E-Cigarette Merchant Account
Though e-cigarettes have been on the scene for over a decade, the industry is still in its early stages, and sellers seeking to obtain e-cigarette merchant accounts often face an uphill battle finding company that will process their electronic payments. Credit card processing accounts for sellers of vaping supplies are regarded by financial institutions as “high risk” accounts, and are therefore are often subject to different fee structures and other requirements. Like all businesses, payment processors must manage risk to have a successful and durable business and may put to reasonable mitigationn tools to use, such as cash reserves, to protect them from the higher risk of chargebacks and potential financial loss that they experience when they provide a merchant account to an e-cigarette seller. While we understand that many business owners can find these requirements onerous, they exist so that no one gets left hung out to dry and many processors, Durango included, work hard to find the best deal possible for everyone.
Why are e-cigarette merchant accounts considered high risk?
Credit card processing companies manage and consider numerous factors that contribute to the high risk classification vape supply businesses have. One of the big factors is that very limited research has been done concerning the safety of e-cigarettes, and it seems likely that legislators will introduce increased regulations that will affect both the manufacturers of e-cig products and the vapers who buy them. Some countries have outright banned e-cigarettes (Canada for instance), while many others are considering (or have already passed) regulations on the packaging and sale of e-fluids. Many state and municipal governments have passed legislation prohibiting vaping in certain public areas, and imposing tobacco taxes on e-cigarette products. There is also the concern over sales to minors, which most US states already prohibit. With all these current and future regulatory issues and the concern over minors making purchases illegally, financial institutions regard the potential for chargebacks, fraud, legal and other risks to be very high. This translates to higher rates and a more managed relationship for e-cig merchants seeking to accept credit cards.
What risk management tools are used on E-Cigarette payment processing accounts?
Processing companies have a wide variety of tools and strategies to mitigate the risks inherent in e-cig businesses. A common mitigation strategy is to require higher fees on each transaction than merchants in low-risk industries pay. Another tool regularly employed by processors is the creation and maintenance of a cash reserve of some type. Reserves can take a number of different forms, depending on the type of business and the individual situation of the high risk merchant in question. The two most commonly employed are:
- A rolling reserve is one of the most commonly used reserve model that holds back a fixed percentage of successful transactions (typically 5-10 percent) will be held in an account to pay for chargebacks, fraud or similar issues.
- A capped reserve holds back a percentage percentage of successful transactions (usually 5-15 percent of the transaction) until a fixed “goal” amount is reached. The amount of that goal is typically between one-half and a full month of the merchant’s monthly processing volume. Once the reserve goal is reached, the merchant no longer has to contribute to the reserve account.
A reserve is not always necessary and Durango can successfully setup processing without reserves if your business is doing less than $10-15K in volume per month. Higher volumes will typically require a reserve, but it’s case-by-case depending on financials, personal credit & processing history. A common fraud prevention tactic that many high-risk processors employ is to impose limits on both maximum individual charges and monthly credit processing volume; if your account exceeds these limits, the excess is withheld in your reserve account until the payment processor has verified there’s no fraud going on. If the right approach isn’t adhered to, then an unlucky merchant growing their business and doing all the right things – going to vaping conventions, employing great marketing, developing savvy social media presence – could still find themselves penalized for under appreciating the many risk mitigation strategies developed for the industry.
The e-cigarette industry is a legitimate field of business with a loyal and growing community of customers, and merchants who serve that community need e-cig credit card processing services from providers who won’t gouge them with fees, hide undesirable terms in the fine print of their contracts, or ignore phone calls when a merchant has a concern. The high-risk nature of the vaping industry means somewhat higher rates, but don’t settle for exorbitant fees and lousy terms because you think you can’t do better. Durango Merchant Services has helped hundreds of businesses find ecig merchant accounts with reasonable terms and room for growth for years to come.
Durango Merchant Services is here to help secure your E-Cigarette Merchant Account
Our dedicated team has negotiated on behalf of more than 12,000 clients. We understand the back and forth and give and take of negotiating processing accounts for high risk merchants, including hundreds of vape supply merchant accounts.
We know that there aren’t always easy answers. But remember, there is almost always a way forward and if you can make it through the first few years with a good track record, life will become much easier and your business will be better for it.