Digital merchant services for e-cigarettes could likely get a big surge if the US Food and Drug Administration gets its chance (and it usually does).
In an exercise to stop vaping prevalent among minors, the FDA is readying to ban sales of most flavored e-cigarettes in brick and mortar stores and fueling stations in the United States. The one warning of the FDA’s plan, from what we have read, is to allow the flavors of mint and menthol in order not to steer e-cigarette users toward classical menthol tobacco (whereas, we recently read about the FDA likely banning or restricting the sale of traditional menthol cigarettes).
It is the recent move by the FDA, which in mid-September, connected four of the largest domestic e-cigarette manufacturers and pushed them with providing an elaborate plan of how they desire to prevent their products getting to minors (their plans are due to the FDA this week). Besides this, the FDA sent letters to more than 1,100 vaping sellers warning of tough fines and penalties as an outcome of sales to minors.
We see fully the FDA’s goal is to keep e-cigarettes out of the hands of minors. Merchants just require to make every conceivable effort to determine the identities of their customers.
Having given e-cigarette merchant services solutions for the last 10 years, whereas, the FDA’s plan will not be without consequences.
More online sales, but tougher underwriting
While the FDA’s prohibition is said to majorly impact the retail side of e-cigarette sales, it could divert the sale of e-cigarette liquids online, having opportunities for e-commerce e-cig merchants. When the feds are participating, however, acquiring banks tend to move into safety mode. As a consequence, we envision a few modifications in merchant services for online e-cigarette merchants.
Rolling reserves: Some acquirers levy rolling reserves on high risk businesses, into which a merchant incurs into for six months, then initiates to recoup the funds subsequently as s/he establishes a good reputation and credit with the acquirer. We could see rolling reserves imposed on merchants who may not have required them before. Or, we could make reserves more than the most common window of six months.
Pristine processing history, KYC: We envision the merchant services onboarding exercise becoming even more tough, where merchants who got the approval criteria in 2018 may not cross that in 2019. This particularly impacts startups and those merchants who may lack enough payment processing history.
The results: Black market? Transaction laundering?
Conversely, should the FDA levy such a ban, it will possibly result in black market sales of e-cigarettes and e-liquids – rogue ‘merchants’ bordering federal regulations. Very often, we come across high risk merchants in the requirement of merchant services – mainly online pharmaceuticals and nutraceuticals – who have been earlier shut down because they were selling not approved or illegal products, not got or even hidden on their web page. With an FDA ban, our underwriters consider seeing more of these dubious exercises called transaction laundering.
Merchant services for e-cigarettes: What we suggest
One of the classy industries for which we provide merchant services is online wine delivery. We won’t hide the truth – it is a challenging merchant account to get started, what with differing state laws in relation to shipping (quantities differ from state to state), taking over and receipt (the risk of below age people receiving alcohol). Hence, there are numerous hurdles and regulations to understand.
Should the FDA’s ban initiate online merchant services for e-cigarette flavors, the disposal of such should be taken up akin to that of online wine delivery:
- No actual post office box deliveries.
- The website should include an age verification portal before to customers entering the website.
- Check out page must involve a checkbox indicator buyers are at least 21 years old.
- Mandatory signature when received by an adult 21 or over.
- Use of a reputed shipping company/deliverable to ascertain the recipient’s age and requiring valid identification upon receipt of the product.
An extra solution is to provide the option to ship products to the nearest (trusted) vaping merchant to be brought by the customer, who can only do so with valid identification.
E-cigarette merchant services with iPayTotal
iPayTotal has indigenous and offshore banking partners in place that provide merchant services to high risk merchants, including e-cigarette businesses. With a 10 minute telephonic conversation, our merchant account professionals identify your requirements and match your business with the best acquiring banking solutions we know of for e-cig merchants.