Why High Risk Merchants Need Smart Payment Gateways

Mohammad W. Jahin

Mohammad W. Jahin

E-commerce Payment Gateway

Today the e-commerce industry has boomed presenting consumers a more convenient option to buy stuff. However, with convenience comes a lot of ways for unsecured and counterfeit transactions. Such events rob the online seller with the money which the buyer pays, and disputes often arise between them. In an effort to make transactions more secure, different merchants decided to include smart payment gateways. That means they do not have to rely on cash as the main source of payment.

What are High Risk Merchants?

A high risk merchant is a payment processing account which the banks perceive as of high risk. This could for instance be the CBD and Cannabis Industries. These businesses are therefore coupled with higher processing fees and are also prone to chargebacks and refunds.

If a business audit reveals that a merchant has a history of chargebacks and refunds, a rolling reserve is usually included. The acquiring bank that would sponsor this business calculates how much funds would be needed to cover possible chargebacks.

Other Qualities of High Risk Merchants

Aside from the need for a rolling reserve to cover possible chargebacks or refunds, a high risk merchant can:

  • Earn at least US$20,000 a month in sales
  • Transact US$500 on average with credit cards
  • Be engaged in business with countries notorious for high levels of fraud
  • Have bad credit history and too many chargebacks
  • Accept more than one currency
  • Offer recurring subscriptions to customers

What is a Smart Payment Gateway?

A payment gateway, or processor, is an online platform that handles payments between customers and acquiring banks. The gateway checks the validity and liquidity of customer data to ensure successful transactions. Mentioned previously are chargebacks and other fraudulent activities, which are also considered as unsuccessful transactions.

A great payment gateway acts like a dedicated pathway between the customer and the bank. Since there is no PoS involved in online payments, any misinput or compromised data results in unsuccessful transactions. Having a payment gateway ensures that customer information is up-to-date and is not used for fraud.

Some Reasons Why Smart Payment Gateways are Necessary

  • Secured Through Detailed and Urgent KYC

A smart payment gateway does not simply get the necessary transactional information from customers. Profile-building is becoming a trend for a better-managed payment system. Also known as digital footprint analysis, it is used in order to get a good background check on legitimate customers.

Data such as biometrics, email addresses, phones, social media links, and IP addresses are screened. This allows a more comprehensive filtering process that weeds out suspicious information. Also, if a legitimate customer has been flagged for any reason, customer contact is initiated immediately.

  • Minimize Risk Scores to Prevent Chargeback

A great payment gateway has a set process that assesses transactions to calculate the risk score. These are based on some rules that you can also manually tweak to optimize the resulting chargeback ratio. The ratio must not go beyond 1% or you risk exiting the e-commerce industry too soon. Risk scores and chargebacks are indirectly related. If a suspicious transaction got a low-risk score, it cannot be flagged too soon, which can trigger a chargeback.

Now, when assessing a transaction, it can also be done manually to eliminate false positives. Sometimes, a legitimate transaction could still get a high risk score. You can still adjust your risk rules so that suspicious transactions are still filtered out. You can also adjust thresholds but not to the point that your past successful transactions are suddenly flagged as high risk.

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