Payment gateway integration not easy for Online Pharmacies in India
tl;dr — getting a payment gateway for online pharmacy, online tech support, online gaming is highly unlikely in India (other countries too) from general payment gateway providers, these businesses are treated separately as high risk merchant accounts and these accounts are costlier than regular e-commerce like merchant account to setup and operate.
Recently spoke with Paytm to integrate their payment gateway (PG) for one of our company’s client who is building an app to sell medicines online.
I have experience working with payment gateway providers in the US and have successfully integrated with multiple PG providers. But this time it was a suprise for me. paytm staff told me that they cannot offer their PG as merchant account application to sell medicines online will be rejected by the bank. Then my question to him was
My Q: How come Snapdeal sells medicines online using payment gateway ?
Paytm Ans: Snapdeal has a brand value also snapdeal might have provided an reserve amount to the bank.
My Q: Okay, how about offering us Paytm wallet?
Paytm Ans: Sorry again, we cant. Selling medicines online falls under high risk merchant account category. How about paying us a reserve amount (> 10lakhs) and we will consider about offering Paytm wallet.
And I asked few more questions and clarifications rearding PG and the paytm staff was patient and informative.
After the conversation i did some reading and understood the following regarding high risk mechant accounts, chargebacks, rolling reserve. Here are my summarised findings.
Certain industries such as nutraceuticals, online casinos, adult entertainment, online pharmacy, e-cigarettes, technical support, and others are prone to high amounts of chargebacks and disputes, and are by nature considered high risk businesses. Primary concerns for merchant processors include increased possibility of fraud and/or excessive chargebacks.
Merchant processors go to great lengths to avoid both of these.
High risk mechant accounts have higher rates on merchant processing services and often with delayed payments and rolling reserve funds. The rolling reserve is a percentage of sales that is retained by the processor in a separate fund that’s used to offset the chargebacks. The rolling reserve funds are eventually returned back to the merchant, however, it has a notable impact on cashflow until the cap is reached.
Why Online pharmacy is considered High Risk
Purchase and delivery of on-line drugs may raise serious concern as patients are not present during the purchase, temperature cannot be controlled during shipping, shipper cannot deliver the medication on time and to add on, the market is full of fraudulent merchants. For all these reasons, many banks consider Online Pharmacy as a high risk business and mark them as depraved business. Hence getting a pharmacy merchant account and a good processor is close to impossible.
Why Tech Support is considered High Risk
Tech support merchant accounts are considered to have such a high level of risk because so much fraud occurs in this industry. One of the major issues is the prevalence of technical support scams. Fraudsters will set up a tech support call center, and either make cold calls or advertise their services. They use this guise to gain remote access to personal computers, at which point they convince the user that a major problem needs to be fixed, and will then proceed to fix the non-existent (or newly created) problem. These fraud issues are compounded by the fact that most if not all of the transactions processed by a tech support business in India are overseas transactions, usually from customers in the US. Card-not-present transactions between American buyers and Indian sellers are high-risk in general because of the statistical probability of fraud.
While your Indian tech support business may be completely legitimate, the banks have already dealt with so many fraudulent companies similar to yours that they are too afraid of losing money and don’t want to deal with the hassle of setting up the risky account.
Rolling reserve account
One thing that your provider is likely to insist on is a reserve account. This means that a certain percentage of the payments you collect will be withheld from you for 30 to 90 days (or longer in some cases). The percentage will vary, but expect upwards of 25%, perhaps much more in the beginning. As you develop a relationship with the provider and prove that you are not fraud-prone, the provider may be willing to relax on the reserve account.
The Influence of Charge Backs
Businesses with relatively high charge backs, like travel companies, are also a big liability to merchant account providers. If consumers are often cancelling their transactions, returning the products and getting refunds this is bad news. Merchant account providers don’t want to see a large amount of charge backs because, in the end, if the business can’t pay back customers right away, it’s the bank that has to stick out its neck. No doubt, your provider wants to avoid this as much as possible.
