Keep an Online Tobacco Merchant Account from Going Up in Smoke

Cigar and Pipe businesses can quickly become vulnerable without warning, causing banks to hold back associating through merchant services. If you sell cigar and pipe tobacco online, entrust EMB with your merchant account requirements.

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More than 12 billion cigars were sold and approximately 258 billion cigarettes were sold in the United States in 2015, according to statistics gathered by the U.S. Centers for Disease Control and Prevention. That same year, 129.36 million pounds of smokeless tobacco was sold by manufacturers to wholesalers and retailers in the United States. This was a 1.5 million-pound increase from 2014.

Though over the last few decades health professionals and governing bodies have ramped up their tobacco prevention efforts, tobacco industry remains very profitable. Though there are state and federals laws in place to stymy the tobacco industry, there is no single federal law on the books that bans the online sales of cigarettes, cigars, smokeless tobacco, or loose leaf tobacco. The laws that regulate online tobacco sales are loose at best, which is one of the reasons why banks don’t want to work with these businesses. E-commerce businesses must be able to accept and process credit card payments. They can’t process transactions without an online tobacco merchant account. To securely process payments, businesses must apply for an online tobacco merchant account via a high-risk merchant processor, like (EMB).

EMB understands the challenges that e-commerce tobacco merchants face. Regardless of risk levels, EMB approves online tobacco merchant accounts to eligible merchants, as well as customized payment processing solutions for all types and sizes of companies.

To begin the process, apply online now. Merchants can get approved within 24 and 48 hours. Once approved, EMB also sets up chargeback management tools and payment gateways. Also, fraud filters also can be set up for online payments.

What to expect during an online tobacco account application review

To get an online tobacco merchant account, business must show underwriters they are complying with all rules and regulations. Underwriters assess merchants’ potential financial risks to processors and their sponsor banks. Applications are approved or declined based on these assessments.

Since online tobacco businesses also sell accessories, such as pipes, underwriters will review sites to ensure that their products are not being directly promoted for marijuana use. They also check sites to ensure they have clear, prominently-displayed privacy and refund policies, as well as secure SSLs.

To further determine risk, underwriters also look at a merchant’s:

  • Credit scores
  • Credit card processing history
  • Bank statements

A negative bank account balance, unpaid bills and late payments, and a history of high chargeback rates increase a merchant’s risk.

The chances of merchant account approvals increase if online tobacco businesses satisfy any outstanding debts, have a good amount of money in the bank, and the person applying for the account has an exemplary credit history. Proactively addressing these issues and taking care of anything that looks sketchy likely will result in getting approved for an online tobacco merchant account without limits, such as caps on higher processing volumes or a lowering rolling reserves.

Online tobacco sale laws are murky at best

Prevent All Cigarette Trafficking (PACT) Act prohibits using the U.S. Postal Service from mailing roll-your-own tobacco, smokeless tobacco, and cigarettes. It also requires online and mail-order sales retailers to comply with age verification requirements and to pay all appropriate, federal, state, and local taxes. Many parts of the law are being litigated due to loopholes, which doesn’t regulate other delivery carriers beyond post offices. It also prevents local and state governments from adopting laws that require delivery carriers to check IDs or get signatures from those who accept the packages.

Though states can prohibit Internet-based retailers from shipping tobacco products to customers within their borders, they face jurisdictional and enforcement challenges. Several states, including New York, Arizona, Ohio, and Connecticut have banned the shipment of tobacco to individual customers and personal residences.

Other online tobacco merchant account application requirements

Businesses that want to apply for online tobacco merchant accounts can begin today. To get started, simply fill out EMB’s online application. To swiftly move the process along, businesses need to make the following documents available to processors and underwriters:

  • A valid, government-issued ID, such as a driver’s license
  • A bank letter or a pre-printed voided check
  • Three months of the most recent bank statements
  • Three months of the most recent processing statements, if applicable
  • A SSN (Social Security Number) or EIN (Employer Identification Number)
  • Chargebacks must be under 2%
  • Secure, fully-operational websites

EMB guarantees no approvals. However, EMB promises a quick and easy application process that can result in approvals in as few as 24 hours.

Your business has unique needs, we are unique solution.

EMB will get you approved today for a low or high risk merchant account for your B2B, eCommerce, or Retail business at the most competitive rates.

Get higher processing volumes for online tobacco merchant accounts

High-risk businesses, such as online tobacco merchants, often are approved for merchant accounts with monthly caps on credit card processing volumes. Essentially, businesses can handle any additional credit card transactions once they reach their processing ceilings for that month. This means merchants need to stop accepting sales until they reach the next month.

Caps can get raised over time. Online tobacco merchants can request new processing volume caps in as few as three months. To get caps raised, they must prove that they pay their bills, have low chargeback ratios, and have some money saved.

Chargebacks and why the run so high in the online tobacco industry

Part of the reason online tobacco merchants are considered high-risk is because they are vulnerable to excessive chargebacks. A chargeback is when a credit-card provider demands retailers to make goods on losses from disputed or fraudulent purchases.

As previously mentioned, regulations concerning online tobacco sales are inconsistent. Though federal law requires retailers to use age verification software, selling to underage buyers is a major problem. Many underage buyers have been able to circumvent the software and make purchases. When adults find out about these purchases, they often dispute the transactions.

Also, online businesses are always subject to more chargebacks than bricks-and-mortar businesses. Online tobacco businesses are relatively new business ventures. Due to the nature of these businesses and their lack of name recognition, many customers dispute purchases after they check their monthly credit card statements. Tobacco businesses also don’t often send electronic receipts or order confirmations after purchases. Without receipts, many customers have no way to know the way the merchant’s name will appear on their statements or any of their contact information.

