How To Keep Your Merchant IDs Healthy
Of all the things you need in place to launch a successful ecommerce business, your merchant ID (MID) may be the most important one. MIDs are central to online payment processing. They also aren’t issued to just anyone.
Merchants who conduct sales in high-risk categories may have more trouble obtaining a MID because of the industries they operate in. You certainly need to be more informed than the average business owner if you fall under the high-risk umbrella. Sellers in this group are more likely to face fraud and chargebacks, and those transactions get added to the record linked to your MIDs.
The worse your MID record looks, the harder it will be to find merchant services providers (MSPs) who will serve your business. Having high rates of fraud and a high chargeback ratio makes it look like you’re bad at managing risk — which banks take as a sign that they could lose money if they work with you. The only institutions that accept these companies as customers are likely to charge high fees and/or provide accounts that come with additional restrictions.
Protecting the health of your MIDs is, therefore, one of the most important things you can do as a high-risk merchant. Here’s everything you need to know about what merchant IDs are, how they work and what you should do to keep yours in good standing.
What Are Merchant IDs, and Why Are They Important?
A merchant ID is fundamental to ecommerce sellers and anyone who wants to accept credit card payments. The MID itself is a 15-digit code that serves as a unique identifier for your merchant account. This account matters because it serves as the destination for any revenue you make from credit card sales. Having a merchant account and associated MID is a non-negotiable need for most businesses.
Your MID will be assigned to you by the MSP that handles your merchant account. Typically, this provider will be the payment processor that handles credit (and debit) card transactions for your company.
Each MID is linked directly to a specific account, serving as its “address.” When you switch payment processors and your new MSP opens a merchant account in your name, you’ll also get a new MID. After all, you don’t want your profits to be sent to the wrong account.
Here’s how MIDs work in practice: When a customer makes a credit card purchase from your company, the transaction details are passed between payment processors, payment gateways and multiple banks. Your MID is one of these details. It tells all these parties where the funds should be routed when the transaction settles.
How To Find Your Merchant ID
Your merchant ID number is meant to be kept private (much like a bank account number), so you should keep it on file in a secure location. You’ll need it if you ever bring a transaction-related issue to any parties involved in processing a credit card payment. If you don’t know your MID yet, you can typically find it in the upper right corner of your merchant statement.
Merchants who don’t get physical merchant account statements can look to their credit card processing company for their MID. Log into your account online or call to find the information. You may also be able to find your MID number on bank statements, associated with payments to and from your payment processor. Look for items that start with MTOT (your monthly total) or BTOT (the bank’s total), as this tag is often used to denote such transactions.
Can a Business Have Multiple Merchant IDs?
Payment processors typically only open one merchant account for each customer, but many companies (especially those operating in high-risk industries) like to use more than one MID. There are four main reasons you might make this choice:
Businesses with multiple channels (or solopreneurs with multiple businesses) will often separate transactions to simplify the accounting process. If, for example, you offer life coaching and sell a line of organization products, you may want to run your coaching income through a separate MID than your merchandise income. Separating your revenue streams makes it easier to stay organized and keep accurate books.
Companies that are launching new product lines or expanding to new regions may set up additional MIDs for new ventures. Sometimes, this is out of necessity because the merchant needs a way to accept payments from a particular region or in a certain currency. Sellers may also wish to separate payments geographically for ease of accounting.
High-volume businesses can increase their processing power by using multiple MIDs. MIDs can get overloaded if too many purchases are run through them in a short period. This causes a delay in payment processing, which is bad for merchants and their customers. Merchants with multiple MIDs can spread transactions across their accounts to keep things running.
Merchants who operate in both high- and low-risk industries may split payment processing for risk-management purposes. High-risk transactions — those more likely to involve chargebacks or fraud — are processed through one MID; low-risk transactions are processed through another. This division protects merchants by making sure any consequences caused by excessive chargebacks or fraud rates from their high-risk sales won’t affect the low-risk side of their business.
Since each MID is linked to a unique merchant account, companies that need multiple MIDs must open multiple merchant accounts. Some payment processors have banking relationships with more than one institution and can help you open a new account upon request. If yours doesn’t, you’ll need to create an account with a new payment processor to obtain an additional MID.
Don’t Confuse Your Merchant ID With These Other Numbers
Your MID isn’t the only number MSPs use to track or communicate information about your company. Here are some other ID numbers you may see attached to your business and accounts:
- A gateway ID number (GID) is assigned to you by a payment gateway as a unique reference to your account. Official communications from your payment gateway often include this number.
