Risk Management for High-Risk Merchants

risk management in payment processing

No one has more incentive to reduce business risk than merchants already considered to be in a high-risk industry or niche. Reducing risk saves you money on processing fees, saves time, and prevents major problems that hurt your business over the long run.


Since risk management in payment processing is so critical, we are providing you with proven ways to manage risk and mitigate it in your business (even if you’ve struggled to do so before).


The first tip to lower risk involves…

Regulatory Compliance

Risk management in payment processing begins simply. Follow the rules and policies set up by payment networks. These standards are typically clearly laid out and are there for good reason. They protect merchants and merchants’ customers. 


It’s in the best interest of payment networks that merchants are happy with the services and that their customers feel safe giving payment information to the merchants. Why? It means more profits for the payment networks as merchants’ businesses grow.


Trust is easily broken, though.

New Scams And Risk Management In Payment Processing

Adhering to regulatory compliance policies is only one part of the battle. Staying up-to-date on fraud news is another element of risk management in payment processing. You don’t want your business in the news for getting scammed, right?

The problem is fraudsters can penetrate even giant corporations’ security measures, so that tells you how enormous a problem that criminal activity is in the payment world.


For example, a recent report showed how bad actors are using a new gift card scam that’s costing Americans billions of dollars annually. 


It’s called “gift card draining.” 


Basically, criminals steal gift cards from store racks, copy the card numbers and pin numbers, replace packaging, then return the gift cards to the store rack. Once a real customer buys one of those cards and loads money onto it, the criminal is alerted and can use the card info for purchases or sell the data on the dark web.

(Full story at ProPublica)



This puts their business in a negative light. Because their customers suffered. Articles about these increasing crimes point to Walmart and Target not doing enough to protect their customers and even being incentivized to turn a blind eye! 




This particular scam doesn’t cost the business money. The customers pay for the gift card and lose their money because the card is useless if it’s been tampered with.


Still, the reputation cost is huge for businesses that don’t go above and beyond to protect their customers’ finances. 

What about the history of risk management in payment processing?

Constantly Updating Data Privacy Laws

Some experts say the concept of risk management developed in ancient times through games of chance. 


Today, it’s unwise to take chances with customer data. The clearest example is recent changes in how third-party cookies are utilized. These long-used cookies are going away, primarily due to privacy concerns (tracking users across internet activity). 


People are more conscious of their online data and how businesses use it than they were when the World Wide Web began. 


Consumers are now aware of companies selling their private data – even medical data in some cases, which is appalling. 


Again, even large corporations put themselves in a negative light when it comes to privacy. Google just paid a $5-billion settlement for allegedly being dishonest about “incognito mode” data they allegedly utilized. Google customers (users) thought this data was private.

(CBS story on Google settlement)


This shows how critical data privacy is today versus in the past. So, please protect your business data and customer data. It’s a great opportunity to improve risk management in payment processing. Lower risk means lower payment fees. 


How about specific privacy laws, though?


Specific Privacy Laws To Get Familiar With

When you market your business online, you should take note of the following regulations:

  • CCPA
  • GDPR

These rules cover consumer privacy and give merchants guidelines on collecting and utilizing consumer data. 


These rules can depend on where your business is located and locations that you sell to. Your business requirements for each rule can also depend on how you market to current and potential customers. 


A great resource to understand some of these rules, especially if you use email marketing, is Spamhaus.org.

Luckily, modern businesses have access to advancements in online payment methods for high-risk merchants.

risk management in payment processing

Modern Risk Management In Payment Processing


The number one way to manage risk in payment processing is to align yourself with an innovative payment provider with your best interests in mind. 


A solid provider will walk you through all the steps that will minimize your risks from the beginning. 


They should inform you about how their payment gateway fends off fraud – before the fraud, not after. New payment gateway tools have come a long way toward fraud prevention.


Also, a quality processor will advise you on how to minimize chargebacks. They should arm you with the latest tactics to avoid criminal activity and so-called friendly fraud.


