across Central Europe, Asia Pacific, Africa, Latin America, and the Middle East. By requiring acquirers to follow appropriate and effective methods and protocols to stop non-compliant payments within the Visa network, this effort seeks to protect the confidentiality and safety of the Visa system for payment. For each merchant registration, the new registration charge is $950.
The Visa Integrity Risk Program registration fees vary depending on the tier classification. Tier 1 and Tier 2 merchants are subject to an application fee of $100,000, which is non-refundable, while Tier 3 merchants pay $25,000. There is also an annual renewal fee of $50,000 for Tier 1 and Tier 2; the same $25,000 applies to Tier 3 merchants. The acquirer’s yearly renewal fee, a new addition, will be invoiced based on the registration date.
Furthermore, specific high-risk merchants, such as those under MCC 5967 and MCC 7273, will incur additional charges. They will be billed $0.10 per transaction and 10 basis points for the volume processed. Failure to comply with the program’s standards may result in non-compliance assessments for the participants. Visa urges participants to review the pre-released version of the upcoming Visa Rules for further details.
What are the Non-Compliance Assessments?
Non-Compliance Assessments (NCAs) are essential components of VIRP and are designed to maintain the integrity and security of the Visa payment system. These assessments ensure that acquirers and merchants comply with the program’s requirements, and penalties may be imposed for non-compliance.
Penalties for non-registered HIR acquirers who violate the law can amount to $100,000 per calendar month. Likewise, failure to comply may result in fines of $2,000 per merchant each calendar month for non-registered HIR merchants. Penalties for VIRP Non-Compliant Merchants might be as high as $400,000 or $50,000. Acquirers must apply and obtain approval to Acquire before conducting business with HIR merchants. Those who are not eligible to acquire HIR must stop handling HIR-related transactions.
Visa registration is a prerequisite for all HIR merchants to submit HIR transactions. NCAs of as much as $50,000 per recognized merchant or every merchant URL (up to $150,000) may be assessed on acquirers in instances of non-compliance resulting in illicit transactions. When law enforcement verifies the existence of child pornographic materials, remediation measures must be implemented right away, and Visa must get confirmation of the plans within a day. Moreover, for identifications connected to child pornographic materials, NCAs of no less than $400,000 will be charged for each recognized merchant or merchant URL.
Visa High-Risk Fee Raised: What Merchants Should Do Next?
After learning about the VIRP program and the new registration fee, it’s important to determine whether this approach suits your business needs. Ensuring that all fees and rates are clearly outlined in the contract and understood from the beginning is crucial. If your business falls under the affected categories, you should evaluate the potential financial implications of this fee adjustment. You may need to consider adjusting your prices to offset any financial challenges.
Your payment processor can help you manage any necessary adjustments to your payment processing setup. Payment processors play a crucial role in dealing with high-risk fees. They serve as intermediaries between merchants and payment networks by carefully assessing high-risk merchants for compliance with legal requirements and industry best practices. Additionally, they assist merchants in implementing the latest fraud prevention measures to reduce chargeback rates.
Having the correct MCC to manage risk and revenue in payment processing is crucial. To ensure your business is classified accurately and whether it will be affected by Visa’s high-risk fee change, consult your merchant service provider. Suppose you are an MSP or ISO managing a portfolio of merchants. In that case, it is essential to note that as merchants expand their operations, they may adjust their products and services, which can change their risk and revenue profile. Therefore, regularly monitoring merchants who have signed up for merchant accounts is critical to ensuring compliance and reducing unnecessary fees.
Conclusion
Visa’s adjustment to the high-risk registration fee under the Visa Integrity Risk Program (VIRP) is a significant development for high-risk merchants. The VIRP imposes stringent requirements for acquirers and designated agents to enhance payment system integrity and security. Merchants, especially those in high-risk categories, must take proactive measures to engage with the latest updates.
Merchants should evaluate the revised fee structure’s impact on their profits and ensure compliance with program requirements to safeguard their business interests. They should also collaborate with payment processors and monitor merchant accounts diligently to manage risk and mitigate potential financial implications. By staying informed and taking proactive steps, merchants can navigate the changing payment processing landscape and ensure the continued success of their businesses in an ever-evolving regulatory environment.
Frequently Asked Questions
How does Visa determine the tier classification for high-risk merchants under the VIRP?
Visa determines the tier classification based on various factors, including the nature of the business, volume of transactions, engagement in international transactions, credit history, and industry type.
Merchants are categorized into different tiers (Tier 1, Tier 2, Tier 3) based on their specific risk profiles, with Tier 1 representing the highest risk and Tier 3 the lowest.What are the registration requirements for acquirers and their associated entities under the VIRP?
Acquirers and their associated entities, such as payment facilitators, independent sales organizations (ISOs), and wallets, must meet specific registration requirements under the Visa Integrity Risk Program.
These requirements may include undergoing separate registration processes for different tiers, conducting thorough due diligence on agents, and ensuring compliance with Visa's standards and protocols.How do the Visa Integrity Risk Program charges vary across different tiers of high-risk merchants?
The charges under the Visa Integrity Risk Program vary depending on the tier classification of high-risk merchants.
Tier 1 and Tier 2 merchants typically incur higher registration and transaction fees than Tier 3 merchants. Specific high-risk merchants may also face additional charges based on their Merchant Category Code (MCC).What measures should high-risk merchants take to ensure compliance with the VIRP and avoid non-compliance penalties?
High-risk merchants should take proactive measures to ensure compliance with the Visa Integrity Risk Program. This may include accurately assessing their risk profile, maintaining proper controls to prevent illegal transactions, adhering to registration requirements, collaborating with payment processors to implement fraud prevention measures, and staying informed about program updates and regulations. By prioritizing compliance, merchants can mitigate the risk of non-compliance penalties and safeguard their business interests.