- A terminal ID number (TID) will be on any physical credit card terminals you have. The TID is attached to every transaction processed through that terminal and can help you keep transactions organized.
- Your Merchant Category Code (MCC) is not unique to your business or hardware; it describes what you sell. As soon as you start accepting credit cards from a particular issuer, that card network will assign a MCC to your business. MCCs are not standardized between card networks, so your code and the name of the industry group you fall under may differ between cards.
Credit card issuers use MCCs to judge the financial and/or brand risk associated with allowing payments to your company. This is the code that determines whether you are a high-risk merchant or not. Unfortunately, you have little to no control over the MCC your business receives.
MCC assignments are typically made with the help of your payment processor, who will suggest an appropriate MCC to the issuing bank when setting you up to accept its cards. They will either use the MCC that corresponds with your highest sales volume or suggest multiple MCCs if you have multiple lines of business. However, the card issuer has the final say on your MCC and can change it at any point if they believe you misrepresented your business, or your primary industry has changed.
If you end up with an MCC that falls under a card issuer’s high-risk category, you’ll likely pay more in interchange and chargeback fees and be charged a yearly registration fee. Your high-risk payment processor can help you navigate your relationship with a card issuer that views your business as high-risk.
How To Get a Merchant ID
When you open a new account with a credit card processor, that processor will go to a bank it has a relationship with to open a merchant account for you. You’ll be assigned a merchant ID to go with that account. Therefore, the process of acquiring a MID is similar to the process of opening a bank account.
Your payment processor will ask you for details about your business to determine whether you’re a good fit for their expertise and risk profile. Prepare for the application process by gathering your:
- Tax ID number (TIN)
- Principal business owners’ full names and IDs
- Proof of address, such as a utility bill
- Articles of incorporation and/or business license
If you’re looking to set up an additional MID with the payment processor that currently serves you, they may already have this information on file.
Merchant IDs for High-Risk Sellers
Many merchant services providers won’t work with companies that are considered high-risk because these businesses are more likely to cause financial losses due to payment processing issues. The risk primarily comes from the higher fraud and chargeback rates typical to industries like:
- Subscriptions and free trials
- Financial and legal services
- Travel and booking
- Nutraceuticals and wellness
- Affiliate marketing
- Direct sales marketing
Some payment processors also consider whether working with your company provides a reputational risk. This is more likely to be an issue for companies operating in controversial industries such as adult products and/or content.
If you own a high-risk business, you’ll want to partner with a payment processor that can open a high-risk merchant account for you. Payment processors that work in high-risk industries have experience with the additional needs and challenges your business may face, and they’ll be prepared to support you through any challenges related to payments or risk management.
Applying for an account with a high-risk payment processor may require you to provide more information about your company and its operations. You may also have to wait longer to learn whether your application was accepted. Both the payment processor and the related bank will need to consider whether they’re willing to offer the additional underwriting and risk-management services required by a company like yours.
Many high-risk merchants apply with multiple payment processors simultaneously because they want multiple merchant IDs. Having more than one merchant account and MID allows you to keep accepting payments even if a bank that hosts one of your accounts ceases to provide services.
The Alternative to MIDs: Working With Payment Facilitators
Payment facilitators, also known as PayFacs, don’t open merchant accounts for every person they serve and therefore don’t assign merchant IDs to their users. These processors, which include PayPal, Stripe and Square, send all the transactions they handle through merchant accounts associated with their business. Then, they deliver customers’ profits via their platforms.
The convenience of working with these account providers leads many ecommerce merchants to partner with them rather than applying for an account with a payment processor. PayFacs are especially popular among startup business owners and those who wish to run lean operations.
However, high-risk merchants should not work with PayFacs. These companies have a high incentive to stay away from high-risk industries because they are the ones to face any account-level consequences for excessive chargebacks or fraud.
PayFacs manage their risk by enforcing strict terms of service that prohibit users from conducting certain types of transactions. If they catch someone breaking the rules, they can suspend or terminate the account without warning. There’s no way to retrieve any funds from an account that is closed in this manner.
Many merchants working in high-risk industries have had to start all over after a PayFac terminated their partnership and locked their funds. Don’t let this happen to you: Take the time to find a high-risk payment processor that’s happy to serve your business.
