What is a Merchant Gateway and Why Do High-Risk Businesses Need One?

High-Risk Merchants & Payment Processing
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 unnecessary fees.

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 approval. 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 payment.

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 approval process.

Step 3: Transmit information to credit card network.

Once the payment information is securely in the payment 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 transaction.

After reviewing the transaction details, the issuing bank determines whether or not it will authorize the transaction. It sends that decision on to the acquiring bank, which is associated with the merchant account.

Step 6: Issuing bank transfers funds to acquiring bank.

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 merchants.

Step 7: Transaction details are sent back to the payment gateway.

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 payment. 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 Accounts

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 high-risk. 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 Transcend Pay

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 without being held down by costly reserve requirements or hidden processing fees. In addition to online credit card 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. New call-to-action