The challenges of MID warming: how merchants can switch acquirers while mitigating the risk of issuer declines

Sometimes merchants need to change their acquiring relationships. But this change doesn’t just entail switching the acquirer—it also means changing their merchant ID (MID) used for those transactions. What might seem like an innocuous move can lead to a dip in authorization rates, even if nothing else has changed from a merchant risk profile perspective.

However, by preparing issuers for these changes in merchant processing setups and underlying transaction data, we can help mitigate some of the initial authorization rate challenges. That’s good news for the merchant, the issuer and the acquirer.

When things go wrong

Issuers should ask themselves whether each transaction will cost them money, either in the form of lost fraudulent funds or operational costs supporting a fraud report and reissuance. It’s important to consider two factors: the “riskiness” of the cardholder and that of the merchant.

The challenge for the issuer is that in the case of a new merchant, they have no historical data  to make accurate risk calculations. So, much like continuing charges can be disrupted due to a reliance on MCC, MID, and merchant descriptor,  authorization engine rules are also disrupted when there’s no chargeback performance history for an MCC, MID, and merchant descriptor combination. This could lead to a rise in “security” declines and Do Not Honor decline responses for the first 90 to 120 days. During this time authorization models “learn” the chargeback performance and subsequent riskiness.

A second example involves continuing charges. Issuers derive most of their revenue from transactions, either directly in the form of interchange or indirectly in the form of interest on balances. That means they have an incentive to keep their cards as “first-on-file.” This is an incredibly difficult task in a world where annual reissues are common due to frequent merchant data breaches. That’s why many issuers use programs like “continuing charges,” where they allow a charge through after a card has been reissued, even if the old card information is used.

The problem is that many don’t just rely  on the merchant descriptor to continue these charges, but also lean heavily on the MID and acquiring bank relationships. When these change, the program breaks down and transactions are declined.

Getting over the hump with MID warming

This is where a good MID warming strategy comes in; the process of “warming up” a MID with transaction volume to get to a point of optimal processing. The goal is to ensure a smooth transition onto a new acquirer with minimal impact on a merchant or cardholder.

The knee-jerk reaction to an authorization performance dip is to pull back and revert transaction volume, but that will never get the merchant over the hump on their desired processing scheme. It also has the negative effect of validating issuer authorization engine models that the volume is not “normal” and shouldn’t be there in the first place. 

Fortunately, there are ways to overcome these tricky challenges as you switch processing relationships:

1. Tackle problems with continuing charges by assuming even moderately aged cards-on-file are no longer good and ensuring an Account Updater and/or Network Token product is used to freshen them.
2. Think about ramping your best volume into the new MID first, giving optimal chargeback performance early on for issuer engines to learn.
3. Ensure you’re using a Fraud tool to block obvious bad volume, especially carding; early bad volume on a MID can set your migration back by months.
4. If there’s enough volume in play, have your PSP reach out to issuers to advise of the new processing relationship. This is something PayPal and the Braintree Platform do on a consistent basis for our largest enterprise clients.
5. Consider a retry strategy that involves using the old/existing processing relationships. This may get additional authorization approval and has the added bonus of highlighting when the original transaction has a “hard” decline.

These are far from theoretical challenges. In fact, PayPal’s end-to-end payments processing worked hand-in-hand with a large enterprise merchant who experienced a scenario similar to the one described above. Our ability to walk them through the tests and checks being performed with the issuer was key to getting them over the hump. Above all, our experience shows that strong issuer partnerships make it possible to solve merchant problems at an entirely new level, for true value-add. 

The content of this blog is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.