In the past years, payment gateways have become an integral part of the online payment industry. For beginners, payment gateways make it easy to transfer money online from one bank account to another.
Acts as an intermediary between merchants and payment processors. Basically, you are responsible for securely transmitting the encrypted data of your e-commerce website users to your payment processor.
With a large number of payment gateways available, the company can easily integrate a payment gateway into its website. However, many payment gateways do not work with high-risk merchants. As a general rule, risky merchants only use risky payment gateways.
What is a risky payment gateway?
Payment gateways hosted by merchants that are considered high-risk are referred to as high-risk payment gateways.
Prior to onboarding, these high-risk payment gateways assess various types of risks associated with working with such companies, such as processing credit card payments.
Each payment gateway has its own metrics to determine if a merchant falls into a high-risk category or a low-risk category. Although there are clear rules for judging risky traders, they have some things in common.
Here are some of them:
High-risk merchant | Low-risk merchant |
High chargeback ratio | Low chargeback ratio |
A high number of cancellations | Minimal cancellation of orders |
The business has a poor credit score | The business has a strong credit score |
Operates in a high-risk industry | Operates in a low-risk industry |
Has to deal with fraudulent customers | Low to nil fraudulent customers |
Since each payment gateway has its own rules for assessing merchant risk, it is difficult to pinpoint specific parameters to refer to in making decisions.
There are some common due diligence exercises that all payment gateways perform to assess such merchants. Here are some of them:
Industry reviews: The industry in which a company operates is often a good indicator of whether the company is classified as high risk. Companies that sell sexual wellness products, operate offshore businesses or have gambling and casino businesses are often considered high-risk traders.
Founder Screening: A founder’s or promoter’s background also provides information about the company’s risk factors. Banks and payment gateways generally do not hire companies whose founders have been accused or convicted of financial fraud. Credit payment limits: As a precautionary measure, many payment gateways do not initially enable credit card payments on high-risk merchant websites until business legitimacy has been verified.