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Education
Is your merchant agreement out of date?
By Eugene Rome Given that the vast majority of CNP transactions are now
Rome & Associates conducted online, however, MO/TO solutions have ever-
diminishing relevance to most merchants. Nonetheless,
L et's face it. Many ISOs and other payment ser- many merchant agreements still use "MO/TO" as an
vice providers cut some corners when it comes umbrella term for CNP transactions.
to merchant agreements. Some diehards use the
same old terms and conditions they have been "CNP transactions" is the appropriate umbrella term for
using since the 1990s. Some ISOs copy and paste a com- such transactions; MO/TO should be used only to refer to
petitor's merchant agreement they found online. Others a limited subset of CNP transactions.
turn to a family member recently graduated from law
school – who knows nothing about the payments industry Card imprinter
– to draft or update their agreements.
With respect to card-present transactions, a surprising
But cutting corners to save money comes with a cost. number of merchant agreements still require the
Failing to update your merchant agreement to stay merchant to "imprint the card" as part of the merchant's
current with changes in terminology, technology and card acceptance procedures. Manual card imprinters have
legal developments usually means failing to protect your little relevance in today's payments world. Again, while
company to the fullest extent possible. manual imprint readers may be relevant to a small number
of merchants operating at tradeshows, flea markets,
Many outdated merchant agreements fail to account concerts, etc., such technology has zero relevance to the
for changes in card brand rules and requirements, and vast majority of brick-and-mortar merchants.
provide inadequate protections when it comes to reserves,
security interests, indemnity, personal jurisdiction, choice If your merchant agreement's card acceptance provisions
of law and personal guaranty provisions. still speak in terms of "card imprinters" and "magnetic
strip readers," but do not address chip card readers, you
So what are some obvious signs that your merchant probably need an update.
agreement needs an update?
TMF
Card associations
Whenever an acquirer terminates a merchant for certain
Notwithstanding the fact that Visa and Mastercard specified reasons – such as excessive chargebacks,
both became public companies and stopped operating excessive fraud, laundering – card brand rules require
as "associations" about a decade ago, many merchant the acquirer to add that merchant and its principals to a
agreements still refer to them as "Card Associations." database of terminated merchants. Card brand rules also
Both entities were private membership associations, but require each acquirer to consult that list to screen each
that was in the past. Visa remained a private membership potential applicant for merchant processing services.
association until 2007, when regional businesses around
the world merged to form Visa Inc. In 2008, Visa Inc. Formerly known as the Terminated Merchant File (TMF),
went public in one of the largest IPOs in history. In 2006, a proprietary list maintained by Visa, both Visa and
Mastercard transitioned to a new corporate governance MasterCard now rely upon a distinct database maintained
and ownership structure, and became a publicly traded by Mastercard, which is known as the Member Alert To
company on the NYSE. Control High-Risk (MATCH) list. While Visa still uses
the term Terminated Merchant File, it specifically defines
Thus, as publicly traded corporations, Visa and Mastercard that term to refer to a file "currently known as MATCH."
are no longer owned by an association of private member MATCH has now replaced TMF as the default term for the
banks – though they still set the rules for the member dreaded card brand blacklist.
banks in the payment networks in which they operate.
Accordingly, we now refer to Visa, Mastercard, American If your merchant agreement's terminology is outdated, it's
Express, Discover and others as card brands or card a good bet that your merchant agreement fails to account
schemes, not card associations. for other changes to card brand rules and technology
that may fail to protect your business to the fullest extent
MO/TO possible, thereby exposing it to unnecessary risk.
MO/TO stands for Mail Order/Telephone Order, and refers Eugene Rome is the principal and founder of the Los Angeles-based law
to card-not-present (CNP) transactions conducted by mail firm Rome & Associates. Reach him at erome@romeandassociates.com
or over the telephone via catalog or telemarketing sales. or 310-282-0690.
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