Highly Suspect Merchant

A highly suspect merchant is one who has a disproportionately large amount of questionable transactions in relation to the total business conducted over a fixed period of time. While many factors are used to determine whether or not a merchant is suspect, highly suspect or not suspect at all, the single most damaging category are transactions that were recorded on or near a date that a credit card was reported lost or stolen.

The Risk Identification Service (RIS) provided by Visa is used to evaluate merchants in a number of categories to arrive at a ratings number that is used for assessing the risk status of merchants. Visa sends information on a daily, weekly and monthly basis to PaymentTech Payment Services pertaining to excessive levels of suspect transactions. Should a merchant be identified as highly suspect, he may lose his account standing or he may be required to adhere to special procedures when processing future transactions, install fraud reducing software or other equipment or suffer fines and penalties.

While this may seem harsh to some, credit card fraud affects everyone by inflicting higher costs and risk on innocent victims. To mitigate such risk, guidelines have been established along with merchant account monitoring programs and other procedures to monitor suspect activity, collect it and report it to responsible parties for appropriate action.

Visa’s highly regarded merchant chargeback monitoring program identifies merchants who have allowed or participated in excessive chargeback activity.

Numerically the program flags any merchant who has a ratio of chargebacks to sales volume of 2.5% or more in a 30 day period, or more than 50 transactions and 30 chargebacks in any calendar month or more than 100 chargebacks regardless of volume.

Should any merchant demonstrate intolerable levels of chargebacks in any time period regardless of volume, Visa reserves the right to require PaymentTech Payment Services to terminate his account without warning.

The merchant review program monitors all merchants for consumer dispute chargebacks which occur when service or ordered merchandise is not received, defective merchandise is shipped to the consumer without any dispute resolution by the merchant or some discount or credit was not given, or the purchaser was not authorized to use the card and the card holder was not notified until he got his statement.

Consumer dispute chargebacks that are more than 1% of monthly volume with a minimum of 20 chargebacks are taken as an unduly high occurrence and will move a merchant closer to the dreaded highly suspect status. Merchants who exceed this 1% threshold for consecutive months will be placed into the highly suspect category and will be subject to restrictions or fines.

The QMA Program (Questionable Merchant Activity Program) monitors all merchants for confirmed fraudulent transactions. Any merchant exceeding these rather stringent guidelines for three consecutive months will be subject to chargeback liability on fraudulent transactions only for a minimum of 90 days.

Like Visa, MasterCard has its own standards and programs to monitor merchant activity for those that accept MasterCard. The MasterCard Violator Program identifies merchants as suspect when the percent of fraudulent sales exceeds 8% of their total volume for two consecutive months. At this point the merchant becomes liable for fraudulent chargebacks for a period of one year. At the end of the one year period, MasterCrad staff will review the merchant’s activity and render a decision regarding his current and future status.

Suffice it to say that to prevent credit card fraud or any other type of transactional fraud involving a merchant account, there are programs in place to monitor activity and a price to be paid for violating any of the rules. There are thresholds that can’t be crossed without penalty and if a merchant’s status reaches “highly suspect” his account and his business are going to suffer restrictions, fines, penalties or termination.