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A Brief History Lesson
No, Al Gore did not invent the Internet, and
according to Wikipedia, the World Wide Web was
created in 1989 by Sir Tim Berners-Lee, working at
the European Organization for Nuclear Research
(CERN) in Geneva, Switzerland and was released to
the world in 1992. Sixteen years later, the Internet IS
the primary business tool taking over from phone
and fax for all businesses and it fundamentally has
changed how we live, communicate, shop and of
course, play! We started FAC in 1998 and at that
time the Internet was still very much the “wild, wild
west”. The VISA and MasterCard compliance rules
were in place for retail POS businesses and MO/
TO businesses including telemarketers, but there
were no specifcally defned rules for electronic
commerce merchants. Ecommerce was lumped
in with MO/TO compliance for ‘card-not-present’
transactions and the rules simply did not ft how
businesses operated, or the rapidly evolving
Internet technology. It took a few more years
before the Card Associations actually updated
their manuals and Merchant Category Codes
to implement regulations specifcally for online
businesses, and this is where life got interesting for
all of us in the payments industry.
THE EVOLUTION OF MERCHANT CATEGORY CODES
In 1998, the Internet had not reached many
countries in the Caribbean so the learning curve
was steep, with basic education on what an online
payment gateway did and how clearing of online
payments would work with acquiring banks who
needed to set up separate BINs for clearing. Once
the industry took hold, the banks were hungry
for the fee income generated by online casino
volumes and merchants were signed up by the
dozens without anyone realizing the risk associated
with card-not-present consumer chargebacks
and online fraud. There was unsophisticated
ecommerce monitoring in place and acquirers
were typically assigning the ‘electronic commerce’
Merchant Category Code (MCC) 5967 for all
online merchants, regardless of the products they
sold. The Card Associations were unprepared
for the exponential growth of online gambling
and realized the compliance rules to govern and
monitor this new industry needed to be different
than standard POS rules, which were well
documented in the Card Association manuals.
Prior to 2000, the VISA Operating Regulations
classifed online gambling under ‘High Risk
Telemarketing’ which included direct marketing,
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inbound telesales related to telephone gambling,
outbound telemarketing, online gambling, in-
transit service gambling and adult entertainment.
In February 2000, VISA International adopted a
unique category code for online casinos which
included lotteries, off-track betting and the sale
of gambling chips. Banks and processors were
required to register their online casino merchants
with the new 7995 MCC code in an effort to
provide real-time risk monitoring and reporting
for the acquiring banks. Land based casinos were
issued their own unique MCC codes (i.e. Lady Luck
Hotel and Casino was MCC 3624) allowing those
card transactions to be distinguished from Internet
casino based transactions which further divided
the industry. 7995 transactions did not start to
be blocked by American Issuers until sometime
in 2001, but there were some Issuers who posted
these transactions as Cash Advances and not Sales,
creating a customer service issue for the gaming
merchant that could not be easily resolved.
MCC codes are where the differences between
gambling merchants and the rest of the merchant
world signifcantly divide. The implementation
of MCC classifcation and monitoring is
fundamentally what changed the payments industry
and led to the infamous ‘coded Vs non-coded’
payments landscape. MCC codes are intrinsic to all
VISA and MasterCard payments and acceptance
of transactions by Card Issuing Banks. The Visa
International Data Quality Improvement Program
monitors the Acquirer’s use of specifc merchant
category codes to ensure that the code best describes
the type of merchandise or service that the merchant
provides. There are about 580 VISA MCC codes and
it is the responsibility of the Merchant Acquiring
Bank to ensure they have selected and applied
the correct MCC to the Merchant ID so that the
Issuer can identify what type of transaction their
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cardholder is performing, from what website and in
which country. Issuers can block transactions at the
interchange BIN level based on MCC, country code,
and more recently ECI indicator. Transactions can
also be blocked at the point of authorization based
on a variety of parameter settings.
CATEGRIZING INDUSTRYS
What I fnd fascinating about the MCC defnitions
is how the Card Associations categorize the
industry groupings. Over the past 8 years, MCC
7995 has been vastly broadened to include an
enormous category of businesses. June 2008’s
classifcation includes “merchants who operate
gambling or betting establishments, including
those that may be associated with hotels,
restaurants, riverboats, and resorts, that allow
customers to use their bank cards to purchase
gambling chips, lottery tickets, or to place wagers.
For gambling or betting merchants associated with
hotels, restaurants, etc, transactions representing
the purchase of gambling chips, lottery tickets, or
wagers with a bank card must be classifed under
this MCC”. So a Riverboat casino that does not have
its own unique MCC, is required to classify their
transactions as 7995, resulting in a decline rate of
about 85%. Now if you review MCC 5999, which
is a catch-all classifcation for “Miscellaneous
and Specialty Retail Shops”, acquirers are to
“use this MCC for merchants who sell unique or
specialized products that are not described by
another merchant category code, such as, map
and atlas shops, frearms and ammunition shops,
magic shops, party supply shops, silk fower shops,
freworks shops, ice dealers, picture frame shops,
sunglasses shops, beauty supply shops, and dealers
of bottled and distilled water. This MCC should
be used only when a more descriptive MCC is not
available”. Why are frearms and ammunition
shops in the same MCC category as picture frame
shops, silk fowers and bottled water?
So an 18 year old can go buy a 9mm Military
Specs Beretta gun with bullets online at Guns
America.com (listing #977002954) for $580.00
using their newly issued CAPITAL ONE VISA
card and their bank would not know if they had
purchased a nice pair of designer sunglasses
or a military grade gun with bullets in excellent
condition. But, I can’t go enjoy my long weekend on
the Mississippi Riverboat cruise with my CITI VISA
card because transactions would be automatically
declined. Gives a whole new meaning to the
marketing slogan “VISA… The Currency of Life”.
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