Chargebacks, FDA complaints and holding or freezing payments can be a nightmare for supplement merchants.
The supplement industry recently surpassed $120B. And with the global obesity rate soaring, it’s not slowing down anytime soon.
While diet books and fitness programs still sell, supplements are the the new king.
Customers love them. And thanks to the global pandemic shaking the nation, sales are at an all-time high.
This is even more true for immunity offers, which focus on proactive customers. In fact, 49% of consumers are buying supplements to be proactive and avoid disease.
The 21st Century Gold Rush
By 2026, reports show that the supplement industry will pass $200B. This is only being sped up by the pandemic.
In the US, 7% of the supplement market share comes from immunity supplements. In fact, people are now starting to prefer immunity offers over regular options.
According to the FDA:
Supplements are products taken by mouth that contain a dietary ingredient.
Supplements are so trusted because of doctor’s. Doctors have conditioned the world to pills. Unfortunately, a lot of prescription medicine comes with side effects.
This leaves consumers to look for a natural solution. Supplements are the answer. They can provide the benefits of prescription pills, without the side effects.
For supplement merchants, it’s a sustainable business model. Workout and diet programs are a single purchase. There’s rarely any recurring income.
Supplements, on the other hand, are consumable. Customers need to buy them regularly to continue to see the benefits.
For supplement merchants, this means guaranteed monthly income.
High reward comes with high risk
Payment processors and gateways like Stripe and ClickBank dislike supplements. They see them as a high-risk sale. High risk sales often involve a lot of chargebacks and fraud claims.
For supplement merchants, payment processors can randomly freeze your account. Overnight, you could lose your money and your business.
PayPal reserves the right to hold money for 180 days. Stripe can hold it for longer, sometimes indefinitely. This can lead to cash flow problems and complete business shutdowns.
Therefore, it’s important to get a proper processing company that understand high risk sales, like DirectPayNet.
The other issue is scaling. Stripe will stop taking payments once a few chargebacks come through. Even if they are false chargebacks. PayPal and ClickBank are no different.
As such, growing your supplement business is, at best, a nightmare. At worst, it’s a lawsuit that can bankrupt you. It may even land you behind bars. But that’s just the tip of the iceberg.
Supplements are also not approved by the FDA. Therefore, supplement merchants are watched like a hawk. This is only worsened by the millions of dollars in lawsuits that happen every year.
Which means that unless you are squeaky clean, you risk a shutdown. Even if you are perfectly compliant, they can still target you – especially once you start making a lot of
3 Ways to bulletproof supplement merchants
Problem #1: Unnecessary chargebacks
One of the biggest chargeback drivers is the lack of transparent pricing. Many companies like to include subscriptions. While good for business, it’s horrible for chargebacks.
This can lead to Member Alert to Control High-Risk. In other words MATCH listing. It also goes by the name terminated merchant file or TMF. Essentially it’s a blacklist used by Visa, MasterCard and American Express. The purpose is to “identify a potentially high-risk merchant before entering into a merchant agreement.”
Once you land on this list, there’s no getting off of it. No payment processors will take you. The FDA is sure to keep a close eye. It’s the last place you want to be, especially as a supplement merchant.
Solution #1: Provide transparent pricing
The solution is simple. Be crystal clear about your payment terms. This means being upfront about subscriptions. Or, try offering bundled products (3 or 6 months) to get a bigger sale upfront and avoid subscriptions.
In fact, it’s best to avoid them at the start. This will help build trust with your customers and your payment processors. It will also help you avoid MATCH or TMF list. Another important issue to tackle is shipping. When you scale, shipping and fulfillment can get backed up. This can lead to long wait times, and chargebacks.
It’s very important to test these and ensure everything continuously runs smoothly. This will help to avoid unnecessary chargebacks.
Problem #2: Lawsuits
The supplement industry is ridden with lawsuits. And because it’s frowned upon, the FDA likes to hand them out like candy on halloween.
These lawsuits interfere with sales and reputation. They can also lead to massive financial penalty. In the worst cases, prison.
Solution: FDA compliant products and web pages
The best way to avoid this is to ensure everything is FDA compliant. You should ensure all ingredients listed on your site are clear. There should be nothing illegal either.
The label should also include proper dosages and directions. Since supplements are not approved by the FDA, a disclaimer needs to be clear on the bottle. This is also true for your website or sales page.
Having third-party lab testing results available is also handy. A GMP certificate or NSF certification is a bonus. Regulatory agencies love these, and they are worth striving for.
Problem #3: Random payment holds
As we discussed earlier, payment processors can freeze accounts randomly. In some cases, indefinitely. Payment gateways can also stop processing charges.
This can lead to cash flow problems, putting a strain on your business. In a lot of cases, it can lead to business closures.
Solution: Alternative payment models
To combat this, there are two steps. First you can get a high risk merchant account. A high risk merchant account is specifically designed for businesses that are deemed high-risk. This includes supplements, subscription models, and even cannabis and CBD.
The benefit is that you’ll be able to run your business with minimal hiccups. For those looking to scale their business, and ensure their money is safe, it’s the perfect solution.
Another option is to diversify your payment modes. This includes accepting ACH and e-check. By doing this, you avoid keeping all your eggs in one basket.
Therefore, if something happens to one account, you can still accept payments and keep cash flow strong. It also means all of your income won’t get frozen at once.
The best option would be to use both these solutions. This way you can be certain that you will almost never get completely down. It also means that you can serve all types of customers without stoppages.
Supplement merchants need high-risk solutions
Supplements are the new gold rush. For customers, they offer an easy solution to help achieve their health goals. For merchants, they offer a subscription model with high profit margins.
Unfortunately traditional payment processors like Stripe, PayPal, and ClickBank are not onboard. They view supplements as high risk sales.
Some of them have a bad history of holding money for months on end. They can also shut down your accounts after just a few chargebacks. This makes it impossible to scale a business.
The best way to avoid this involves 3 steps. First is FDA compliance to ensure no lawsuits. This means proper product labeling. It also means using only proven and safe ingredients.
Second is be transparent about billing. This helps avoid chargebacks.
Third is to diversity your payment solutions and use a trustworthy, high risk payment processor like DirectPayNet.
Take the next step
By following these steps, you can safely cash in on the supplement gold rush and grab
your slice of the upcoming $200B supplement market.
The biggest step of all is to outsource your payment gateway strategy and management to DirectPayNet. We have a track record for improving payment channels of merchants in multiple business categories.