How To Maintain Merchant ID Health
The health of your merchant IDs is determined by your transaction history. The main areas of concern for high-risk merchants are your chargeback ratio and the volume of fraudulent transactions you process. The higher your chargeback ratio and fraud rates, the more your MIDs are negatively impacted. Of course, other factors that increase the risk of loss for a bank serving you, including financial hardship at your company or illegal activity that uses your merchant account, will also impact your MIDs.
Your best way to ensure MID health is by partnering with a high-risk merchant account provider with experience in your industry and the tools to help you. Risk management is crucial for high-risk merchants because chargebacks and fraud can’t be removed from your MID records. Many high-risk payment processors and merchant account providers have risk management experts on staff and can do quite a bit to help keep your MID transaction history healthy.
Stay off the MATCH List
Mastercard’s Alert To Control High-Risk Merchants, also known as the MATCH list, is a database shared with all payment processors that contains the information of merchant accounts that were terminated. Ending up on this list irreparably harms your business — so you must know how to protect yourself before you start selling as a high-risk merchant.
Many payment processors and banks keep their own terminated merchant file (TMF), but MATCH is the most widely used TMF in the US. It’s maintained by Mastercard, but every card issuer in the country contributes to it. Payment processors must check whether a company is on it before opening a new merchant account for that seller. They’re also required to add any accounts they terminate to it.
MATCH records remain for five years, and there’s no way to remove your business from the list once it’s been added. That’s why following card brand rules and carefully managing risk is vital to the high-risk sales process. MSPs who have experience with high-risk merchants can help you reduce your risk of being added to MATCH.
The most common reasons high-risk merchants are added to MATCH are:
Excessive chargeback ratio
Over 1% of the card transactions processed by the merchant are challenged by cardholders.
Excessive fraud
A company’s fraud-to-sales dollar ratio exceeds 8%, and the company processes 10 or more fraudulent transactions exceeding $5,000, in one month.
Other missteps that get companies added to MATCH include:
- Account data compromise or identify theft
- Payment card industry (PCI) data security standard non-compliance
- Merchant accounts used for illegal activity
You’ll want to work with a secure payment processor to prevent the above issues from harming your company. Most solutions on the market are PCI compliant, but it’s worth checking a potential partner’s PCI status before signing a contract. You also want a payment processor that provides secure data encryption — this will protect your merchant ID, so your account information can’t be stolen, and it protects your customers’ payment information.
Prevent Chargebacks
High-risk merchants need to do everything in their power to prevent chargebacks because they’re already operating in industries where chargebacks are common. Maintaining an acceptable chargeback ratio is more difficult by nature for sellers like you and requires a smart approach.
A mix of clear policies, good customer communication and chargeback prevention tools can help you maintain an acceptable chargeback ratio. Your company should have:
- Precise subscription policies that customers must actively agree to before signing up
- Uncomplicated return policies that are easy for customers to find and follow (make returning an item simpler than filing a chargeback!)
- A streamlined exchange program (see above)
- Marketing and promotional material that is accurate to your products/services
- Email automation tools to keep customers in the loop regarding new purchases, order fulfillment and shipping updates
- Customer service representatives who respond promptly to inquiries and do their best to address customer concerns regarding purchases or products/services
- A merchant name that matches your storefront or business name, so customers will recognize the charges on their bank statements
You should also know about chargeback prevention practices that don’t affect customer interactions. High-risk merchants also benefit from enrolling for chargeback alerts and pre-dispute resolution tools. Visa Verifi and Mastercard’s Ethoca are the two biggest services sellers use for this purpose. These tools warn you when a customer has disputed a transaction and give you a chance to respond before the chargeback officially hits your account and MID record. You can set up automatic refunds for disputed transactions or review disputes and issue refunds manually.
Chargebacks go on your account record whether you win them or not, so partnering with a chargeback management and representments solution is not enough to protect your merchant ID. Prevention is the only way to keep your chargeback ratio in an acceptable range.
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Protect Your Company Against Fraud
API Gateway Authentication: Prevent unauthorized parties from submitting fraudulent transactions through your payment gateway by configuring your authentication API. You’ll be assigned a private key that tells your payment gateway when a transaction is legitimate and originated on your site.
Card Verification Value (CVV): Require buyers to enter the three- or four-digit CVV during checkout to reduce the prevalence of fraudulent transactions that use hacked or leaked credit card data. CVV is one of the best ways to check whether the purchaser has their card in hand during a CNP transaction.
