What is a Merchant Gateway and Why Do High-Risk Businesses Need One?
High-Risk Merchants & Payment Processing
Posted on May 17, 2021 by Transcend Pay
Accepting multiple forms of payment is essential
for any business, but that’s especially true
when it comes to online payment processing.
Without a merchant gateway to connect their site
to a merchant account and the right processing
networks, your business will have trouble
getting off the ground. By choosing the right
payment processing partner, even high-risk
businesses can gain access to a payment
gateway that allows them to process transactions
quickly, minimize risk, and avoid
What is a Merchant Gateway?
A merchant payment gateway is the key to
unlocking the world of online payment
processing. They allow businesses to accept
multiple forms of online payment, including
credit/debit cards, eChecks,
and ACH transfers. Without a
merchant gateway, you will not be able to
deliver customer payments into your merchant
account. That’s because the gateway plays a
critical role in securely delivering transaction
details to credit card and banking networks for
Online payments are considered “card-not-present”
transactions because the customer cannot
physically present a card to the merchant. That
means the risk of fraud is much higher, since
simply possessing someone’s credit card
information would be sufficient to make an
online purchase. A merchant payment gateway acts
as a middleman that mitigates risk for both the
merchant and the customer.
How Do Payment Gateways Work?
All payment processing begins with the customer
providing the merchant with a form of payment.
To keep things simple, it’s best to look at how
the process works with credit card payments,
which is one of the most common forms of online
Step 1: Customer enters credit card information.
The customer begins the payment processing
process by entering their credit card details,
including their name, the card number, the
expiration date, their billing address, and the
card verification value (CVV). That information
is then securely passed to the payment gateway.
Step 2: Encryption and fraud check.
The payment gateway encrypts the card information
and performs an initial fraud check. This is the
first of many steps to minimize risk and the
potential for fraud throughout the transaction
Step 3: Transmit information to credit card
Once the payment information is securely in the
gateway, it’s delivered to the
appropriate credit card network, which will
perform another fraud check and verify that
credit is available.
Step 4: Transmit information to issuing bank.
An issuing bank is the financial institution that
actually provides the borrowing and lending
services for the credit card. They issue cards
to their account holders in conjunction with the
credit card companies. When they receive
transaction information, they carry out another
round of fraud screening.
Step 5: Issuing bank approves or denies
Step 6: Issuing bank transfers funds to
If the transaction is approved, the issuer sets
the payment process in motion, issuing a credit
to the acquiring bank, who then passes the funds
along to the merchant account. The actual
transfer of funds can take up to a few days, so
banks use a series of credits and debits to
speed the process along for customers and
Step 7: Transaction details are sent back to the
The merchant’s payment gateway will inform them
whether or not the transaction was approved by
delivering confirmation details or requesting
that the customer provide a different form of
This complex process takes only a few seconds to
complete. Speed, accuracy, and reliability are
incredibly important. No customer wants to spend
time staring at a payment screen wondering
whether or not their payment has gone through.
Payment Processing and High-Risk Merchant
For high-risk industries, payment gateways are
incredibly important because they allow
merchants to gain access to processing services
that would otherwise be unavailable to them. The
problem for high-risk businesses is that they
suffer a high percentage of chargebacks, or a
payment that is returned to a credit card
company. Chargebacks typically occur due to
returns, cancellations, or fraud claims.
Whatever the reason for them (even when
unjustified), credit card networks typically
turn to banks to recover funds that have already
been transferred to the merchant. Because
financial institutions don’t like dealing with
chargebacks and other
reversals, they often refuse to provide
an account to businesses they categorize as
With a merchant account and payment gateway set
up through a payment processor, however,
high-risk merchants can gain access to essential
payment processing services. Bringing a
payment processor into the equation helps to
further distribute risk. A bank may not be
willing to service a high-risk business, but
they’re willing to work with them through the
intermediary of a trusted payment processor.
Unlock High-Risk Merchant Processing with
Many payment processing companies try to avoid
going the extra mile to mitigate risk and
instead seek to protect themselves by placing burdensome
reserve requirements on high-risk
merchant accounts. These requirements can
significantly cut into your business’s revenue,
making it difficult to grow and take advantage
of new opportunities.
With a merchant payment gateway from Transcend
Pay, your high-risk business can gain access to
a variety of online payment processing services
held down by costly reserve requirements
or hidden processing fees. In addition to online
processing, you can also use our
merchant gateway to send and accept payments
over the ACH network and issue eChecks for
faster, more secure payments. And for
lightning-fast distributions, our instant funding service
leverages a broad network of financial
institutions to help you send or receive money
with minimal processing fees.
To learn more about how our innovative merchant
gateway technology can help to transform your
business and free your high-risk merchant
account from costly reserve requirements, contact our
team today for a free quote.