Friendly fraud examples below:


  • The customer claims the item wasn’t delivered or doesn’t match description
  • Customer says they returned the item but didn’t receive a refund
  • Buyer doesn’t recognize the charge on their statement and claims it’s unauthorized
  • A family member purchased without cardholder’s permission


Just knowing those examples happen daily prepares you for issues that would otherwise blindside you. Also, knowing that even if you win a chargeback appeal, the initial chargeback still harms your business (increases risk because it raises your chargeback ratio).


Now, for a few best practices in risk management for online payments that are simple but often overlooked by merchants.


Payment Gateways And Simplified Checkout Pages

We mentioned payment gateways earlier and here is an article going deeper on that subject.


The key to reducing risk with a payment gateway is to understand how it works. The above article will further your understanding. A key thing to know is that you can adjust the gateway’s settings to be more strict or less strict in how it allows payments to “go through.”


Example adjustments that are possible with a robust payment gateway:


Geolocation Filtering: Can block or flag transactions from high-risk countries or regions. 


Velocity Checks: Merchants can limit number of transactions, transaction amounts, or failed attempts allowed within a certain time period. Helps detect and block unusual spikes in activity.


List Monitoring: Maintains lists of known fraudulent email addresses, payment methods, or IP addresses to automatically decline those transactions.


Fraud Scoring and Monitoring: Analyze transactions in real time to assign a risk score. Merchants can set thresholds to automatically block high-risk scores or flag for human review.


Chargeback Management: Tools to dispute and recover funds from fraudulent chargebacks.


Don’t forget…


Checking out should be simple for customers (online and offline).


Untold millions of sales are lost due to poorly designed checkout pages and outdated point-of-sale terminals.


Simple, smooth checkouts make the flow easier for customers, making them less likely to stop the checkout process (aka abandon checkout).


Even more critical for online shoppers? Having clear expectations about the items they are buying. 


If they receive something less than they envisioned, this could lead to a chargeback dispute. 


So ensure your website’s checkout pages have clear, simple language (replace jargon that might not be understood by a layperson). Multi-angled product photos are another huge help for clarity. Videos also help ensure shoppers know exactly what they are purchasing so they are less likely to regret the transaction and ask for a refund (or file a chargeback).


By the way, 3D product photos have proven to increase sales by a hefty percentage. Be sure to test that on your website for an easy way to boost revenue!


Lastly, ensure your website is accessible to all users. This can be a challenge for smaller businesses without a tech team. Yet, the effort will pay off since everyone will have the ability to use your website and potentially become a loyal customer. 


A big part of this is using ALT text descriptions of images. For a robust accessibility checklist, see this handy resource. 


Risk Management In Payment Processing Summary And FAQ 


By focusing on the key areas we covered, you can manage operational, regulatory, reputational, and financial risks to your business. 


At the same time, providing a secure, transparent payment experience is sure to scale your business by building trust and loyalty with your customer base.


National Processing can help you achieve these results, guaranteed. Sign up for our payment processing for unmatched risk management and our $500 Lowest-Rate Guarantee.




What is one huge advancement in online payment methods for high-risk merchants?

ACH payments. This option offers high-risk merchants a cost-effective online payment solution (if it fits their business model).


How do online reviews connect to best practices in risk management for online payments?


A bad review needs to be responded to by the business to mitigate reputation harm. Plus, a negative review could be the first step toward a refund request or chargeback. Businesses should reply to all online reviews as a best practice toward risk reduction.


What are three reasons customers regret a purchase?


1) Impulse buys. 2) Complicated or long set-up process after receiving product. 3) Finding a better deal after the purchase.

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Shane McLendon

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Customer focused

If we can't beat your current rates, we'll give you $500!*

We happily accept merchants processing any amount. Price guarantee for merchants processing $10,000 or more per month. Free terminals and other promotions depend on processing volume, credit and qualifications.

Customer focused

If we can't beat your current rates, we'll give you $500!*

We happily accept merchants processing any amount. Price guarantee for merchants processing $10,000 or more per month. Free terminals and other promotions depend on processing volume, credit and qualifications.