Address Verification Service (AVS): Compare each customer’s billing address to the address an issuing bank has on file for that individual to determine whether a transaction is fraudulent. The more discrepancies between the information the purchaser entered and the bank’s records, the more likely you’ve found a fraudster and should decline the transaction.
3D Secure (3DS): 3D Secure protocols require purchasers to enter an additional credential from the card issuer as part of the payment process. Typically, 3DS redirects buyers to the card issuer’s site, where they must enter a password or a security code sent to their phone. Two-step authentication can foil fraudsters who have gotten their hands on a rich tranche of buyer information by requiring a credential that is created at the time of purchase and becomes invalid soon after. This protocol is currently supported by Visa and Mastercard.
Device Identification: Gather anonymous data about purchasers’ devices — that is, the phone, laptop or tablet they’re using to shop — to determine whether a unique device is being used to commit fraud. Unlike an IP address, which can be masked through a VPN or shared by multiple people, Device ID creates a unique “fingerprint” based on information about a user’s device, browser and internet connection. Fingerprints help you spot signs of fraud, like the same device making multiple transactions under different accounts or a customer account being accessed by a multitude of unique devices.
Geolocation: Use GPS and/or IP data to determine a device’s location and verify whether it’s identical to or near their billing or shipping address. This fraud prevention method should be used with caution, though. It can lead to false positives if a buyer is traveling or using a VPN. It also struggles to catch fraudsters who are spoofing their location data. It’s best to manually review transactions with a geolocation mismatch (and pair this method with other anti-fraud measures) for full effectiveness.
Payment gateways typically include basic fraud prevention tools like CVV and AVS. High-risk merchants will want to find partners that also offer more advanced anti-fraud systems. Check with your billing platform to see whether they have partnerships with any fraud prevention services or if you can work with an in-house expert to set up or strengthen your anti-fraud program.
What if My Merchant ID Gets Revoked?
Merchant ID revocation can be catastrophic for a business. There’s no way to process card payments without a MID, and no quick fix if your account is terminated. Companies with multiple MIDs can keep operating after one is revoked if they keep their other merchant accounts in good standing, but if your risk management practices weren’t enough to prevent this account closure, you may need to make some significant changes to keep your other MIDs active.
Getting a new MID after your old one was revoked will be very difficult. You’ll be added to the MATCH list when your merchant account is closed, and most MSPs refuse to work with entities on that list. Your first step should therefore be a conversation with your payment processor. Ask them for details on why your account was closed and why you were added to MATCH. If the company erroneously revoked your MID, you may be able to appeal your case and have the decision overturned.
Companies that don’t succeed on appeal have a very narrow range of options. You’ll need to be prepared for most MSPs to view you as too high-risk. Some high-risk payment processors are willing to work with applicants individually to see if they can secure underwriting despite a MATCH record — but you’ll only be approved for an account if you can allay their fears. Make sure your application contains all the documentation you can provide to prove your business is in good financial standing. You may also want to take time before applying to think about the factors that contributed to your merchant account closure and write up a risk management plan that addresses each point.
If you are approved for a new MID after your old one was revoked, your payment processor will likely require you to keep a significant cash reserve on hand. You may also need to regularly update them on your efforts to reduce fraud and chargebacks. Needless to say, this may be your last chance at a merchant account, so keeping it in good standing is essential.
Work With Experts Who Know How To Protect Your MID
Smart high-risk merchants make plans to protect their MID health from the moment they start conceptualizing their business. These individuals don’t think on a transaction-to-transaction basis. They create systems designed to protect their companies against chargebacks and fraud.
High-risk payment processors have some risk-management tools for merchants like you. sticky.io can provide others. From teaching you how to activate AVS and CVV in your payment gateway to helping you set up our 3D Verify and Kount anti-fraud integrations, we’ll do our best to help you with risk management. We also offer Visa Verifi Alerts and Rapid Dispute Resolution (RDR) and chargeback representments to help you reduce your chargeback ratio.
Working in a high-risk industry doesn’t have to be a high-stress job. Set yourself up for success by partnering with an ecommerce and recurring billing platform that understands your needs.
We’re ready to help high-risk merchants start selling in a risk-conscious way. Contact our in-house payments experts now for help obtaining MIDs for your high-risk business.
