Understand Visa/Mastercard High-Risk Fees and VIRP

For e-commerce merchants, offering credit cards as a payment option is vital for keeping customers happy. For CBD, adult, gaming, or travel industry merchants, the registration, set-up, and processing fees from Visa/Mastercard can be a challenge, especially for small and new businesses. Understanding these fees is key to making smart decisions for your business.

 

What is a High-Risk Merchant?

High-risk businesses come in various shapes and sizes, from online gambling to travel services and more. A high-risk designation could be made because of your business type, high monthly sales volume, taking international payments, or being a new business without a history of credit card transactions. 

The kind of business you run also matters. Subscription services, travel, gambling, e-commerce, CBD, vape products, and debt collection agencies often get labeled high-risk because of the nature of their businesses, according to Nerdwallet. 

Two notable groups affected by the high-risk fee are online CBD merchants in Europe and businesses in the adult entertainment industry in both Europe and the United States. Despite the growing acceptance of CBD, financial institutions often perceive it as a high-risk industry due to regulatory uncertainties, especially in evolving legal landscapes like the European CBD market. 

The adult entertainment industry faces its own set of challenges, getting tagged as high-risk due to its stigma and potential for fraud and chargebacks. Businesses in this sector, both in Europe and the United States, often end up paying the Visa/Mastercard high-risk registration fee.

E-commerce merchants designated as “high-risk” are given a unique identifier known as a Merchant Category Code (MCC). For merchants in industries like adult entertainment, CBD, online dating, travel, and gaming, understanding the MCC codes becomes particularly crucial because a high-risk designation includes associated fees. 

Payment processors serving high-risk merchants must navigate the regulatory intricacies to effectively manage risks and ensure compliance, all while understanding the unique challenges posed by the high-risk fee. Some payment processors might not want to work with high-risk businesses, but others, such as Vendo Services, specialize in helping them. Understanding how high-risk processing works is important for making smart decisions that fit your business.

What types of fees can high-risk merchants expect?

E-commerce merchants that are considered high-risk may pay a one-time merchant account set-up fee, an annual registration fee, and transaction fees.

Visa/Mastercard High-Risk Registration Fee

The Visa/Mastercard annual high-risk registration fee is a recurring charge imposed on merchants that operate in industries deemed high-risk. This fee aims to offset the additional risks of processing payments for such businesses, including increased fraud potential, chargebacks, and legal or regulatory complexities. The concept is rooted in the payment networks’ efforts to maintain a secure and reliable ecosystem for consumers and financial institutions.

Registration fees are essential to start accepting credit card payments. In 2023, the Visa Global Brand Protection Program became the Visa Integrity Risk Program (VIRP) in an effort to enhance the security of the Visa Payment System. Acquirers must register each account within the High Integrity Risk Merchant tiers before processing. VIRP categorizes high-risk merchants into three tiers:

 

• Tier 1: Activity that could harm individuals, including adult services, dating, escort services, gambling, and pharmacies.
• Tier 2: Activity that can cause financial harm, such as crypto merchants, online storage services, and skill-based games.
• Tier 3: Businesses at a higher risk of non-compliance or deceptive practices, like financial trading platforms, telemarketing, negative option billing, and tobacco sales.

VIRP also will be increasing registration fees. Beginning April 1, 2024, registration fees for high-risk merchants will rise from $500 to $950 per provider for each acquirer with whom the merchant is registered. 

Additionally, merchants will be charged 10 cents per transaction and 10 basis points to volume processed. This fee will apply only to certain MCC, such as adult transactions, dating platforms, and gambling.

Set up Fees

Set-up fees are what you pay to create your merchant account. They are typically one-time charges that merchants pay when establishing their account with a payment processor. These fees cover the initial costs of setting up the merchant’s account, including administrative and technical processes. They are not directly related to ongoing risk management but are essential for initiating the partnership between the merchant and the payment processor.

Processing Fees

High-risk credit card processing fees come in different models, each fitting various business structures. Types of processing fees include:

• Flat rate: Merchants pay a fixed percentage or fee for each transaction. This is good for businesses with lower processing volumes, and over time, these rates might go down.
• Subscription model: Requires merchants to pay a fixed monthly fee, plus a percentage per transaction. This can save money if you have a higher processing volume. Return fees could apply to credit card transactions involving returned items or refunds.
• Per transaction or per attempt: This type of fee comes in a variety of combinations (so be sure to check with your contract). A fee may be applied to transactions that are approved, declined, attempted, and refunded. Depending on the processor any combination of fees per transaction type could be applied.
• Per transaction and flat rate: This is a combination of the two previously mentioned above and is quite common.

Role of Payment Processors

Payment processors play a crucial role in dealing with the high-risk fee. They act as a bridge between merchants and the payment networks by thoroughly vetting high-risk merchants to measure their compliance with legal requirements and adherence to industry best practices. They also help merchants in implementing the latest fraud prevention measures to reduce chargeback rates.

Fees can be challenging for all merchants, but especially smaller businesses. It’s best to work with an experienced and reliable payment processor to fully understand the fees your business may face and how the payment processor can help to mitigate your costs.

The Bottom Line

The Visa/Mastercard high-risk fees are like a puzzle piece in the world of online payments. For CBD merchants in Europe and those in the adult entertainment industry in both Europe and the United States, dealing with this fee means understanding the risks specific to their industries and finding payment processors who have the experience and knowledge to help navigate the complexities.