MCC 5812

Restaurants

Applications

Decisions

Identities

Transactions

Underwriting Cheat Sheet

MCC code 5812 is specifically designated for restaurants and eating places, covering a vast array of dining establishments. This guide from Gratify offers an in-depth exploration of MCC code 5812, providing valuable insights into its characteristics, associated risks, and best practices for managing merchant relationships within the food service industry.

Typical Business Types

Assigned exclusively to restaurants and eating places, including various types of food service providers

Fine Dining Restaurants

Upscale establishments offering full-service meals.

Fast Food and Quick Service

Establishments providing quick meals and takeout options.

Catering Services

Providers of food services for events and special occasions.

1. High Level Information for Payment Processors
2. Key Risks and Concerns
3. Common Fraud Signals
4. Underwriting Tips
5. Example Scenarios and Red Flags
6. Common Underwriting Questions
7. Ongoing Monitoring

High Level Information for Payment Processors

Transaction Types:

Card-Present Transactions: Payments made in person using physical cards.
Card-Not-Present Transactions: Online, phone, or app-based orders.
Tips and Gratuities: Additional amounts added by customers for service staff.
Split Payments: Transactions divided among multiple payment methods or diners.
Recurring Billing: Subscriptions for meal plans or dining clubs.

Common Payment Methods:

Credit and Debit Cards: Primary methods for both in-person and online payments.
Mobile Payments: Use of Apple Pay, Google Pay, or other contactless options.
Digital Wallets: Payments through platforms like PayPal or Venmo.
Gift Cards and Vouchers: Prepaid options specific to the restaurant or chain.
Cash Payments: Still prevalent in many establishments.

Unique Business Characteristics:

High Transaction Volume: Numerous small transactions throughout the day.
Peak Hours: Increased activity during meal times and weekends.
Employee Turnover: Frequent changes in staff handling transactions.
Seasonal Variations: Fluctuations due to holidays, events, or tourist seasons.
Multiple Sales Channels: In-house dining, delivery, catering, and third-party platforms.

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Key Risks and Concerns

Fraud Risks:

Skimming Devices: Unauthorized copying of card information during transactions.
Card-Not-Present Fraud: Increased risk with online and phone orders.
Chargeback Fraud: Customers disputing legitimate charges to receive refunds.
Employee Theft: Internal fraud through voids, refunds, or manipulation of tips.
Friendly Fraud: Legitimate customers disputing charges out of confusion or dissatisfaction.

Regulatory Challenges:

PCI DSS Compliance: Adherence to data security standards for handling payment information.
EMV Liability Shift: Responsibility for fraudulent transactions if not using chip-enabled terminals.
Health and Safety Regulations: Compliance with local food handling and safety laws.
Tax Reporting: Accurate reporting of sales taxes and employee tips.

Chargeback Triggers:

Unauthorized Transactions: Charges not recognized by the cardholder.
Service Quality Issues: Complaints about food quality or customer service.
Billing Errors: Incorrect charges or duplicate transactions.
Non-Delivery: Failure to deliver orders or significant delays.
Miscommunication: Confusion over promotional offers or pricing.

Common Fraud Signals

Multiple Declined Attempts: Several failed payment attempts before a successful charge.

High-Value Orders: Unusually large orders, especially for delivery or catering.

Mismatched Information: Discrepancies between billing and delivery addresses.

Rush Orders: Urgent requests that bypass standard verification procedures.

Unusual Ordering Times: Orders placed outside of normal business hours.

Suspicious Customer Behavior: Reluctance to show ID or provide contact information.

Underwriting Tips

Business Verification:

Confirm valid business licenses, permits, and health certifications.
Verify the physical location and ensure it aligns with business listings.

Financial Assessment:

Review financial statements to evaluate revenue consistency and profitability.
Analyze average transaction values and monthly processing volumes.

Risk Evaluation:

Examine historical chargeback ratios and reasons.
Assess fraud prevention measures and employee training programs.

Policy Review:

Ensure clear refund and cancellation policies are in place.
Verify that terms are prominently displayed and communicated to customers.

Reputation Analysis:

Check online reviews and ratings on platforms like Yelp and Google.
Investigate any history of health code violations or legal issues.

Employee Management:

Evaluate staff training procedures for handling payments securely.
Review policies on tip handling and cash management.

Technology Assessment:

Confirm the use of secure, up-to-date POS systems.
Ensure encryption and tokenization are implemented for data protection.

Example Scenarios and Red Flags

Spike in Chargebacks After Promotions:

A restaurant offers a special deal leading to confusion about terms, resulting in increased disputes.

Employee Fraudulent Activities:

Staff issuing unauthorized refunds or manipulating transaction amounts.

Large Catering Orders with Immediate Delivery:

High-value orders from new customers requesting immediate service, potentially using stolen cards.

Multiple Transactions with Slight Variations:

Similar amounts charged multiple times, indicating possible system errors or fraud.

Discrepancies in Tip Adjustments:

Significant differences between authorized amounts and settled transactions due to altered tips.

Common Underwriting Questions

Business Operations:

What type of restaurant do you operate (e.g., fine dining, casual, fast food)?
How long have you been in business at the current location?
What are your primary sales channels (dine-in, delivery, takeout)?

Payment Processing Methods:

What percentage of transactions are card-present versus card-not-present?
Do you use EMV-compliant terminals and secure POS systems?

Employee Practices:

How many employees handle payment transactions?
What training do you provide on payment security and fraud prevention?

Fraud Prevention Measures:

What steps do you take to secure customer payment data?
Do you conduct background checks on employees handling transactions?

Policies and Procedures:

What is your policy on refunds, returns, and cancellations?
How do you address customer complaints and disputes?

Compliance and Certifications:

Are you PCI DSS compliant?
Do you hold all necessary health and safety certifications?

Ongoing Monitoring

Transaction Monitoring

Implement real-time alerts for suspicious activities.
Regularly review transaction reports for anomalies.

Chargeback Management

Analyze chargeback trends and implement corrective measures.
Maintain documentation to dispute illegitimate chargebacks effectively.

Employee Oversight

Conduct regular audits of employee transactions and cash handling.
Update training programs to address new fraud tactics.

Compliance Checks

Ensure continuous adherence to PCI DSS requirements.
Stay updated on changes in regulatory standards and implement necessary adjustments.

Customer Feedback Analysis

Monitor reviews and social media mentions for service issues.
Address negative feedback promptly to improve customer satisfaction.

Technology Updates

Keep payment systems and software up to date with security patches.
Explore advanced security features like encryption and tokenization.

Merchant Communication

Maintain open dialogue regarding changes in business operations.
Provide resources and support for fraud prevention and compliance.

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