Want to accept credit card payments for tobacco?
Situation:
You’re a business owner trying to sell tobacco products. The problem is finding a payment processor or bank willing to accept your application. As soon as they see the word “tobacco” they just turn their backs on you.
Ugh, what a pain!
The solution? While tobacco merchant account solutions present challenges, they are surmountable with the right approach. With compliance in place and application prepped, processing is easy.
The Good Stuff:
Why Tobacco Businesses Are Considered High Risk
Tobacco is a huge industry. U.S. tobacco sales hit $84 billion across retail channels. That’s a lot of sticks of gum going through the system.
The problem is that financial institutions see tobacco and say, “High risk!”
Hold on, why?
Well, here’s the deal…
Tobacco merchants are considered high risk for many reasons that impact approval and processing fees. A major factor is the heavy government regulation of tobacco. Marketing, labeling, and sales are all strictly monitored and must be adhered to.
In addition, tobacco sales have the following characteristics that banks don’t like:
The combination of the above means that most standard processors, like PayPal or Square, will not even consider tobacco applications. Theideal Tobacco Merchant Account can only be found by working with high-risk processing providers who specialise in the industry.
The point is that without access to payment processing, a tobacco business is destined to fail.
The Compliance Maze
Compliance with all its forms and tenses is what really makes or breaks tobacco merchant account solutions.
Navigating the following three areas is crucial or the payment setup can be terminated.
The areas include:
Failure to comply with any of these or the fine print within will result in account termination. And once a merchant account is closed, finding a new one is next to impossible.
Here is a look at the compliance necessary for each.
Federal Compliance
TheFDA heavily regulates tobacco products. These include things like advertising, required health warnings, and sales limitations.
A merchant account solution for tobacco must account for all of the above. It must also be able to support the additional compliance measures that tobacco businesses must follow.
State Law Compliance
Tobacco is also regulated by state laws, many of which vary from state to state. Some require additional licences. Others mandate specific tax collection requirements.
A compliant tobacco merchant account solution must be able to adhere to all of the unique requirements of each state.
Card Network Compliance
Visa, Mastercard, and other networks have their own high-risk merchant programmes. These closely monitor chargebacks and require merchants to submit specific compliance documentation.
Non-compliance with any of the card networks’ rules will result in account closure.
Navigating The Approval Process For Tobacco Merchant Accounts
Approval for a tobacco merchant account is not impossible. It just takes more work.
The process will usually be longer than standard accounts. Thorough underwriting reviews are conducted and all risk factors are assessed.
Here’s what the application will need:
The more organised and detailed the application, the quicker approval will be.
A merchant that understands and is prepared to meet compliance requirements is attractive to processors.
Online tobacco sales require a compliant website. This means proper age gates and warnings. Product descriptions should be clear and detailed. Websites must meet content standards set by payment processors.
The Battle Against Chargebacks
Chargebacks are the enemy of the tobacco merchant.
Chargeback rates for high-risk merchants are higher than standard accounts. For reference, chargeback rates are usually above 1% for high-risk industries.
Seems low, right? Not when the card networks are watching closely. Go over their limits and you will face serious consequences.
The following can help keep chargebacks in check:
Clear Billing Descriptors
Customers must know what they are being charged for on their statement. Confusing billing descriptors open the door to disputes from customers who don’t remember why they purchased tobacco.
Age Verification Verification
Having a system in place for age verification protects against chargebacks related to underage sales. Processors may require this to be integrated with age verification services.
Customer Service Access
Responding to customer inquiries quickly is critical. The majority of chargebacks occur because the customer could not get in touch with the business to solve a problem.
Record Keeping
Detailed records of transactions, delivery confirmations, andcustomer communication help win disputes if a chargeback occurs. Prevention is always better than fighting a chargeback after the fact.
The Search For The Perfect Payment Partner
Not all high-risk processors are created equal.
Some charge exorbitant fees. Others have terrible customer service. The best processor is one that understands the tobacco industry and can provide tailored solutions.
When evaluating tobacco merchant account solutions, look for these features:
The search for the right payment partner can take time. But the results in streamlined payments and better customer experience are worth it.
Processing Relationships Are Long-Term
Working with a payment processor is a long-term relationship. Selecting the right one from the beginning is essential to avoid headaches later.
Check out the adaptivepayments.com site for a processor with a long track record with tobacco merchant account solutions. A reliable high-risk merchant account is available along with support to help navigate the unique challenges tobacco merchants face.
Final Thoughts: Navigating Compliance For Tobacco Merchant Account Solutions
Navigating the compliance maze for tobacco merchant account solutions is no easy task.
The following key points were covered:
The tobacco industry is big business and will continue to generate billions of dollars in revenue.
Businesses that master the compliance and payment processing side of tobacco sales can grab their share of the pie.
Begin with a thorough understanding of the compliance landscape. Partner with the right processor and the rest will fall into place.