Delays in delivery also jack up chargebacks. Online tobacco businesses often rely on third-party fulfillment centers and shippers to get orders to customers. Backordered items and delivery issues can lead to unsatisfied customers.

Finally, cybercriminals target these types of businesses because most operations are small and new. Many merchants don’t know how to protect their businesses from scams and fraudulent purchases. Unlike larger, more established businesses, e-commerce tobacco businesses don’t know how to prevent or fight chargebacks and fraud until is much too late.

Why chargebacks are bad

Many new businesses don’t know or understand the importance of maintaining low chargeback ratios. Low chargeback ratios help businesses keep their online tobacco merchant accounts. Credit card processors can terminate high-risk merchant accounts if their have a more 3% chargeback ratio. Once a tobacco or cigar business loses a merchant account, it is very difficult to get approved for another one in the future.

Figuring out chargeback ratios

An online tobacco merchant’s chargeback ratio is calculated by the number of chargebacks divided by the number of monthly transactions. For example, a merchant with 300 transactions and 12 chargebacks in one month would have a 4% chargeback. The dollar amount of a chargeback doesn’t impact ratios.

Excessive chargebacks are bad news for processors

It doesn’t matter why chargeback ratios are high, credit card processors are quick to terminate merchant accounts that don’t keep them in check. Online tobacco businesses that fold or close-up shop don’t pay for outstanding chargeback fees or refunds. Anything that is unpaid is shouldered by credit card processors and sponsor banks.

High chargebacks also negatively impact credit card processors relationships with their sponsor banks and credit card companies. Merchant account providers that continue to process credit card payments for businesses that can’t maintain low chargeback ratios also may face fines from the credit card companies.

Curb chargebacks

Poor customer experiences, credit card fraud, legal issues are some of the more common reasons for chargebacks. The best way to keep ratios low is to use strategies that prevent chargebacks from occurring.

To verify buyers and to avoid costly chargebacks, online tobacco businesses should ask for buyers to submit selfies of themselves holding their driver’s licenses. Also, it is a good idea to request a phone number, so a merchant can call and verify information.

Also, it is often a good idea to restrict shipping to home addresses. Buyers look to have items sent to P.O. Boxes often are running a scam.

A well-informed customer is often not only a satisfied customer but a repeat customer. Merchants should always provide customers with itemized receipts that include the amount of the purchases, the name of the vendor, customer support number, and accurate delivery windows. Updates with shipping and tracking information also should be sent.

Additionally, the majority of chargebacks occur within four days of purchases. With this in mind, merchants should stay connected with customers to ensure their satisfaction for at least one week after their purchases. Good ways to communicate include:

  • Sending an email thanking a customer for a purchase
  • Sending a final copy of an itemized receipt
  • Asking customers to submit customer satisfaction surveys

These actions not only show customers that their business is valued but it reminds them of their purchases.

Stop chargebacks in their tracks with mitigation systems

By partnering with Verifi and its new Cardholder Dispute Resolution Network (CDRN) and Ethoca’s alert system, EMB has created a chargeback prevention system for high-risk merchants, including online tobacco merchants. This system can trim about 25% off a merchant’s chargeback ratio.

It works because the network operates with banks and card issuers, giving merchants more control over the resolution process. Through the alerts and the CDRN, merchants achieve the greatest rate of chargeback resolutions while being directly involved in the process.

Failing to prevent chargebacks can literally can cost a company its business. Merchants should not have to lose profits and put their online tobacco merchant accounts at risk for termination.

Categories used in the online tobacco industry

Standard Industrial Classification (SIC) codes are four-digit numerical codes given to business establishments by the United States and other countries. These codes aim to identify the primary purpose of businesses.

Cigars, pipes, and smoking accessories often fall into these categories:

  • 5194: Tobacco and Tobacco Products
  • 5993: Tobacco Stores and Stands
  • 5199: Nondurable Goods, Not Elsewhere Classified
  • 7389: Business Services, Not Elsewhere Categorized

Visit the United States Department of Labor to view a complete SIC list.

Northern American Classification System (NAICS) are categories of six-digit codes used by federal statistical agencies to classify establishments. The information is used to collect, analyze, and publish statistical information about similar types of businesses and the way they impact the economy in the U.S.

Online tobacco businesses often use these codes:

  • 453991: Tobacco Stores
  • 424940: Tobacco and Tobacco Product Merchant Wholesalers

Visit the United States Census Bureau’s Northern American Classification System to view the complete NAICS code list.

Merchant Account for Online Tobacco and electronic cigarettes stores

Expensive cigars, unique pipes, and specialized tobacco are all luxury items for tobacco connoisseurs. Even some traditional tobacco users have begun shifting to using e-cigarettes. Yet these industries are still considered high risk due to strict government regulation, complications associated with online tobacco industries, and high chargeback rates.

The federal government pays an unusual amount of scrutiny to tobacco and tobacco products leading to an ever-changing flux of rules and regulations. In the case of e-cigarettes, a lack of government regulation has led to fears and anticipation about any future sanctions.

We’re Ready to Help

As long as your chargeback rate is less than 3%, eMerchantBroker can find you the right merchant account that is tailored to the needs of your tobacco or cigar business.

We Love to say “Yes”!

Apply today through our easy, red-tape eliminating process and your business can be set up with a merchant account as soon as 72 hours.

  • No Application Fees
  • Competitive rates
  • No VISA/MasterCard Registration Required
  • Multiple Secure Payment Gateway Options

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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