MCC 5331

Variety Stores
Applications
Decisions
Identities
Transactions

Underwriting Cheat Sheet

MCC code 5331 is specifically designated for variety stores, which offer a diverse range of low-priced goods across multiple product categories. This guide from Gratify offers an in-depth exploration of MCC code 5331, providing valuable insights into its characteristics, associated risks, and best practices for managing merchant relationships within this unique retail sector.
Typical Business Types

MCC Code 5331 assigned exclusively to variety stores, including discount and dollar stores that sell a wide assortment of inexpensive items.

#1
Discount Variety Stores
Retailers offering a broad selection of low-cost products.
#2
Dollar Stores
Stores where most items are priced at a dollar or in fixed low-price increments.
#3
Closeout Retailers
Shops specializing in overstock or discontinued merchandise.
High Level Information for Payment Processors

Transaction Types

  • Card-Present Transactions: Predominant due to in-person shopping.
  • Low-Value Transactions: High volume of small-dollar purchases.
  • Cash Transactions: Significant portion of sales conducted in cash.
  • Gift Card Transactions: Purchase and redemption of store-specific gift cards.

Common Payment Methods

  • Credit and Debit Cards: Widely accepted for convenience.
  • Cash: Heavily used due to low transaction amounts.
  • Mobile Payments: Growing acceptance of contactless options like Apple Pay and Google Pay.
  • EBT Cards: Accepted in stores offering eligible food items.

Unique Business Characteristics

  • High Transaction Volume: Numerous small transactions daily.
  • Low Average Ticket Size: Typical purchase amounts are minimal.
  • Impulse Buying: Purchases often driven by low prices and convenience.
  • Rapid Inventory Turnover: Frequent changes in stock due to limited quantities and seasonal items.
  • Limited Customer Data: Less opportunity to collect customer information due to quick transactions.
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Key Risks and Concerns

Fraud Risks

  • Counterfeit Currency: Higher risk due to significant cash transactions.
  • Card-Present Fraud: Use of stolen or cloned cards at the point of sale.
  • Employee Theft: Internal fraud through cash handling and unauthorized discounts.
  • Refund Fraud: Returning stolen merchandise for cash or store credit.
  • Coupon Abuse: Misuse of promotional offers or counterfeit coupons.

Regulatory Challenges

  • PCI DSS Compliance: Adherence to data security standards for card payments.
  • Cash Handling Regulations: Compliance with laws related to large cash transactions.
  • Consumer Protection Laws: Adherence to regulations on pricing and product safety.
  • Tax Reporting: Accurate collection and remittance of sales taxes.

Chargeback Triggers

  • Unauthorized Transactions: Charges not recognized by the cardholder.
  • Billing Errors: Incorrect charges or duplicate transactions.
  • Product Quality Issues: Complaints about defective or misrepresented products.
  • Return Policy Disputes: Conflicts over return or exchange policies.

Common Fraud Signals
  • Multiple Small Purchases
    • Numerous low-value transactions in a short period, possibly testing card validity.
  • Unusual Shopping Patterns
    • Buying large quantities of the same item, potentially for resale.
  • Excessive Cash Transactions
    • Large cash payments inconsistent with typical customer behavior.
  • Frequent Returns Without Receipts
    • May indicate refund fraud or theft.
  • Suspicious Customer Behavior
    • Avoidance of cameras, reluctance to show ID, or rushing transactions.

Underwriting Tips

Business Verification

  • Confirm valid business licenses and registrations.
  • Verify physical store locations and consistency with business listings.
  • Check for compliance with retail industry and consumer protection regulations.

Financial Assessment

  • Review financial statements to evaluate revenue stability and profitability.
  • Analyze average transaction amounts and daily processing volumes.
  • Assess cash handling procedures and controls.

Risk Evaluation

  • Examine historical chargeback ratios and reasons.
  • Assess fraud prevention measures and employee training programs.
  • Review policies for handling returns, refunds, and exchanges.

Policy Review

  • Ensure clear return and refund policies are in place.
  • Verify that terms are prominently displayed and communicated to customers.
  • Evaluate procedures for accepting coupons and discounts.

Reputation Analysis

  • Check online reviews and community reputation.
  • Investigate any history of regulatory violations or legal issues.
  • Assess customer satisfaction and complaint resolution practices.

Employee Management

  • Evaluate staff training on payment handling and fraud prevention.
  • Review hiring practices, including background checks for employees handling transactions.
  • Assess internal controls to prevent employee theft and fraud.

Technology Assessment

  • Confirm the use of secure, up-to-date POS systems.
  • Ensure compliance with PCI DSS standards.
  • Verify that cash handling equipment is secure and counterfeit detection measures are in place.

Example Scenarios and Red Flags

High Volume of Returns Without Receipts

  • An increase in returns without proof of purchase may indicate fraudulent activity or theft.

Spike in Cash Discrepancies

  • Frequent mismatches in cash registers at the end of shifts suggest potential employee theft.

Bulk Purchases of Specific Items

  • Customers buying large quantities of certain products could be reselling or engaging in fraudulent activities.

Use of Counterfeit Bills

  • Detection of fake currency during cash transactions, especially in large denominations.

Frequent Coupon Redemption

  • Unusually high use of coupons, possibly counterfeit, leading to revenue loss.

Common Underwriting Questions
  1. Business Operations
    • What types of products do you sell?
    • How many store locations do you operate, and where are they located?
    • Do you offer any online sales or only in-store transactions?
  2. Payment Processing Methods
    • What percentage of transactions are cash versus card payments?
    • Do you accept mobile payments or other alternative payment methods?
  3. Employee Practices
    • How many employees handle payment transactions?
    • What training do you provide on cash handling and fraud prevention?
  4. Fraud Prevention Measures
    • What steps do you take to secure cash and card payment data?
    • Do you have counterfeit detection measures for cash transactions?
  5. Policies and Procedures
    • What is your policy on returns, refunds, and exchanges?
    • How do you handle customer complaints and disputes?
  6. Compliance and Certifications
    • Are you PCI DSS compliant?
    • Do you adhere to all relevant consumer protection and cash handling regulations?

Ongoing Monitoring

Transaction Monitoring

  • Implement real-time alerts for suspicious activities.
  • Regularly review transaction reports for anomalies or patterns indicative of fraud.

Cash Handling Audits

  • Conduct regular audits of cash registers and deposits.
  • Use surveillance systems to monitor cash handling areas.

Chargeback Management

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

Employee Oversight

  • Monitor employee transactions and conduct surprise audits.
  • 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 feedback for service or product issues.
  • Address negative feedback promptly to improve customer satisfaction.

Technology Updates

  • Keep POS systems and cash handling equipment up to date.
  • Implement counterfeit detection tools for cash transactions.

Merchant Communication

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