Why is it so difficult for the E-cigarette industry to operate and acquire a merchant account? This a booming industry that despite it’s relative infancy has skyrocketed to a more than an $8 billion market. And in 2015 the U.S. accounted for about 43% of that market. It would be easy to assume that this thriving market was easy to operate in, but you’d be wrong.
It’s because of this infancy that there are constant changes and evolutions in both technology and government regulations. E-cigarettes were first “invented” in 2004 and within a couple of years became a booming U.S. market. But, for the first decade there really wasn’t any regulation.
An e-cigarette, or electronic cigarette, wasn’t considered a cigarette at all by the governing entities. At least at first. Cigarettes, by definition, contain tobacco which is governed by The Family Smoking Prevention and Tobacco Control Act. An e-cigarette is defined as a handheld electronic device that creates an aerosol by heating a liquid. The user than inhales the aerosol. The liquid in the e-cigarette usually consists of nicotine, propylene glycol, glycerine, and flavorings, but not all e-liquids contain nicotine.
The Family Smoking Prevention and Tobacco Control Act, which became law in June 2009, gives the FDA the power to regulate the tobacco industry. The Act requires all product ingredients to be revealed by tobacco companies (whether local or imported) and they must seek FDA approval for any “new” tobacco products. It also allows the FDA to change any tobacco product content.
Unsettled regulation puts e-cigarettes in the High Risk category
When E-Cigarettes first hit the market in 2004 they were not considered cigarettes because they didn’t meet the definition of a cigarette and don’t contain tobacco and therefore were not regulated in the same way. But all that changed a couple of years ago when the FDA stepped up and proposed regulation that was just finalized in Aug 2016.
In May 2016 the FDA flexed its authority under the Family Smoking Prevention and Tobacco Control Act to deem e-cigarette devices and e-liquids to be tobacco products. This gave them the ability to regulate all devices that produce a vapor that is inhaled the same way they do tobacco sales. This ultimately includes vaporizers, vape pens, and hookahs, as well as e-Cigarettes including the E-liquids and E-liquid containers used with them. It also means that product manufacturers must now register their product with the FDA, and any “new” products must to be approved by the FDA before they can be legally sold. Estimates for the costs involved with registering and/or having a new product approved by the FDA could be as much as $1,000,000.
Even As you read this, the new regulations are being reviewed by the new administration under President Trump, deadlines have been extended and appeals to make the regulations less restrictive have been made. There’s a “grandfather clause” being considered to exempt any product that existed before Feb 2007. It is a regulatory minefield and there are just as many hurdles when it comes to credit card processing for the industry. It is because of this constant uncertainty, despite being a billion-dollar industry, e-cigarette businesses struggle to find merchant accounts and affordable payment processing solutions.
Without a merchant account, businesses are forced to operate on a cash only basis. However, operating on a cash-only basis is not only inefficient, but inconvenient for your consumer and unsafe for your business and it’s employees. Operating without a merchant account is just not an option for online businesses.
Payment processors, just like any other business, must be able to manage risk to have a successful business.
Financial institutions consider it risky because the future is still very unclear legally. Legislators will continue introduce increased or changing regulations. These will affect the manufacturers and marketers of e-cig products as well as the customers who buy them. The potential for chargebacks, fraud, legal and other risks are considered to be very high by the acquiring banks.
Merchant accounts for E-cigarettes come with even more strict underwriting than other high risk accounts.
A high-risk processor may choose to employ the requirement of a rolling or capped reserve on an account. Another common tactic that a bank might use to help prevent fraud is to impose maximum limits on both the individual charges and a merchant’s monthly credit processing volume. When you exceed those amounts they are then able to hold the excess in your reserve account until they are confident there’s no fraud.
On top of that, MasterCard and Visa also have their own policies for e-cigarette and vape companies that want to process their credit cards. When you are approved for your merchant account they will require you to implement “Adult Signature Required” and “Adult Signatures on delivery” features.
They also require the merchant pay a $500/year registration fee, each. That is an extra $1,000 per year, and you must register your website with Visa and MasterCard. The merchant also may be required to hire an attorney to write a letter stating that the business is complying with all applicable laws.
Dependable merchant services for your e-cigarette or vape business is a must.
Running any successful business means paying attention to the details. Developing a great marketing strategy, working on your brand and creating a strong social media presence.
When you have all of these regulations to follow, hurdles to jump and fees to pay the last thing you need is a merchant provider that leaves you with outrageous prices, slow deposit times and poor customer service.
An integral part of a successful vape business is to pay close attention to your merchant account, because of the changing governmental regulations along with the card brand’s policies it is more important than ever to make sure your account is set up correctly and ensure you are staying within the guidelines.
When you choose Bankcard Brokers as your full-service provider you will enjoy the advantages of working with a provider who is credible and transparent. Our incredible portfolio of e-cigarette merchant accounts has enabled us to establish exclusive relationships with our banking partners that allow us to get you up and running quickly with guaranteed low rates.
You may not be able to get away from the somewhat higher rates, due to the undeniably high-risk nature of the vaping industry, but you don’t have to subject yourself to exorbitant fees, horrible service and terrible contracts. With Bankcard Brokers you will have access to secure payment processing, electronic and check processing and several funding options for your business. You may also find it helpful to take advantage of our chargeback prevention and protection programs we have to offer.