Onboarding high-risk merchants, including sectors like online dating, gaming, travel, or nutraceuticals, presents significant challenges for payment service providers (PSPs). These businesses often deal with elevated fraud and chargeback risks, stricter regulatory scrutiny, and higher decline rates.
In this environment, payment orchestration with advanced smart routing payment capabilities offers a competitive advantage. By combining predictive routing, routing fallback, and merchant segmentation, PSPs can boost approval rates, manage risk exposure, and create a more sustainable onboarding pipeline for high-risk industry payments.
What Is Payment Routing?
At its core, payment routing is like giving each transaction a GPS. When a customer makes a payment, the transaction needs to travel from their card or account to the merchant’s bank through one of many possible routes — payment processors, acquirers, or gateways.
Payment routing is the process of choosing the best route for that journey. The “best” can mean the one with the highest approval odds, the lowest fees, the fastest processing time, or the most reliable service at that moment. In smart routing, this choice happens automatically and in real time, using rules, data, and sometimes predictive algorithms to make sure each transaction takes the optimal route.
For high-risk merchants, this choice can decide whether a payment is approved at all.
High-Risk Merchant Onboarding: Challenges and Opportunities
High-risk merchants differ from standard merchants in both operational and compliance terms. Common pain points include:
- High chargeback ratios that threaten acquirer relationships.
- Multiple regulatory requirements across jurisdictions.
- Unstable acquiring partnerships, as some acquirers are reluctant to process high-risk verticals.
- Fraud prevention pressures, where overly aggressive filters risk false declines.
These factors complicate onboarding, prolong due diligence, and increase operational costs. However, they also create opportunities: a PSP that can demonstrate robust, technology-driven transaction management can become a preferred partner for these merchants.
How Smart Routing Addresses High-Risk Onboarding Issues
In the high-risk context, the right routing decisions can mean the difference between a sustainable merchant relationship and a costly failed onboarding.
Key advantages include:
1. Predictive Routing
Using historical transaction data and machine learning models, predictive routing can forecast which route has the highest likelihood of approval for a given transaction profile. For high-risk verticals, this capability helps PSPs optimise acceptance rates without loosening fraud controls.
2. Routing Fallback
If the primary route fails due to technical issues, acquirer downtime, or an unexpected block, the system automatically retries through an alternative acquirer. This routing fallback mechanism is crucial for transaction continuity, especially for merchants where payment interruptions can lead to revenue loss and customer churn.
3. Merchant Segmentation
Not all high-risk merchants carry the same risk level. Advanced orchestration platforms allow PSPs to create detailed merchant segmentation strategies, like grouping merchants by vertical, transaction patterns, or geographies, and applying routing rules tailored to each segment. This ensures higher approval rates while respecting the compliance requirements of each acquirer.
Fraud and Chargeback Management Through Routing
While fraud prevention tools are often treated as a separate layer in the payment stack, integrating them directly into the routing logic delivers better results for high-risk merchant onboarding.
A sophisticated orchestration platform can:
- Block transactions matching high-risk profiles before they reach the acquirer.
- Route suspicious but not outright fraudulent transactions to specific acquirers with a higher tolerance for such risk, reducing declines while managing exposure.
- Adjust rules dynamically based on live fraud monitoring results.
This tight integration reduces false positives, lowers chargeback ratios, and helps PSPs maintain compliance with card scheme thresholds, which are critical for sustaining relationships with acquirers willing to process high-risk industry payments.
Routing Logic: Case Example
Corefy’s payment orchestration software offers a clear illustration of how technology supports high-risk merchant onboarding. Its routing engine allows PSPs to define and layer rules based on:
- Transaction parameters (amount, currency, card type).
- Merchant category codes (MCCs) relevant to high-risk sectors.
- Geolocation and customer profile data.
- Real-time performance metrics from connected providers.
By leveraging predictive routing and routing fallback, the system ensures that high-risk merchants, such as those using a dating payment gateway, can process transactions through the most appropriate channels at any given moment. This not only increases approval rates but also builds trust between PSPs, merchants, and acquirers.
The Strategic Impact for PSPs
Incorporating smart routing into the onboarding process is more than a technical upgrade. It’s a strategic shift. PSPs that can onboard high-risk merchants faster, maintain compliance with card schemes, and reduce operational risk while optimising approval rates, position themselves as valuable partners in high-risk verticals. The outcome is a broader merchant base, stronger acquirer relationships, and enhanced revenue streams.
Key takeaways
High-risk merchant onboarding will always carry challenges, but PSPs that leverage payment orchestration software with advanced smart routing payment capabilities can turn those challenges into opportunities. By combining predictive routing, routing fallback, and merchant segmentation with integrated fraud controls, PSPs can build resilient onboarding processes that minimise fraud, reduce decline rates, and support long-term merchant success.
