With most merchants, the first thing asked is “what are the rates?” But for CBD merchants, there’s so much more to be concerned with when looking for a CBD merchant account.
Yes, rates are important. But there are many other aspects of your merchant account that are more important to the success of your business.
Selling CBD isn't like selling T-shirts. Though CBD is legal, the FDA is still creating the industry’s regulatory framework. And until they complete it, much of the regulation is still ambiguous.
It has a reputation of being a rogue industry with too many unscrupulous merchants selling inferior, or even fake, products. In addition, the CBD industry is wrought with fraud and excessive chargebacks.
All this makes it an industry pretty risky for acquiring banks and processors to work with. For that reason, many processors are opposed to working with the CBD industry.
Whenever you have an industry desperate for services, you have an industry that’s easy to take advantage of. There are too many situations where a salesman will do whatever they have to to sign an account. They may try to hide the business's true nature by mis-coding the business’s Merchant Category Code and hiding it in an aggregate account.
Rate is an important element, it's just not the only important element. If your goal is to find a legitimate and reliable source to accept payments for CBD, you have to dig a little deeper.
Therefore, it is so important to ask questions beyond the rate when shopping for a CBD merchant account.
Here we have compiled a few questions we think will help you find a reliable solution with an experienced merchant service provider.
5 Questions to ask before accepting a merchant account for CBD payments.
Rates (processing, per item fees, additional fees, reserves etc).
First, it's important to note that rate isn't the end-all. Just because someone offers you the lowest rate doesn't mean they are the best solution. Difficult terms, unreliable solutions, extra fees and customer service all come into play as well.
That being said, you do need to be very clear about what you will pay. The total amount.
When you look at rates, make sure you look at both the markup and the effective rate. The markup includes just the part of your rates that they are charging, their markup. The effective rate includes everything you will pay in total.
Many times you will be given a quote where they give you their rate. It will look pretty low compared to your current rates. That is because they’re literally only quoting you their rate -the part of your rates that is their markup. It doesn't take into account everything you will be responsible for paying.
Your true rates will include a processor’s markup, the interchange rates and per transaction fees, and all additional fees and assessments. You have to compare apples to apples. This is the only true way to know if you're getting a good rate. Ask them to break down and explain all rates, fees, and assessments to you.
The following is a list of the most common fees and assessments you’ll encounter in addition to interchange rates and the markup.
Setup Fees- Most processors will charge a setup fee to onboard high-risk businesses. This is pretty normal. High-risk businesses require additional supporting documentation and much more intense underwriting. They also sometimes require ongoing monitoring for compliance. Processors who serve high-risk clients have the education and staff to take on the extra work.
Monthly fees- It's important to understand your monthly fees and what they cover. You will most likely have monthly statement fees charged by your processor. Ask what the fees cover and if there will be any third-party fees that will be passed through to you.
Again, this is about understanding your true rates. If you get a quote with only their rates, it won't include all fixed costs and won't be an accurate quote.
Chargeback fees- Chargebacks cost money and CBD merchants can get a lot of them. Chargebacks not only represent a significant loss in capitol, but too many can get your merchant account closed. It's not only important to know what the chargeback fee will be, but how chargebacks will be handled. Ask the processor what resources they have to help manage and reduce your chargeback incidence.
Reserves- Will you be required to open a reserve account? Will it be a rolling reserve or capped? The processor will hold a percentage of your total monthly processing each month to protect against chargebacks. The percentage will commonly be either 5% or 10%, depending the level of risk your business brings.
This is how it works:
For rolling reserves: most Reserve terms are for 6 months. The processor will hold back 10% of your processing each month for 6 months. On the 7th month, they will fund your account with the 10% reserve they kept from the first month. They will continue to take 10% of the current processing and return the oldest month’s reserve back to you in an ongoing fashion. This is why it is called a rolling reserve.
For capped reserves: The processor will set a capped amount of your processing to hold for the life of your account. For instance, they decide they want $20,000 in reserves to process payments for you. The processor will hold back 10% of your processing each month until you reach the cap, in this case $20k. Then, they will hold on to this money for the life of your processing with them. If you cancel, they hold the money for 6 more months to cover potential chargebacks before returning it to you.
Merchants need to not only understand how reserves work, but weigh the terms when deciding if the solution will work for their business.
