Network Requirements
Status: Complete
Last Updated: 2025-12-28
Overview
Payment Facilitators must register with each card network they process transactions for. This registration creates specific compliance obligations, monitoring requirements, and fee structures that differ from traditional merchant accounts.
Why Network Registration Matters
Key Distinctions:
- Traditional: Network monitors individual merchant directly
- PayFac: Network monitors PayFac as a single entity; PayFac monitors sub-merchants
Network Registration vs. Sponsor Bank Relationship
| Aspect | Sponsor Bank | Card Network |
|---|---|---|
| Role | Provides processing capability | Provides transaction routing and rules |
| Approval | Approves PayFac program | Registers PayFac as participant |
| Monitoring | Portfolio-level performance | Compliance with network rules |
| Liability | Financial guarantor | Rule enforcement |
| Relationship | Contractual | Regulatory |
Visa PayFac Requirements
Registration Process
Steps to Visa PayFac Registration:
- Sponsor Bank Selection: Identify acquiring bank willing to sponsor PayFac program
- Program Submission: Sponsor bank submits PayFac application to Visa
- Review: Visa reviews program structure, compliance capabilities
- Approval: Visa grants PayFac registration
- VROL Access: PayFac receives access to Visa Resolve Online
Timeline: 60-120 days typically
VROL (Visa Resolve Online)
Visa's dispute management system that PayFacs must use:
- Chargeback Notification: Real-time alerts for disputes
- Representment: Submit evidence to fight chargebacks
- Arbitration: Escalate disputed cases
- Reporting: Access dispute metrics and trends
Requirement: All PayFacs must have VROL access and trained staff
Visa VAMP (Acquirer Monitoring Program)
Visa significantly restructured VAMP effective April 2025. PayFacs are now monitored at the acquirer level with much stricter thresholds (0.50%) than merchant-level thresholds.
Acquirer-Level Thresholds (For PayFacs - Effective April 2025):
| Tier | Dispute Ratio | Effective Date | Monthly Fines |
|---|---|---|---|
| Excessive | 0.50% (50 bps) | April 1, 2025 | $25,000 - $100,000+ |
| Above Standard | 0.30% - 0.50% | January 1, 2026 | $10,000 - $25,000 |
Merchant-Level Thresholds (For Individual Sub-Merchants):
| Tier | Dispute Ratio | Effective Date | Region |
|---|---|---|---|
| Excessive | 1.5% | June 1, 2025 | All regions |
| Excessive | 0.9% | April 1, 2026 | NA, EU, APAC only |
Key Distinction: PayFacs are monitored at the acquirer portfolio level (0.50% threshold), which is much stricter than individual merchant thresholds (0.9-1.5%). A PayFac portfolio exceeding 0.50% aggregate dispute ratio triggers VAMP, even if no individual sub-merchant exceeds 0.9%.
Portfolio Impact:
- VAMP applies at the acquirer level (entire PayFac portfolio)
- Target portfolio dispute ratio: below 0.40% for safety margin
- All sub-merchants contribute to aggregate ratio
- Single high-CBR sub-merchant affects entire portfolio
Visa Sub-Merchant Identification
Required Data Elements:
| Field | Description | Example |
|---|---|---|
| Sub-Merchant ID | Unique identifier | SM-123456 |
| Legal Name | Business legal name | Acme Corp LLC |
| DBA | Doing Business As | Joe's Coffee |
| MCC | Merchant Category Code | 5812 |
| Address | Business location | 123 Main St |
| Descriptor | Statement descriptor | PAY*JOESCOFFEE |
Descriptor Requirements:
- Format:
PayFac*SubMerchantName - Must be recognizable to cardholder
- Customer service phone recommended
Mastercard PayFac Requirements
Registration Process
Steps to Mastercard PayFac Registration:
- Sponsor Relationship: Establish acquiring bank partnership
- Program Documentation: Submit compliance and operational procedures
- MATCH Access: Obtain access to terminated merchant database
- Registration: Formal registration as Payment Facilitator
- MasterCom Access: Dispute management system access
MATCH List Requirements
Member Alert to Control High-Risk (Merchants)
Query Obligations:
- Check MATCH before approving any sub-merchant
- Search by business name, owner name, tax ID
- Document all search results
Reporting Obligations:
- Report terminated sub-merchants within 5 business days
- For fraud-related terminations: Report within 24-48 hours
- Use correct reason codes (14 total)
- Include required data elements
Reason Codes:
| Code | Reason |
|---|---|
| 01 | Account Data Compromise |
| 02 | Common Point of Purchase |
| 03 | Laundering |
| 04 | Excessive Chargebacks |
| 05 | Excessive Fraud |
| 06 | Violation of Standards |
| 07 | Fraud Conviction |
| 08 | Mastercard Questionable Merchant |
| 09 | Bankrupt/Liquidation/Insolvency |
| 10 | Violation of Agreement |
| 11 | Business Activity Termination |
| 12 | Identity Theft |
| 13 | PCI-DSS Non-compliance |
| 14 | Illegal Transactions |
Mastercard ECP (Excessive Chargeback Program)
Thresholds:
| Tier | Chargeback Ratio | Chargeback Count | Assessment |
|---|---|---|---|
| ECM (Excessive Chargeback Merchant) | 1.5% | 100 | $1,000 - $25,000/month |
| HECM (High Excessive Chargeback Merchant) | 3.0% | 300 | $25,000 - $200,000/month |
Mastercard ECP uses OR logic: merchants trigger the program if they exceed EITHER the ratio threshold OR the count threshold (not both). A merchant with 0.5% CBR but 150 chargebacks still enters ECM.
