Author: Casey Adcock

Merchant Services 101

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 t1payments.com or call 866-518-2216.

Selling Vaping Supplies and CBD Products Online

Offering vaping devices, liquids and other supplies along with CBD products in an online store seems to be a natural fit. Unfortunately, it may be hard to find payment processing service providers who agree with that assessment.

Some financial service companies – and shopping cart platforms – prefer not to work with ecommerce vendors who are selling vape supplies or CBD products. Combine both vaping and CBD in one store, and the complications are doubled.

To bypass this and other issues, some vendors have chosen to separate their CBD store from their vaping supplies store. This does allow for rapid response to a regulatory changes or terms of service that apply to only one category of products, but can make doing business far more difficult.

This article discusses the complications that ecommerce merchants must consider when selling both vaping supplies and CBD products, along with processes and solutions that address these issues.

Merchant accounts for CBD and vaping supplies

Why is it so hard to get a merchant account for an online store that sells both CBD and vaping products? Because any business that is part of an industry impacted by regulations that are rapidly evolving is considered high-risk by financial services firms. Vaping supplies are a perfect example of an industry that may be heavily impacted by regulatory demands in the near future. Financial firms are leery about getting involved with merchants whose business model may have to change rapidly.

Merchants that are considering separating their CBD business from their vaping business, using two separate online stores, must make that business decision based on what makes sense within their region (states regulate these products differently) and their level of concern with regulations that might impact their business going forward. That said, creating two separate websites solely to meet a payment processor’s demands is unnecessary. As an example, T1 Payments enables merchants to process both CBD and vape supply transactions via one website.

Merchant account terminations and other problems

In general, merchants involved in an industry that is considered high-risk should work with payment processors who specialize in high-risk payment processing. Unfortunately, as many merchants have learned, it’s all too common to be approved for a merchant account only to discover that the account has been terminated within a month or two. The reason? The service provider failed to properly underwrite the merchant to determine what products they offer, and the new account has been terminated for violating their terms of service.

When an account has been terminated, it is extremely unlikely to be reinstated. That leaves the business owner with no way to process card payments, which is death to an online business. The merchant will need to find another payment processor very quickly.

Sometimes accounts will be placed on “Hold” or are “Frozen” instead of being terminated. Holds tend to be enforced when the payment processor feels that the ecommerce business is unstable – chargebacks are rising, or large transactions  are being posted.  A hold may be temporary or ongoing. During the hold, some of the payouts the merchant is due from the processor will be held in a separate account, pending investigation. Accounts on hold may still be able to accept transactions, although some types of transactions may be refused.

A freeze is a temporary halt on processing payment cards. This typically happens when a processor wants to do a full analysis of a business’ transactions. The processor may believe that the terms of a payment processing agreement have been violated or that the business may have been affected by regulatory changes. Merchants may be able to prove that the freeze should be lifted.

Reasons for sudden terminations, holds and freezes include regulatory changes, shifts in the types of businesses accepted by ecommerce platforms, and excessive chargebacks, fraud or suspicious activity associated with the merchant’s business. Suspicious activity can include anything that violates the terms of the agreement with the payment processor.

Choosing a payment processor

When choosing a payment processor for a CBD and vaping ecommerce business, merchants must check to see if the payments processor has experience in working with companies in both of these industries. It’s best if the payment processor is enthusiastic about working with high-risk online businesses, providing the expertise needed to deal effectively with ecommerce platforms, payment gateways, evolving challenges, regulatory demands, chargeback risk mitigation and data security issues.

T1 Payments successfully processes millions of transactions for CBD and vape supply merchants. To find out more about our customizable global payment solutions for high-risk merchants – including fast and flexible onboarding, active account monitoring for fraud, chargeback management and real-time reporting – please visit t1payments.com or call 866-518-2216.

Can A Vape Shop Still Succeed Online?

Selling vape devices and liquids online is both tempting and terrifying to merchants. The market demand is growing rapidly, but so are the regulations. Any time there is uncertainty about a business’s stability and sustainability, it’s typically classified as “high risk” by financial firms.

Owners of ecommerce businesses in high risk industries often struggle to find a payment processor who will work with them without charging insanely high fees. Besides finding fair rates, ecommerce merchants also need to partner with payment processors who understand the requirements of their particular business and offer the services and technology to support the particular needs of online vape shops.

This article details the opportunities and regulatory risks – on both the state and federal level – in this space and what an ecommerce merchant who offers vape supplies needs to know about complying with the law and doing business online.

The Online Vape Marketplace

Globally, the number of people who vape continues to rise steadily. The World Health Organization states that there were 35 million adults vaping in 2016, and market research group Euromonitor expects that number to grow by almost 55 million by 2021.

The market is currently at $22.6bn globally, and is poised to grow dramatically. Wells Fargo believes that the American market alone will grow to five and a half billion dollars by 2021. The biggest markets for vaping products are the United States, Japan and the UK.

