Headline News and Everything You Need To Know About High-Risk Industries
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In this edition of LegitScript News, we announce what has been top of mind for many — PCI DSS 4.0. With 63 new changes on the horizon, including 13 mandatory changes by April 2024, there's much for companies to consider. Next, the Federal Reserve released its triennial payments study including findings on the rise in value of ACH payments from pre-COVID to post. Finally, LegitScript releases a new Resource Center for payments professional's most frequently asked questions.
Everything You Need To Know About High-Risk Industries
Payment service providers looking to grow their businesses may explore a variety of industries, but some pose more challenges than others. Read more to understand what a high-risk industry is, what is required to obtain a merchant account in a high-risk industry, and how to help keep your ecosystems safe.
What Are High-Risk Industries?
A high-risk industry is defined by its likelihood to introduce more operational, regulatory, and reputational risk exposure.?Major card brands categorize merchants using merchant category codes (MCCs), and payment service providers must ensure that their merchants are accurately coded.
High-risk industries fall under a broad scope including but not limited to:
Some bad actors operating as high-risk merchants may attempt to enter
the payments ecosystem through fraudulent means.
High-Risk Merchants
In addition to the merchant’s actual product or service, a merchant may be considered high risk for operational reasons. This could include:
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What Stance Do Major Card Brands Take on Products or Services in High-Risk Industries?
It’s important to know how card brands approach high-risk industries. Policies around risk mitigation play an important role in preventing the sale of potentially problematic products and services.
In order to obtain a merchant account in a high-risk industry with?major card brands like Visa, “A payment facilitator must be registered as a High-Risk Internet Payment Facilitator (HRIPF) before signing high-brand risk merchants.”
Mastercard requires acquirers to perform?fraud control and risk monitoring, including but not limited to fraud screening and fraud scoring services. Their rules state that acquirers should classify high-risk merchants and diligently ensure sellers aren’t processing illicit transactions that could damage the brand and/or be illegal.
For more information on Visa’s and Mastercard’s risk mitigation programs for eliminating problematic activity from their ecosystems, read our BRAM and GBPP Basics guide.
Monitoring High-Risk Industries Requires Interdepartmental And Interorganizational Teamwork
Mitigating risk requires a deep dive into commercial ecosystems and a nuanced understanding of compliance. Likewise, technology, underwriting, and sales strategies are necessary to ensure you’re safely operating within high-risk verticals.
According to Electronic Transactions Association, “Merchants operating in the high-risk vertical often offer significant revenue opportunities. However, additional resources are needed to underwrite and monitor these merchants.”
It’s important to confer with policy experts before entering into any high-risk industry so that you can develop guidelines to more safely onboard and monitor these merchants. It’s also important to?stay abreast of trends?to understand how these industries are changing and what types of emerging activity could expose you to risk.
Do you have questions about mitigating risk in your portfolio, and want to understand how our monitoring integrates with your comprehensive risk strategy?
Register here for an inside look at LegitScript Merchant Monitoring.