A payment gateway is a route that money takes from the customers to the merchant. If it’s high risk, it accepts risky payments that are not guaranteed to clear. It’s recommended that merchants use specific payment processors that will assume the liability for these risks.
What is a High-Risk Payment Gateway?
Payment processing is the exchange of financial data from the merchant to the payment gateway that is controlled by the payment processor. The data is submitted through an encrypted debit or credit card purchase and verified to prevent fraud.
A high risk payment gateway is offered to any business that accepts high risk payments. There are payment processors who provide these gateways as a benefit to businesses that assume high risks, such as construction, insurance, banking, and financing companies. These businesses loan money to clients or undertake risky, dangerous projects and cannot guarantee that they will be reimbursed for their investments.
Terms and Conditions
There is a catch for merchants who use risky payment processors. They have to pay higher fees for the same services than clients who are not high risk. The cost to set up the account and the monthly processing fees can be twice the normal amount. Even a business that does not have any chargebacks could struggle with paying the monthly fees alone.
High-risk clients usually need some kind of collateral in the form of merchant account reserves. This savings account is used in case of chargebacks and works as a security deposit to reimburse the payment processor. A certain percentage of sales are held in the account and not available for withdrawal in the first six months.
Many payment processing companies cannot afford to go for months without receiving payments, so merchants are charged fees for every chargeback that occurs. The amount can be doubled for every penalty. A chargeback that costs $50 can cost $100 in fees. In addition, your chargeback ratio may increase the more that chargebacks are filed. An increased ratio reduces your company’s trustworthiness and the chances of being financially stable.
High-risk merchant accounts work like bad credit loans for at-risk borrowers. The main advantage is that businesses are allowed to operate normally, but the main disadvantage is that they are charged significantly higher fees. However, negotiating with a payment processor allows you to lower the fees, and it’s also possible to find good deals by comparing quotes from different companies.