MCC 8351

Child Care
Applications
Decisions
Identities
Transactions

Underwriting Cheat Sheet

MCC 8351 is specifically designated for child care services, covering a wide range of businesses that provide care and educational services for children. This guide from Gratify offers an in-depth exploration of MCC 8351, providing valuable insights into its characteristics, associated risks, and best practices for managing merchant relationships within the child care industry.
Typical Business Types

MCC 8351 assigned exclusively to child care services, including businesses offering care and educational programs for children.

#1
Daycare Centers
providing full-day care for infants, toddlers, and preschoolers.
#2
Preschools and Early Learning Centers
focusing on early childhood education.
#3
Special Needs Care Providers
specializing in care for children with disabilities or special requirements.
High Level Information for Payment Processors

Transaction Types

  • Recurring Payments
    • Regular billing for ongoing child care services (weekly, bi-weekly, monthly).
  • One-Time Payments
    • Enrollment fees, deposits, or special event charges.
  • Card-Present Transactions
    • In-person payments made at the child care facility.
  • Card-Not-Present Transactions
    • Online or phone payments through parent portals or billing systems.
  • Refunds and Adjustments
    • Credits issued due to overpayments, cancellations, or schedule changes.

Common Payment Methods

  • Credit and Debit Cards
    • Widely used for both recurring and one-time payments.
  • ACH Transfers
    • Direct bank debits for significant or regular payments.
  • Checks
    • Traditional method, still common among parents.
  • Online Payment Platforms
    • Payments processed through the facility's website or third-party services.
  • Cash
    • Accepted for smaller fees or immediate payments.

Unique Business Characteristics

  • Regulatory Compliance
    • Strict adherence to state and local regulations regarding child care.
  • Sensitive Client Information
    • Handling personal data of children and families requiring privacy safeguards.
  • Variable Schedules
    • Customized care schedules affecting billing cycles.
  • Seasonal Demand
    • Fluctuations based on school calendars and holidays.
  • Trust and Reputation
    • High importance placed on safety and reliability by parents.

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Key Risks and Concerns

Fraud Risks

  • Chargeback Fraud
    • Parents disputing charges after services have been provided.
  • Identity Theft
    • Unauthorized use of payment information to pay for child care services.
  • Employee Fraud
    • Staff misappropriating funds or altering billing records.
  • Service Misrepresentation
    • Overstating services or qualifications, leading to disputes.
  • Unlicensed Operations
    • Facilities operating without proper licensing or certifications.

Regulatory Challenges

  • PCI DSS Compliance
    • Ensuring secure handling of payment card data.
  • Child Care Regulations
    • Compliance with licensing, staffing ratios, and safety standards.
  • Data Protection Laws
    • Adherence to GDPR, CCPA, and other privacy regulations.
  • Consumer Protection Laws
    • Transparent disclosure of fees, services, and policies.
  • Tax Compliance
    • Accurate reporting and remittance of applicable taxes.

Chargeback Triggers

  • Service Quality Disputes
    • Claims that care was inadequate or not provided as agreed.
  • Unauthorized Transactions
    • Charges not recognized by the payer.
  • Billing Errors
    • Incorrect amounts, duplicate charges, or unexpected fees.
  • Contractual Disagreements
    • Conflicts over terms, cancellations, or schedule changes.
  • Non-Delivery of Services
    • Allegations that agreed-upon services were not rendered.

Common Fraud Signals

High-Value Transactions from New Clients

  • Significant payments without prior relationship or verification.

Multiple Payments from the Same Card

  • One card used for different accounts or children, potentially indicating misuse.

Unusual Payment Patterns

  • Overpayments followed by refund requests to different accounts.

Inconsistent Parent Information

  • Discrepancies between billing details and enrollment records.

Reluctance to Sign Contracts

  • Avoidance of formal agreements or providing necessary documentation.

