The online pharma industry is currently undergoing a phase of rapid growth, yet approval of supplement merchant accounts has not kept pace. Thirty-nine percent of adults (18 and over) are either overweight or obese. Therefore, it’s no wonder we have seen the pharma and nutra industry (specifically the diet industry) experience such explosive growth. Individuals increasingly look towards diet supplements and other products to improve their health, as opposed to more traditional methods.
Despite increased demand for e-commerce-related merchant accounts in this sector, we have seen the majority of credit card processing applications get declined for being overly high risk. Regulatory issues, high chargeback rates, industry reputation and increasing instances of fraud are all obstacles to accepting online credit card payments.
Why supplement merchant accounts are a struggle
As just mentioned, several factors contribute to the growing difficulty of gaining approval for supplement merchant accounts. Pharmaceutical and nutraceutical goods sold online are wide-ranging. This includes wrinkle creams, dietary supplements in powder form, and libido-enhancing pills. But, unless you operate with a license according to the jurisdiction, convincing a payment provider to enable you to take Visa and MasterCard orders will be tough.
While pharma merchants are victims of general trends in credit card processing, like the increase in card not present (CNP) fraud, this industry has its own unique challenges.
1. Risk presented by fluctuating government policy
The ever-changing landscape of legislation surrounding nutraceuticals, nootropics, diet pills, erectile disfunction tablets, or other pioneering supplements is vast. Consequently, it’s difficult for payment processors to assess your long-term business prospects.
Your products (or one of their ingredients) that are your main source of revenue today could be illegal within a matter of months. This elevates your risk profile and reduces the likelihood of approval to process credit card orders from willing buyers.
2. Higher than usual chargebacks
This industry suffers from especially high chargeback rates, with online diet and skincare merchants struggling more than most. When customers buy diet supplements that fail, they will often issue a chargeback, because they didn’t receive the expected results. This practice is known as “friendly fraud”. Also, should people experience or see reports of bad side effects from the products they purchased, they will be inclined to cancel. It makes no difference if the item was shipped or not.
Any payment processor looking through your transaction history with a high level of chargebacks is going to rethink their relationship with your business due to the increased financial risk.
3. High Drop-Off Rates
In a similar manner to gym membership drop-offs, nutraceutical merchants who operate subscription-based models tend to witness high drop-off rates after the initial set of payments. This is more apparent with merchants who offer a discounted or free trial of their nutraceutical supplement.
This leads payment processors to deem your company high risk. With such high rates of declined orders, your business model’s long-term sustainability will be questioned.
4. Reputational Damage Caused by Fake Pharmacies
The internet is an unregulated platform, so almost anyone can set up a website that sells prescription drugs or supplements whilst claiming to have all of the necessary licenses. Not only have fake pharmacies created a global health threat by selling counterfeit and illegal drugs, they account for a huge slice of the industry’s terrible commercial reputation regarding chargebacks (see above).
Gain acceptance for payment processing even with a poor track record
There is no quick fix for a start-up or a company with poor processing history. Some high-risk merchant service providers advertise false slogans like: “get up and running within 24 hours”, “get access to low rates”, and “apply and get instant approval!”
Relationships with providers who make fake promises don’t last. Reliable service providers guide merchants through a vetting process. This ensures that the acquiring bank accepting your is secure and will pay you what you’re owed regularly. Whilst supporting documents and financial history may seem a pain to submit, these requests are aimed at reducing a bank’s liability. Also, if you find a seasoned merchant service provider, you will have the added bonus of improving your overall business.
1. Improve Processing history
First and foremost, providers that have your best interest will work with you to grow your processing history. They place particular emphasis on beating woeful chargeback ratios. Third-party tools that alert you to any fraud can be recommended. Additionally, a good provider will help you develop better fraud-prevention strategies to reduce ratios to acceptable levels.
Not only will you end up with more retained revenue and increased payment processing capacity, but you’ll also improve your business’ perception. This is especially crucial when presenting your company to players such as acquiring banks and suppliers.
2. Checks on Licenses and Agreements
Acquiring banks assess whether or not the correct licenses exist to sell your products. They determine whether the health claims associated with your products have any credence. This applies particularly to diet supplements and nootropics.
While this paperwork is necessary to accurately assess your risk, it’s another way to differentiate yourself from other vendors. Demonstrating a willingness to be compliant and commitment to great customer service as a means of combatting angry buyers is an excellent strategy. Taking this route reduces chargeback rates, fraud, and complaints.
3. Assess Products’ Viability
Many sellers assume that once approved for supplement merchant accounts that they have carte blanche to sell and market products however they see fit. During the screening process and after you start processing; be on the alert for products that may have their legal status changed in the near future. Products that seem innocuous to you, may be next on the list to be banned in not just one, but various countries. It’s important to keep abreast of the changes on the FDA website or other regulatory bodies in the countries you are marketing in.
Even the sale of powdered caffeine is heavily restricted within the biggest e-commerce market in the world, the United States. Future-proof your business by gradually transitioning your focus to more benign nutra products. For example, health supplements, vitamins and muscle building protein products are alternative introductory options, rather than diet pills with unrealistic results. The latter is unlikely to stay on the market for much longer due to either restricted or questionable ingredients.
There are other payment processing options
If accepting credit cards and increasing your monthly sales capacity is a struggle, there are alternative payment options. The first of which is an Automated Clearing House (ACH) processing.
ACH processing is great for facilitating payments between your customers and your bank. It won’t use any precious payment processing limits or force payment of high credit card fees. This way of processing payments bypasses credit card networks, saving you money in the process. Considering ACH is an automated system, it works well for subscription-based pharma merchants with periodic payments too.
If ACH isn’t a good fit for your company, offshore banking services remain an alternative option. Foreign banks tend to be much more liberal; therefore, consider this option if your domestic supplement merchant account applications hit a deadend. They also provide a range of benefits like subjecting your payments to lower taxes. Moreover, you can trade and settle in multiple currencies.
DirectPayNet works with several ACH and foreign merchant account providers. Therefore, contact a member of our team, if this is an attractive option.
Acquire a merchant account in one of the toughest processing industries
Landing a supplement merchant account isn’t easy. Nor should it be. The industry is rife with misinformation. Therefore, cautiously develop a range of legal and proven products or services with low chargeback and fraud ratios. Doing so makes you increasingly attractive to payment providers and simultaneously leap ahead of your competition.