Incidentals- These are additional fees that you could be charged under specific circumstances. Much like chargeback fees, if you have a chargeback you pay a fee, otherwise you don’t. Ask them to explain any additional fees that could potentially occur. Knowing these will also help you to avoid them.
Cancellation fees- Just know what the terms of the contract will be. What term length will the contract be? And what will they charge you if you cancel before the contract term is up? You can't necessarily avoid these fees, it's just better to understand them.
Who is the bank and the processor?
If you want a reliable solution, you have to know that your merchant account provider is being transparent. You'll want to know that the bank knows what they are getting into. Banks that legitimately offer services to the CBD industry have made the preparations necessary to serve the industry successfully.
If the salesman beats around the bush when asked about the acquiring bank and processor, that could be a red flag. Are they sure the bank is willing to work with the industry? Or are they just reselling from some other reseller?
Account restrictions or minimums.
High-risk merchant accounts will have varying levels of restrictions on both processing volume and products. When you consider a CBD merchant account, you must understand the terms and the long-term effect they may have on your business.
What are the restrictions or minimums on your processing volume? Many times processors will require a business to process a minimum amount of volume each month. If they don't make it to the minimum, the bank will charge a fee.
Alternately, they may also impose a maximum on processing volume. If you go over the preset limit, they may put a hold on your merchant's account. Then you would have to call customer service and get your limits raised in order to keep processing payments.
Banks may also set Product restrictions. They may tell you what you can sell and what you can't. You may be able to see anything CBD related, except for CBD flower. It is very important to know and understand these restrictions before you agree to the terms. These restrictions can hinder your future growth.
They could also cause you to get your merchant account frozen. For example, say at some point in the future you'd like to expand your product line. You add new or different products to your offerings. If that product type is prohibited, the bank could freeze your account until you remove the products.
It's very important to consider your future growth and know the restrictions and limitations your CBD merchant account may have.
What is their experience with high risk/highly regulated businesses?
Experience is huge! You need experience, not a fly-by-night Joe trying to make a buck. Are they a legitimate office or just someone reselling a reseller’s services? The level of experience they have has a direct effect on other items that could have made this list as a question. PCI compliance, fraud protection services, and chargeback management, to name a few. Experienced high-risk providers already understand how important these are to the success of your business.
This is a high-risk industry, prone to chargebacks and a magnet for payment card fraud.
On top of that, it operates in an ongoing legal gray area with varying regulations. You must have a merchant account provider adept at handling these high-risk challenges.
When you work with an experienced high risk merchant account provider, these things come with the package.
Do you offer a POS? -
Will their merchant account and gateway integrate with your current POS? Or do they offer a POS optimized for your business model? Is it omni-commerce? Can it manage retail and online presence at the same time with inventory match? Many POS systems are proprietary and won't integrate with a different processor. Merchant service providers who understand the challenges of the industry will know what they can integrate with. But will probably have a robust POS system meant to work for the industry.
Your merchant account is an integral part of your business. And an integral part of the success of our business. That success is dependent on a whole lot more than just your rate to accept credit cards. Each one of these components comes into play. And don't forget the customer service element. This is one feature every single merchant of all types should be concerned with.
Access to customer service could almost be more important than all the great pricing you could ever get. When you're in this type of industry, you need all the support you can get. Being left to an 800 number where customer support doesn't know anything about your business or how your account was written doesn't cut it. You need a dedicated account advisor. One who knows you and your business because they are the person who wrote your account. When you have an issue, you call your guy, and they work for you.
Bankcard International Group is your experienced high-risk merchant services provider.
Experienced CBD merchant account providers are prepared to handle the challenges. They're constantly monitoring the regulatory requirements. They've got fraud protection, chargeback management, and data security under control. They also understand that customer service is priceless with these types of accounts.
At BIG, our focus is on the success of your business by tapping into our expertise. Our merchant advisors are all ETA-Certified Payments Professionals. They are highly educated in the products and solutions they offer. And they’re dedicated to conducting themselves with integrity. If you're looking for a legitimate CBD merchant account, we’d be honored to serve you. Call us today and “Experience The BIG Difference!”
There are legitimate CBD merchant account providers out there! And armed with this information, you’ll be able to recognize when you’ve got one!