By Melody Lashmar - This article was originally published in June of 2011 but it is worth reviewing. Looking back you can see that there have been no additional banks in the US that have started registered high-risk merchant processing and the others that still participate have become very taxing in their requirements to board this merchant type.
Gone are the days of convincing any old bank to increase revenues by expanding their merchant base with 5967 accounts. With traditional banking fees being terminated, debit fees being threatened and interest rates being practically non-existent banks are looking to increase revenues through other programs to keep their shareholders happy.
One of the most tempting methods for most banks is the seemingly quick revenue boost that comes from entering a higher risk market. There are always players out there that work with a bank to create a relationship where they convince the bank that they have a solid portfolio and can manage the risk. The bank gets buy-off from their stakeholders regarding this new market and processing begins. With a small success they open up to many more relationships and watch the volume grow exponentially while chargebacks stay within compliance. Revenue is great and everyone is happy.
As the growth slows down, the operational impact begins as the chargeback ratios catch up to the growth. Suddenly these banks are faced with phone calls, letters, and auditors descending on the bank as they see a potential problem on the horizon.
This cycle has been going on for years and the associations are deciding to get ahead of the game by instituting new requirements for banks interested in getting into the space.
Visa is stepping in and ensuring that the bank is both prepared and serious about the business before they are going to be allowed to actually process 5967 merchants.
Effective June 1, 2011, any bank globally, that wants to get into 5967 processing must first ante up with $50,000 (depending on the region) to register as a high-risk bank. The bank must also:
- Be investment-grade and have at least US $100 million in equity capital.
- Comply with all Visa policies, as defined in the Visa International Operating Regulations and Regional Operating Regulations.
- Conduct due diligence to ensure compliance with the Visa Global Acquirer Risk Standards.
- Be in good standing in all Visa risk management programs.
Once the bank has begun the process, they must go through an on-site audit within a 60-day time frame of receiving notification that they can proceed with the audit. Visa will review the results of the audit and determine if the bank has satisfactorily met the required criteria. The bank will receive a letter with the final decision and it will detail any conditions that are imposed on the bank.
Further, a bank that is new to high risk processing and fails to comply with registration requirements, may be assessed a fine of $25,000 per month and may result in their ability to process high-risk transactions being taken away.
As you can see, the new guidelines will keep the bank that is going to dabble in 5967 out of it altogether and the only banks that can really afford to start the process will need to be large banks that can afford the registration fees and the ongoing operations overhead before they see any revenue for that line of business.
It seems that the banks that are already in the space are allowed to keep going but anyone new will have to prove their commitment to the process.
At this point in time, it is my advice to you to be good to your bank and to keep your merchant account in very good standing! However, as you look to mainstream businesses, you can still enjoy the many relationships both new and old that develop over time.
