Written by Libby James
Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.
As a business owner, you're likely familiar with Merchant Category Codes (MCCs)—those four-digit codes that payment processors and card networks use to classify your business based on the goods or services you provide. While many MCCs are relatively straightforward, some fall into the high-risk category, which can bring added scrutiny and challenges, particularly in terms of payment processing and maintaining merchant accounts.
High-risk MCCs play a critical role in identifying potential risks, particularly for financial institutions and payment processors. These codes help flag industries that are prone to higher levels of fraud or regulatory scrutiny, so it’s important to understand if your business might fall into this category.
This article will explore what makes an MCC high-risk and provide a handy list of industries typically associated with these codes. If you're a business owner, especially in one of these industries, it’s essential to be aware of the challenges—and opportunities—this presents.
What is a High-Risk MCC Code?
A high-risk MCC is a four-digit code assigned to businesses operating in industries deemed to carry a higher financial or regulatory risk. These businesses are often subject to stricter rules and may face more challenges when it comes to payment processing, fraud prevention, and compliance.
High-risk industries include everything from adult entertainment and gambling to cryptocurrency, travel agencies, and online auctions. The key factor that makes these industries high-risk usually boils down to the nature of their services, higher rates of chargebacks or fraud, and the complex regulations governing their operations.
If your business falls under a high-risk MCC, you may be required to jump through a few extra hoops to maintain payment processing services. This could include undergoing stricter underwriting processes, dealing with more stringent monitoring, and meeting additional compliance requirements. But don’t worry—there are ways to manage these challenges, which we’ll get into later.
Why Are Some MCCs Considered High-Risk?
Certain industries inherently pose more risk to payment processors and financial institutions, primarily due to higher instances of fraud, chargebacks, or regulatory complications. For example, online gaming, telemarketing, and adult services tend to experience more customer disputes, while industries like firearms or cryptocurrency are highly regulated, requiring businesses to meet strict compliance standards.
These risks make financial institutions wary, often leading to tougher terms and higher fees for businesses operating under high-risk MCCs. While this can seem daunting, knowing where your business stands can help you prepare and navigate the hurdles more effectively.
Common High-Risk MCC Codes and Industries
Understanding which MCC codes are considered high-risk can help you get a clearer picture of what to expect when working with payment processors. Here’s a non-exhaustive list of high-risk industries and their corresponding MCCs:
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These codes represent industries that payment processors often consider high-risk. If your business falls into one of these categories, it’s important to be aware of the additional requirements and costs you may encounter.
How to Manage a High-Risk Business
If your business operates under a high-risk MCC, don’t fret! There are several steps you can take to manage the associated risks effectively:
Choose the Right Payment Processor
Not all payment processors are created equal—especially when it comes to high-risk industries. Work with a processor that specialises in high-risk sectors. These companies understand the unique challenges and can offer tailored solutions to help you mitigate potential risks.
Implement Strong Fraud Prevention
Fraud is a major concern for high-risk businesses. Utilise advanced fraud detection tools and maintain strict security protocols to protect your transactions. Reducing fraud and chargebacks can help you maintain better relationships with payment processors.
Maintain a Strong Financial Profile
Keep detailed records of your business’s financial performance and maintain a good credit profile. Payment processors will look at these factors when determining your risk level, so staying organised and financially healthy can help you negotiate better terms.
Focus on Customer Service
Many disputes and chargebacks stem from poor customer service. Ensure that your refund and return policies are clear and that customer issues are resolved quickly. A proactive approach to customer satisfaction can go a long way in reducing potential problems.
Stay Compliant
Ensure your business complies with all relevant industry regulations and legal requirements. Not only will this protect you from legal trouble, but it will also give payment processors more confidence in your business.
Mitigating Risk with Multiple Merchant Accounts and Chargeback Management
One effective way to mitigate risk as a high-risk business is by using a single payment gateway with multiple merchant accounts. This strategy allows you to spread your transactions across various accounts, reducing the chances of your entire business being affected if one merchant account is terminated. By diversifying your payment processors, you protect your cash flow and reduce downtime should any issues arise with one provider.
Additionally, it’s essential to implement strong chargeback management systems. Proactively monitoring and addressing chargebacks can help you maintain a healthy account standing with processors, minimising the risk of account closures due to excessive disputes. Combining these strategies provides greater stability and ensures your business can continue operating smoothly, even in high-risk industries.
Simplify Your Search with The Payments Directory®
Navigating the complexities of high-risk MCC codes and finding a suitable payment processor can feel overwhelming, but it doesn’t have to be. The Payments Directory® is a powerful tool designed to simplify the process of finding the right supplier for your business. By filtering options based on your Merchant Category Code (MCC), integration needs, preferred payment methods, and geographic location, The Payments Directory® ensures that you are matched with providers who truly understand your industry’s unique challenges. Whether you're a high-risk business needing specialised services or simply seeking a seamless integration with your current systems, this platform offers transparency and ease. Take control of your payment processing journey by using The Payments Directory® to find the perfect partner for your business.
Summary
Operating in a high-risk industry doesn’t have to be an obstacle—it simply requires more strategic planning and an understanding of the unique challenges. By working with the right payment processor, maintaining strong fraud prevention measures, and staying compliant, you can successfully navigate the high-risk landscape while ensuring your business thrives.
Being aware of your MCC code and its associated risks allows you to better manage your relationships with financial institutions and payment processors, ultimately giving you greater control over your business’s financial operations.
FAQs
What is a Merchant Category Code (MCC)?
A Merchant Category Code (MCC) is a four-digit number used by payment processors and card networks to classify a business based on the type of goods or services it provides. This helps determine processing rates and categorise risk levels.
What makes an MCC code high-risk?
An MCC is considered high-risk if it is associated with industries that have higher rates of fraud, chargebacks, or regulatory scrutiny. Businesses in industries like online gaming, adult entertainment, and cryptocurrency often fall into the high-risk category.
How does a high-risk MCC code affect my business?
Having a high-risk MCC code can lead to stricter underwriting processes, higher processing fees, and more rigorous monitoring by financial institutions. You may also face more challenges in securing a payment processor willing to work with your business.
What industries are considered high-risk?
Industries that are commonly considered high-risk include adult entertainment, gambling, cryptocurrency, firearms, telemarketing, travel services, and payday loans, among others. These industries typically face increased scrutiny due to higher rates of fraud or regulatory requirements.
How can I find a payment processor for my high-risk business?
You can use platforms like The Payments Directory® to find payment processors that specialise in high-risk industries. This platform allows you to filter suppliers based on your specific MCC code, integration requirements, and geographic location, ensuring you find a suitable partner.
Will my high-risk MCC code increase my processing fees?
Yes, businesses with high-risk MCC codes often pay higher processing fees. This is because payment processors view these industries as more prone to fraud and chargebacks, requiring additional resources for risk management.
Can I change my MCC code?
Your MCC code is determined by the nature of your business and is typically assigned by your payment processor. If you change your business model or the type of products/services you offer, your MCC may change, but it is not something you can arbitrarily adjust.
How can I mitigate the challenges of being a high-risk business?
You can manage the challenges of being a high-risk business by working with a payment processor that understands your industry, implementing strong fraud prevention measures, maintaining a strong financial profile, and ensuring your business complies with all relevant regulations. Using tools like The Payments Directory® can also help you find the most suitable payment partners.
