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Payment Processing in 2003: Understanding Risk Management

By Jared Isaacman

As a core department, risk management serves as an equilibrium between profitability and exposure to potential loss. Risk limits the acquiring and issuing side of banking; however, Merchant Level Salespersons (MLS) often are not educated on the purpose and importance of risk management. This is unfortunate and has several negative ramifications.

Knowledge of risk management ultimately will enable sales professionals to better understand underwriting, profitability, pricing, attrition and the resale value of a merchant portfolio. Other topics this articule will cover in detail include definitions and explanations of the TMF (Terminated Merchant File)/MATCH (Member Alert to Control High-risk), and what to do if actively involved in a risk investigation with a processor.


Accurate completion of the merchant application is critical because it ultimately serves as a legal contract upon approval of the merchant to accept credit cards. Average ticket, monthly volume, merchandise and/or service sold are extremely important, requiring precise attention. Underwriting approves a merchant based on the parameters indicated; if those parameters shift significantly, a merchant may be placed under review.

The higher the average ticket, the greater the potential risk exposure. A chargeback of $2,000 is more likely not to clear a merchant's checking account than a $100 chargeback. Often, a merchant with a high average ticket is asked to submit recent copies of recent checking account statements in addition to the application. The merchant should always have sufficient funds available for a chargeback or processing fees to clear.


Although TMF is a word from the past and "MATCH" is the more diplomatic terminology, all the terminated merchant accounts remain documented. Visa and MasterCard members both contribute to the combined MATCH list; however, MasterCard hosts and regulates the use and access of the system.

Regulations state that only the member bank may administer and add/remove merchants from this system, but in some circumstances MSPs are permitted to use it. MATCH has become the first line of defense for acquirers and processors.

The system works by manually entering or batching data through MasterCard's online system for inquiry. When the systems identifies a merchant, there are two possible replies: Exact Match or Partial Match.

  • Exact Match: business name, tax ID#, phone number, owner name, SS#
  • Partial Match: business address, owner address

It has become widely accepted that merchants will not be approved if an Exact Match is the result, and merchants will be investigated for a Partial Match. Although member banks are not prohibited from approving merchants on the MATCH system, it is highly discouraged and regarded as an unnecessary risk.

The acquirer who places a merchant on the file has the sole ability to remove the merchant. This is uncommon yet happens more than one would expect. Placing a merchant on MATCH may seem excessive in some circumstances, but it is mandated that a merchant terminated for one of the reason codes listed below is placed on the MATCH file. If the acquirer fails to do so, and the merchant causes another member bank monetary losses, the original member can be liable for those damages.

Merchants can be added to MATCH for any one of the following reason codes:

  • 01 - Excessive Counterfeit
  • 02 - Unauthorized Cardholder Charges
  • 03 - Laundering/Factoring
  • 04 - Excessive Chargebacks
  • 05 - Excessive Fraud (8% violation rate)
  • 06 - Violation of Merchant Agreement
  • 07 - Fraud Conviction

Most reason codes are very specific; some leave room for interpretation. There always is a possibility that a good merchant could be placed on MATCH and doesn't deserve that designation. The ratio still makes MATCH a necessary defense for the acquiring industry.

Risk Investigation Do's and Don'ts

Being involved in a risk investigation can be a good thing. The bank or processor is requesting assistance to eliminate a potential loss and maintain the merchant account. In most instances an invoice, signed sales slip or imprint could resolve the issue.

Risk managers do not intend to lose a merchant account; the concept is to eliminate the risk and maintain the relationship. Cooperating with risk management to accomplish that goal ensures a lower attrition rate.

Merchants always should be willing to work with risk management. Although a merchant may become frustrated, the primary reason signed sales slips and imprint cards are required is in the event the bank or processor should request them. Typically, once the requested paperwork is received, a validation from the issuing bank can resolve the situation entirely. Other variables can delay the process, including issuers who are extremely uncooperative with acquirers.

Never try to convert a merchant while in the middle of a risk investigation. This will jeopardize the merchant's ability to process bankcards, with the recourse being a delay on the settlement of funds being held.

The risk manager is responsible for decreasing the risk exposure and retaining the merchant account. Interference may place the merchant on the MATCH file. Always make sure a merchant has satisfied obligations to the processor or bank before attempting to convert an account.

Jared Isaacman is Director of Operations for United Bank Card, Inc. He may be reached directly at or 908-638-5326, ext. 120.

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