Underwriting Tips

Business Verification

  • Confirm valid child care licenses and certifications.
  • Verify physical address, contact information, and facility operations.
  • Check compliance with state and local regulations.
  • Review the organization's history, ownership, and any legal issues.

Financial Assessment

  • Review financial statements for stability and profitability.
  • Analyze average transaction sizes and monthly processing volumes.
  • Assess the impact of enrollment fluctuations on revenue.

Risk Evaluation

  • Examine historical chargeback ratios and dispute reasons.
  • Evaluate fraud prevention measures and data security protocols.
  • Review enrollment agreements, billing policies, and dispute resolution procedures.

Policy Review

  • Ensure clear, accessible terms and conditions for services.
  • Verify transparent refund, cancellation, and schedule change policies.
  • Evaluate compliance with data protection and privacy laws.

Technology Assessment

  • Confirm use of secure, updated payment processing systems.
  • Ensure implementation of encryption and tokenization for data security.
  • Verify adherence to PCI DSS and other relevant security standards.

Reputation Analysis

  • Check online reviews and ratings on platforms like Yelp and Google.
  • Investigate any history of complaints with regulatory agencies.
  • Assess responsiveness to parent feedback and issue resolution.

Example Scenarios and Red Flags

Frequent Chargebacks After Services

  • A pattern of parents disputing charges may indicate service issues or fraudulent activity.

Sudden Increase in Enrollment and Payments

  • An unexpected surge could signal potential fraud or unreported regulatory non-compliance.

Employee Misconduct Reports

  • Incidents involving staff can lead to reputational and financial risks.

Inconsistent Billing Practices

  • Discrepancies between agreed fees and actual charges without justification.

Operating Without Proper Licensing

  • Lack of required certifications increases risk exposure.

Common Underwriting Questions

Business Operations

  • What specific child care services do you offer?
  • What are the age ranges of children you serve?
  • How long have you been operating in the child care industry?

Payment Processing Methods

  • What forms of payment do you accept from parents?
  • Do you offer recurring billing options for ongoing services?
  • How do you manage invoicing and payment collection?

Fraud Prevention Measures

  • What processes are in place to verify parent identities and enrollment information?
  • How do you protect sensitive child and parent data?
  • Do you conduct background checks on employees?

Regulatory Compliance

  • Are you compliant with PCI DSS and data security standards?
  • How do you ensure adherence to child care regulations?
  • Do you maintain necessary licenses, permits, and insurance coverage?

Billing and Refund Policies

  • What are your policies regarding cancellations, refunds, and schedule changes?
  • How are these policies communicated to parents?
  • Do you have a formal process for handling disputes and chargebacks?

Parent Communication

  • What channels are available for parent support and communication?
  • How do you handle complaints or service issues?
  • Do you offer progress reports or updates on children's activities?

Ongoing Monitoring

Transaction Monitoring

  • Implement real-time alerts for suspicious activities.
  • Regularly review transactions for anomalies or fraud patterns.
  • Monitor for unusual spikes in chargebacks or refund requests.

Compliance Checks

  • Ensure ongoing adherence to PCI DSS and child care regulations.
  • Stay informed about changes in laws affecting child care operations.
  • Conduct periodic audits of payment systems and data handling procedures.

Security Updates

  • Keep all software and payment systems updated with the latest security patches.
  • Utilize advanced security measures like encryption and multi-factor authentication.
  • Provide regular training to employees on data security and fraud prevention.

Merchant Communication

  • Maintain open lines of communication about any changes in services or policies.
  • Offer resources and guidance on best practices for compliance and risk management.
  • Encourage prompt reporting of any suspicious activities or security concerns.

Risk Assessment Adjustments

  • Reassess risk profiles based on changes in transaction patterns or business operations.
  • Update underwriting policies to reflect new risks or industry developments.
  • Monitor economic and market trends that could impact the sector.

Parent Feedback Analysis

  • Monitor online reviews and social media for parent feedback.
  • Address negative comments swiftly to improve satisfaction.
  • Use feedback to identify areas for service improvement or risk mitigation.