Key Difference from Visa:
- ECP applies at merchant level (individual sub-merchants)
- PayFac must manage sub-merchants individually
- BUT aggregated reporting to sponsor
MasterCom
Mastercard's dispute management platform:
- Case Management: Track disputes end-to-end
- Document Exchange: Upload representment evidence
- Messaging: Communicate with issuers
- Reporting: Dispute analytics and trends
VIRP (Visa Integrity Risk Program)
Overview
VIRP governs high-risk merchant categories requiring enhanced oversight and registration.
Tier Classification
Tier 1 (Highest Risk):
| MCC | Description |
|---|---|
| 5967 | Direct Selling (Nutraceuticals, supplements) |
| 7995 | Gambling |
| 7273 | Dating/Escort Services |
| 5122 | Drugs, Drug Proprietaries, Druggist Sundries |
| 5912 | Drug Stores, Pharmacies |
MCCs 5122 and 5912 are exempt from VIRP Tier 1 fees if accredited by the National Association of Boards of Pharmacy (NABP). Verify accreditation before onboarding pharmacy merchants.
Tier 2 (Elevated Risk):
| MCC | Description |
|---|---|
| 5966 | Direct Marketing - Outbound Telemarketing |
| 7841 | Video Tape Rental (certain adult content) |
| 5962 | Telemarketing - Travel Related |
VIRP Fees
Registration Fee:
- $950 per sub-merchant (Tier 1)
- One-time fee upon registration
- Required before processing
Integrity Risk Fee:
- $0.10 per transaction
- 0.10% of transaction volume
- Ongoing fee on all transactions
Example Impact:
| Processing | Transactions | Txn Fee | Volume Fee | Total Monthly |
|---|---|---|---|---|
| $50,000/mo | 2,000 | $200 | $50 | $250 |
| $100,000/mo | 4,000 | $400 | $100 | $500 |
| $500,000/mo | 20,000 | $2,000 | $500 | $2,500 |
VIRP Impact on Sub-Merchant Economics
Break-Even Analysis:
At low volumes, VIRP fees can exceed profit margins:
Registration: $950 (one-time)
Monthly fees: $250 (at $50k/month)
First-year cost: $950 + ($250 × 12) = $3,950
Effective additional cost: 0.66% of annual volume
Minimum viable volume: ~$25k/month to be economical
PayFac Considerations:
- Set minimum volume requirements for VIRP MCCs
- Pass-through fees to sub-merchants
- Evaluate if VIRP categories fit program
Discover and American Express
Discover
Aggregator Program:
- Similar structure to Visa/Mastercard
- Registration through sponsor bank
- Sub-merchant identification requirements
- Dispute management through separate system
Requirements:
- Sponsor bank must have Discover agreement
- Sub-merchant data reporting
- Compliance with Discover Operating Regulations
American Express
Payment Service Provider Program:
- Different structure than Visa/MC
- May require separate agreement
- OptBlue program for smaller merchants
Requirements:
- AmEx merchant of record relationship
- Sub-merchant disclosure requirements
- Compliance with AmEx policies
When All Four Networks Are Needed
Most PayFacs start with Visa/Mastercard only, then add:
Add Discover when:
- Sub-merchants request it
- Volume justifies additional compliance burden
- Competitive positioning requires full acceptance
Add AmEx when:
- High-average-ticket sub-merchants (AmEx penetration higher)
- Premium market segments
- Corporate card acceptance important
Network Audit Rights
Visa Audit Rights
Visa can audit PayFacs for:
- Compliance with Visa Rules
- Sub-merchant identification accuracy
- Dispute management procedures
- Data security (PCI DSS)
- VIRP registration accuracy
Audit Triggers:
- Random selection
- VAMP program entry
- Complaint investigation
- Data breach response
Mastercard Audit Rights
Mastercard can audit PayFacs for:
- MATCH reporting compliance
- ECP remediation
- Sub-merchant monitoring
- Network rule compliance
Audit Preparation
Maintain Ready Access To:
- Complete sub-merchant files
- MATCH query and report logs
- Dispute response records
- Training documentation
- Policy and procedure manuals
Self-Assessment Questions
Question 1
Your PayFac processes Visa and Mastercard. A large sub-merchant wants to accept all four major networks. What additional registrations and compliance requirements apply?