Vape users buy devices, accessories and  liquids from dedicated shops online, as well as brick-and-mortar shops that carry a broad variety of merchandise. People who are new to vaping tend to prefer physical locations, so they can get assistance in figuring out what to buy and how to use it. More experienced vapers are comfortable with purchasing products online.

Risks and Regulations

Despite the market’s promising numbers, merchants selling vaping supplies online face specific risks, in particular complying with evolving, and sometimes complex, federal and state regulatory requirements.

Recently, the U.S. Food and Drug Administration (FDA) announced that teenage use of electronic cigarettes has reached “an epidemic proportion,” and told manufacturers of the most popular vaping devices that they have 60 days to prove they can keep their devices away from minors. If they can’t, the FDA may immediately ban flavored vaping liquids from the market.

Additionally, the FDA stated that it might press civil or criminal charges if companies are allowing bulk sales through their websites.

The FDA also said, in a statement, that it is sending warning letters to 1,100 retailers including 7-Eleven stores, Walgreens, Circle K convenience shops and Shell gas stations — and issuing fines, ranging from $279 to $11,182, for selling e-cigarettes to minors.

Owners of online vape shops need to watch this issue closely. They need to have solid age verification processes and ensure that they understand the age restrictions for each state they do business in. In many cases in the U.S. that age is 18, but some states have set the age limit higher:

Alabama – 19

Alaska- 19

California – 21

Hawaii -21

Maine – 21

Massachusetts – 21

New Jersey-  21

Oregon – 21

Additionally, Utah bans online sales of vaping products to anyone, no matter how old they are. And Pennsylvania has a 40% tax on all vaping products. Merchants need to ensure that they understand how tax laws work and what they need to do to comply with them. Since this varies according to where you do business, your best bet is to check with a financial expert with expertise in taxation and online businesses.

If Merchants sell products to consumers outside of the U.S., they must to be familiar with the laws regarding vaping in each country they are shipping to. Vaping or sales of vaping products is banned or restricted in Brazil, Israel, Mexico, Panama, Thailand, Norway, Saudi Arabia, Turkey and France. But laws change, and restrictions vary – merchants must check the current regulations in any country prior to selling product for specifics.

Most shopping cart platforms should allow you to filter and block sales from states and countries that you can’t or currently don’t do business in. And while age verification currently puts the obligation on the consumer to verify that he or she is of legal age in their state/country of residence, the requirements may change soon.

The FDA is also looking at bulk sales of vaping products. Right now, the focus is on sales through specific manufacturer’s websites, but merchants should start thinking about how to prepare for bulk sales going forward.

Staying Compliant

About half of the companies targeted by the FDA in their first enforcement action are online merchants. It is safe to assume that the FDA is testing vaping websites to see how age verification is handled. It’s unlikely that the typical pop-up asking for a user to self-identify as legally able to purchase vaping products will be sufficient for much longer. Merchants may want to look into age verification services, which check online data bases to verify the age of residents at a specific address.

Merchants should also routinely self-check their age verification processes to ensure they are functioning properly.

Check the state laws as well. Some states, at the moment, have stricter laws regarding age verification than the FDA requires. For example, in some states merchants may need to capture and store an image of the buyer’s photo ID. Merchants can do their own research on this, or invest a little time and money to consult an attorney.

Merchants  should also ensure that their site displays all applicable disclaimers, along with this notice: WARNING: This product contains nicotine. Nicotine is an addictive chemical.

Payment Processing for Online Vape Sales

Many financial service providers don’t like doing business with industries that are in the midst of heightened regulatory activity. They fear that sudden changes to the law will increase the risk of chargebacks and fraud. New vape shop ecommerce business are likely to have a difficult time getting approved for merchant accounts, and even established businesses may find that their accounts are frozen or cancelled.

Now is the time to look for a Payment Processor, such as T1 Payments, who specializes in delivering solutions for online vape stores and other high-risk businesses.  Merchants should look for Payment Processor that offers:

Flexible underwriting: This is the vetting procedure financial services firms use to determine a merchant’s risk level. Merchants should look for a Payment Processor who specifically works with high-risk accounts, as their underwriting process will be better able to determine your vape store’s real business risks and potentials.

Fraud protection: online payments are inherently riskier no matter what type of goods or services you sell. In store, an ID can be checked and consumers will probably use a chip-enabled payment card. Online sales offer limited protections. Thankfully, there are fraud protection solutions specifically designed for ecommerce which utilize “fraud scrubbing” and filtering to spot and screen suspicious transactions.

Chargeback reduction: Tech solutions can’t prevent all chargebacks, but can significantly reduce them by monitoring for transaction errors, fraudulent patterns, and other issues that often result in chargebacks and regulatory concerns.

Complete solutions: A Payment Processor should provide access to a comprehensive service offering so you don’t have to piece together a solution. You should be able to access your account data securely online, and ideally without having to purchase additional software.

T1 Payments specializes in meeting the needs of high-risk merchants, providing a full suite of Payment Processing and Payment Gateway services that integrate with over 175 different shopping carts. To find out more about our customizable global payment solutions for high-risk merchants please visit t1payments.com or call 866-518-2216.