Merchant Services 101

October 16, 2018

Merchant accounts, payment processors, gateways, global payment processing … merchants know they need these essential services, but may not know exactly how they work or how to choose and sign-on with the right service providers for their specific type of business. This guide answers those basic questions, and also offers guidance on what to do if a financial services company suddenly freezes or terminates an account, leaving a business unable to access funds or process transactions.


What does a merchant need to accept payments online?

A payment processor, a payment gateway and a merchant account.

What is a payment processor?

A payment processor relays transaction information to and from the customer’s and merchant’s banks. Payment processors may also provide access to payment gateways and/or merchant accounts, along with other essential financial services and tools.

What is a merchant account?

A merchant account allows retailers (and other businesses) to accept payments from customers’ credit or debit cards. It’s basically a bank account that accepts credit/debit card transactions as deposits.

What is a payment gateway?

A payment gateway securely moves payment data through the entire payment chain.

How does the entire online payment process work?

1: Customer provides his or her payment card details.

2: Payment gateway routes the transaction details to the payment processor.

3: Payment Processor transmits the request to the payment card network.

4: Payment card network identifies the issuing bank, routes the transaction for verification and approval.

5: Payment card network sends “accepted” or “declined” response to the payment processor.

6: Payment processor sends accept/deny information to the Payment Gateway.

7: Sale is processed, or if declined, customer is given the option to use another payment method.

Amazingly, this all typically happens in a minute or less.

Can a merchant work with any payment processing service?

Merchants can apply to any payment processor that they choose. But financial service companies may choose not to work with a merchant whose business is considered high-risk. Merchants whose businesses involve offering the services/goods below will usually want to work with a payment processor that specializes in serving high-risk businesses, such as:

  • Adult Entertainment
  • CBD products
  • Collection Agencies
  • Fantasy Sports
  • Gaming
  • Multi-Level Marketing
  • Nutraceuticals
  • Online Dating
  • Start-Ups
  • Telemarketing
  • Travel
  • Vaping supplies

What should a merchant look for when choosing a payment processor?

Don’t lower expectations simply because a business is classified as high-risk. Merchants in high-risk industries need all the capabilities and data security protections that any online vendor requires, plus payment processing solutions that will minimize exposure to fraud and help mitigate potential problems typically associated with a high-risk industry. Look for a payment processor that offers chargeback reduction tools and fraud scrubbing. You will likely want offshore/global payment processing services also.

What is an Offshore Payment Processor?

Also called global payment processing, or an offshore merchant account, this service offering can process debit and credit card transactions outside of the U.S. Depending on business needs, merchants in high-risk industries, or those who want to sell overseas, may find that an offshore payment merchant account is their best option. That said, working with an in-country payment processor who offers offshore capabilities is often the safest way to obtain all the benefits of offshore merchant account with none of the potential drawbacks.

What is a chargeback, and why do merchants worry about them?

A chargeback means the customer has instructed his or her payment card company not to pay a specific transaction. The reasons can range from non-delivery of a product/service, unhappiness with the product/service, or unauthorized charges. If a merchant exceeds a set chargeback ratio – typically 2% of the month’s sales – his or her merchant account may be frozen or terminated. Note that the chargeback ratio is the number of chargebacks per month divided by the total number of monthly transactions – not the dollar amount of sales.

What happens when a merchant account is frozen or terminated?

The ecommerce business is dead, until and if the merchant finds another financial services firm willing to work with the business.

Are chargebacks the only reason a merchant account is terminated?

No, sometimes accounts are terminated if the financial services company doesn’t properly vet the business before activating their account. It’s important to read the terms of service and avoid applying for accounts with companies that do not perform transactions for high-risk industries, or for the goods/services a specific merchant offers. The account may be approved at first, but eventually it will be terminated. And it can be difficult to find a financial services firm that is willing to work with a business after its account has been terminated. It’s far safer to choose a payment processor who welcomes high-risk businesses.

How does a merchant find a trustworthy high-risk payment processor?

T1 Payments specializes in meeting the needs of high-risk merchants, providing a full suite of payment processing and payment gateway services, including global payment processing. T1 provides flat fee merchant accounts and offers comprehensive account monitoring, reporting and support to help high-risk merchants mitigate chargebacks, fraud and other business risks. And our customer support team members are the best in the business.

To find out more about our customizable payment solutions for high-risk merchants please visit or call 866-518-2216.