Answer
Additional Requirements:
Discover:
- Registration through sponsor bank's Discover program
- Sub-merchant reporting to Discover
- Separate dispute management system access
- Compliance with Discover Operating Regulations
American Express:
- AmEx PSP (Payment Service Provider) agreement
- May require OptBlue enrollment
- Separate merchant of record considerations
- Different fee structures and disclosure requirements
Operational Impact:
- Four separate compliance frameworks
- Multiple dispute management systems
- Different reporting requirements
- Increased operational complexity
Recommendation: Evaluate whether volume justifies complexity. Start with Visa/MC, add Discover/AmEx based on sub-merchant demand and revenue opportunity.
Question 2
A sub-merchant applying to your PayFac is in MCC 5967 (nutraceuticals). What VIRP requirements apply and how do they impact the onboarding decision?
Answer
VIRP Tier 1 Requirements:
- Registration Fee: $950 one-time per sub-merchant
- Integrity Risk Fee: $0.10/txn + 0.10% volume (ongoing)
- Enhanced Due Diligence: Additional verification documentation
- Sponsor Approval: Explicit approval required for Tier 1 MCCs
Onboarding Decision Factors:
| Factor | Consideration |
|---|---|
| Volume | Is volume sufficient to absorb VIRP fees? |
| Margin | Does pricing cover additional costs? |
| Risk | Higher chargeback potential in nutraceuticals |
| Sponsor | Has sponsor approved this MCC category? |
Minimum Viable Volume:
- At $25k/month: VIRP fees = ~$75/month = 0.3% extra cost
- Below $15k/month: Often not economical
Decision: Approve only if volume >$25k/month, pricing covers VIRP fees + enhanced reserves, and sponsor has approved nutraceutical sub-merchants.
Question 3
Your portfolio's aggregate chargeback ratio is approaching 0.9%. What specific Visa and Mastercard programs are you at risk of triggering?
Answer
Visa VAMP:
- At 0.9%: Early Warning threshold reached
- Action Required:
- Develop remediation plan
- Identify top chargeback sources
- Monthly monitoring begins
- No fines yet but documented warning
Mastercard ECP:
- At 0.9%: Below ECMP threshold (1.0%)
- BUT: Individual sub-merchants may already be in ECMP if they have >1.0% ratio + 100 chargebacks
- Action: Audit individual sub-merchant CBRs
Critical Actions:
-
Immediate:
- Identify top 20 sub-merchants by chargeback volume
- Implement enhanced monitoring
- Communicate with sponsor bank
-
30 Days:
- Tighten underwriting criteria
- Terminate highest-CBR sub-merchants
- Implement fraud prevention tools
-
60-90 Days:
- Target portfolio CBR below 0.75%
- Document all remediation efforts
- Prepare for potential 2026 threshold tightening (0.9% becomes standard)
Related Topics
- Sponsor Delegation - How network compliance relates to sponsor oversight
- Portfolio Risk Management - Managing aggregate metrics
- Sub-Merchant Management - MID structure and identification
References
- Visa Core Rules and Visa Product and Service Rules
- Visa Payment Facilitator Model Guidelines
- Mastercard Rules Manual
- Mastercard Payment Facilitator Standards
- VIRP Registration Requirements
- MATCH User Guide