If you are not very tech-savvy, you might not know what a payment gateway is. To put it as simply as possible, a payment gateway is a service that lets online entities securely process customer payments. If you buy something on Amazon, for instance, you are using a payment gateway.

There is also what is called a high-risk payment gateway. This refers to a specialized kind of service. They are usually favored by businesses that, for whatever reason, are deemed to have a higher fraud risk. Some of them also come with a higher risk of chargebacks.

In a more general sense, you might think of a high-risk payment gateway as one that a company uses if it belongs to a niche where there is a more prevalent risk of financial instability. Usually, it’s the more traditional payment processors or banks that will slap this kind of a designation on an industry or niche.

This brings up a relatively common question in the realm of payment gateways: if you use a high-risk one, does that make chargebacks less likely? It’s a somewhat complex question, and we will take some time to talk about the various concepts connected to it in the following article.

What is a Chargeback?

Let’s start by discussing chargebacks. A chargeback happens when a credit card holder disputes a charge on their account. They are submitting a formal request that the credit card issuer, usually a bank, refund the money for that transaction.

There are different reasons for chargebacks. The most common one is if the holder of the card claims that they never authorized the merchant to charge their account in the first place. This might happen if someone stole their card or if a merchant tried to charge the card for an amount that the holder did not approve beforehand.

Chargebacks can also happen sometimes if the cardholder feels that the product or service for which they paid was not satisfactory. When this happens, the card’s issuer usually investigates.

This investigation might take from a few days to as long as a couple of weeks. In rare instances where it proves difficult to learn much information about the transaction, then it may take months for there to be a satisfactory resolution.

Yes, High-Risk Payment Gateways Can Potentially Reduce Chargebacks

It goes without saying that merchants want there to be as few chargebacks associated with their products or services as possible. Usually, they can accomplish this by having excellent services or products with which a buyer would seldom have any issues. However, there are also some industries where chargebacks seem to be more prevalent. 

There’s good news, though: it’s true that if you own a company using a high-risk payment gateway, it often makes it less likely that you will have as many chargebacks to deal with. This is because gateways that are deemed high risk will usually have tools or features specifically designed to improve payment processing efficiency and to mitigate such events.  

These Gateways Have Advanced Fraud Protection

Let’s say for a moment that you own a business operating in a niche that has an inordinate amount of chargebacks. It’s just something that happens in your industry. You decide to use a high-risk payment gateway attached to your eBusiness website.

One reason why you might want to do that is because these gateways often have advanced fraud detection capabilities. These might include email matching, historical card database checks, browser fingerprinting, or even IP blocking.

This makes it much more unlikely that either you or your customers are going to be dissatisfied with the way a transaction went. This again assumes that you’re delivering a high-quality product or service that proves to be exactly what the customer wanted.

They Come with Real-Time Chargeback Alerts and Notifications

High-risk payment gateways also typically come with chargeback alerts and notifications. If you are running a business, and you have an app associated with the high-risk gateway you’re using installed on your phone, then if a would-be chargeback happens, it pings you immediately.

While it’s impossible to ever have a framework where you get zero chargebacks as a business owner, if you get an instant alert every time a customer puts in a request for a chargeback, you can quickly reach out to them to see what the trouble is. Assuming you’re not dealing with a stolen card situation, you can probably set things right with the customer.

You might send them a replacement product or rectify their problem with the service immediately. Hopefully, that will lead them no longer disputing the charge and demanding a chargeback.   

They Come with Customized Risk Mitigation Strategies

There are also customized risk mitigation strategies associated with high-risk payment gateways that simply aren’t there with traditional ones. If your company has chargeback mitigation strategies in place, along with superior fraud prevention measures, that should lead to fewer chargebacks. Again, it becomes a matter of acting swiftly and decisively to get those numbers down.

How Else Do These Gateways Reduce Chargebacks?

It’s also noteworthy that if you’re in a business that traditionally has more than the usual share of chargebacks, you might implement a high-risk payment gateway that comes with dispute management tools and chargeback analytics.

You can use the former to pacify customers who are irate about the quality of a product or service and the latter to analyze the chargebacks you receive. If you have advanced data indicating which situations or products are associated with the most chargebacks, then you can take preventative measures.  

While high-risk payment gateways sometimes cost a little more, if you are in a niche that gets more chargebacks than normal, it might be in your best interest to use one. More to the point, if you’re in one of these industries, you may have no choice but to invest in one.

If most of the traditional payment gateways don’t want anything to do with you, going with an atypical one will likely emerge as your best option.