Running a small-scale e-commerce business can be a lot of work. From handling inventory to website traffic and payment processes, everything requires your utmost attention. So how do they do it all perfectly? They make informed decisions from the start, eventually leading to business success.

In the long run, one of the major decisions that contribute to smoothening out business processes is the choice between payment gateways and high-risk payment processors. Even though the two terms are often tossed around interchangeably, payment gateways and high-risk payment processors are distinct processes that play a vital role in completing online payments.

Let’s examine the differences between the two so you can determine which option is a better fit for your business approach and requirements.

Difference between Payment Gateways and High-Risk Payment Processors

Let’s start our discussion with the basic definition of payment gateways.

Payment Gateways: Payment Gateways are tools that work as virtual POS terminals; they receive the user’s credit card details, encrypt them, and verify them before passing them on to the processors to complete online transactions.

Payment Gateways are essential tools for e-commerce businesses. They work as a bridge that conveys encrypted credit card data to the processor. They ensure that credit card details are verified and the account is authorized to make payments. They also check the account balance before confirming the payment so that the fund transfers are valid and transparent.

E-commerce websites can utilize two types of Payment Gateways: Integrated or White Label and Third-Party Redirects. The Integrated / White Label gateways do not require the customers to leave the website’s checkout page and handle the payment in an integrated manner. However, the Third-Party Redirects lead users to a new page for payment completion. Once the process is complete, the gateway directs the users back to the website.

A business should stick with the standard payment gateways if its payment processes align with any of the following criteria:

Low-risk Industry: If the business industry is low-risk, it can trust payment gateways for smooth transactions. Low-risk business industries include apparel, education, electronics, and other basic consumer goods.
E-commerce Business: E-commerce setups that seek a solution for a seamless payment system for website payments can easily use payment gateways, as they allow website integration.
Lower Transaction Fees: If low transaction fees for payments are a priority concern for a business, payment gateways are an ideal solution. High-risk payment processors usually charge higher transaction fees due to added security services.
Low Chargeback Rate: Businesses with low chargeback rates can also manage their payments with payment gateways, as their transaction patterns are predictable and, hence, low-risk.
Integration with Existing POS: If a business wants to integrate a payment system with an already active POS or a software solution to streamline its online and offline operations, payment getaways are the best fit for them. That is because payment gateways offer multiple integration options for easy integration.

Payment Processors: A payment processor is a service that manages communication between a customer’s banks, credit card networks, and the business itself. It ensures that authorized payment processes are completed and the amount is deposited into the account.

Payment processors have become essential for all businesses, whether online or in-store. They facilitate payments from credit cards, e-wallets, ACH, and other sources. The processors are connected to merchant accounts directly and can streamline all business payments hassle-free.

Here is when a business should go for a high-risk payment processor in the USA or anywhere in the world:

High-Risk Business Industry: If your business deals with finance services, traveling and ticketing services, CBD and cannabis products, gaming, and other similar industries tagged as high-risk, using a high-risk payment processor is essential to avoid payment fraud.
International Payments: Businesses that receive payments from international clients or in multiple currencies need solid transaction security, and hence, high-risk payment processors work best for them.
Strict Regulatory Requirements: Businesses selling medicines, nutraceuticals and supplements, e-cigarettes and vapes, and anything that poses a health risk may need to follow strict regulatory laws to ensure consumer safety. Such businesses also need high-risk payment processors in the USA to comply with the regulatory laws easily and without hassle.
Standard Payment Gateways Fail: If a business is having recurring trouble setting up a smooth payment flow with payment gateways, it should consider upgrading to high-risk payment processors. High-risk payment processors offer more services to resolve issues, as they can easily handle high-volume transactions and volatile payment patterns.
High Chargeback Rate: Businesses with high chargeback rates should also use high-risk payment processors. These processors offer chargeback management tools to proactively manage payment disputes, ensuring low financial losses for businesses.

In conclusion, payment gateways and high-risk payment processors for small businesses are valuable solutions for transactions. However, the choice depends on the business's subjective payment requirements. Generally, online-only businesses choose a payment system involving payment gateways and high-risk payment processors. In contrast, brick-and-mortar businesses choose only payment processors for faster and more secure processes as they take in-person payments via credit or debit cards. However, for online businesses, integrated payment solutions work better for fewer customer drop-offs. The choice also depends on factors like transaction volume and the value regularly deposited into the business.

Businesses also consider the investment and payment requirements for each service option. However, some options offer the best high-risk payment processors for small businesses at comparatively affordable prices.

All in all, businesses can choose either of the two tools depending on their needs, given that their service offers fraud protection, PCI compliance, and encryption. In fact, there is a third way as well. Some service providers provide blended solutions to businesses, combining gateways and processors. The combination tailors the services according to business needs, reducing transaction and maintenance fees, ensuring system compatibility for different payment modes, and providing greater customer satisfaction.

If you have come this far with us, we hope you make the right choice for your business! Keep engaging with our website for more valuable reads!