If you own Head Shop or a Smoke Shop, you’re probably no stranger to how difficult it can be to find an affordable credit card payment processing solution.Smoke shops are considered greater risk and require high-risk credit card processing. High-risk merchants can get rejected or cancelled in an instant. Banks often shy away when they realize you are selling “paraphernalia”, or just see the word on your website.
When you’re running a head shop, or other business that might offer ancillary services to the cannabis industry, you can often feel persecuted despite owning a completely legal business. And that perception isn't changing anytime soon in the high-risk credit cards processing realm. Especially when you consider Visa’s recent move to expand their high brand-risk categories and registration.
In the past, there’s been a certain stigma around businesses like head shops. It was perceived as a seedy place for deadbeats to hang out. But with the changing times, public perception is softening towards the trade.
The ongoing legalization of marijuana across the U.S. is one of the biggest drivers of changing public perception. There are currently 16 states plus Washington D.C. that have legalized recreational marijuana. 3 more states have passed legalization measures and are just waiting for effective dates to arrive. Medical marijuana is now legal in 36 states.
With legalization comes higher demand for items like pipes, bongs, vaporizers, and other paraphernalia. Higher demand translates into an exponential growth in retail and online head shops. But the payment processing industry is slow to get on board.
Card brands and banks are tightening rules for tobacco-based products, including vaping devices and smoker's supplies.
Card brands and banks still look at these types of businesses as if they represent a higher risk of liability than other perceived “normal” trades. Maybe even more so now that they are becoming more prevalent.
Visa recently announced they were expanding their high-brand-risk (HBR) merchant registration program to include vaping devices and smokers supplies. Effective in October 2020, Visa joined MasterCard in mandating that these high-risk businesses will now require high-risk registration with Visa. The deadline to complete these high-risk registrations hit on April 17, 2021.
Processors that cannot support high-risk registration had to cease processing all card-not-present transactions for all merchants on April 17th. That meant that many were left with no choice but to cancel the merchant accounts of those businesses. Processors that can support the Visa HBR program will need to register head shops as a high-risk business with Visa. This registration is required before they will be able to accept Visa cards.
Head shop merchants registering in the Visa high-brand-risk registration program will have to pay $500 to register and $500 annually for renewal. And smoke shops most likely already pay these fees for the MasterCard registration if they want to accept MC.
Why do processors categorize head shops as high-risk?
There are a few main reasons why a bank or processor will consider a business a high risk.
It's not necessarily specific business types that the card brands and processors define as high risk. Instead, it's more a set of considerations that determine high risk. And there are certain business types that inherently carry with them multiples of these considerations, making them high risk.
First, the processor and card brand will consider the individual business. They’ll look at personal credit history and check if the business is on the MATCH list. They will also check to see if it has high chargeback ratios and/or a high incidence of fraud. And they consider public perception around the business type. It's all about the level of liability the business brings on the bank for serving them.
Then they will take into account the industry as a whole. If the industry itself has a high instance of chargebacks, whether your particular business does or not, they will consider it a risk. They will also put it in a high-risk category if they determine your product itself could be damaging to the bank’s brand and the way the public perceives them.
Acquiring banks will charge higher fees for what they deem to be risky merchants. There are some legitimate reasons why they need to charge more for these types of accounts. A bank who offers high risk accounts will have to employ more underwriters and implement much stricter guidelines than they would for typical merchant accounts. They will also have a team who is dedicated to monitoring and flagging fraudulent transactions. They charge these higher fees to help pay for the extra staff and to attempt to mitigate some of their own financial risks and liability.
High-risk businesses need payment processing with high-risk experience.
Businesses such as these need specialized processing. They can't just go to PayPal or stripe and sign up for processing. They would end up violating the processor’s terms, which would result in getting their merchant account shut down, anyway.
However, there are no requirements for a salesman becoming a “high risk” merchant account representative. Anyone can become a merchant account salesman with little training. And unfortunately, there are still some pretty shady practices in the industry. Some representatives will take advantage of high-risk merchants by charging them astronomical rates. Usually followed by providing them extremely poor customer service.
Frequently, this type of salesman will only be out to sign on as many new accounts as they can. They are not worried about what happens to your account thereafter. They never had any intention of actually servicing your account through its lifetime.
High-risk doesn't necessarily mean inferior options.
Just because you may be considered “high risk” doesn't mean you don't deserve a high-quality, reputable merchant account.
High-risk payment processing requires a credible merchant service provider (MSP). You must have a provider you can count on, and one who has experience with high-risk merchant accounts. Look for an MSP that operates with transparency and has a reputation for dependable high risk merchant accounts for credit card payment processing. With an experienced high risk provider, you can put your trust in them and turn your focus on running your business.
Here are a few tips for considering a high-risk merchant service provider:
- Look for the BEST provider, not just the best prices-
Oftentimes, it is too easy to get sucked in by the sales pitch and the promise of great rates. But these rates are usually just a teaser rate and will increase either over time or at a specific point in time. Besides that, the fact is that an unscrupulous provider may end up “selling” your account to the bank anyway. When that happens, the bank is then responsible for your rates and they didn't promise you anything.
- Consider how long they’ve been in the industry-
As you’ve probably gathered, you do not want a newbie. In the high-risk realm, salesmen come and go like a feather in the wind. You want to work with someone who is well versed in the challenges of high-risk accounts. Their knowledge and expertise of the industry will help you avoid unnecessary hiccups.
- Make sure they are transparent about the bank they are working with-
There is no reason for secrets here. And if they are unwilling to share with you who is providing your high-risk account, that could be a red flag.
An ETA CPP is an expert in their field. The Certified Payment Professional has made a commitment to professionalism and personal integrity and is bound by the Electronic Transaction Association’s Code of Conduct. Their in-depth knowledge of the products and services available gives them the expertise to recommend the best and most appropriate solution for your business.
This is a voluntary certification and not required by any industry standards. When you demand an ETA CPP, you know you're getting an advisor that takes his position seriously.
- Do Not just turn in application anywhere and everywhere!
One of the worst things you can do is to submit several applications with multiple processors. Often, there are only a few acquiring banks that are equipped to serve these types of accounts. So, if you are putting in multiple applications, they will see it and raise a red flag. This could ultimately render you unable to get a merchant account.
- When you’re ready to apply - Be Professional.
When it comes to putting together your application, the goal is to get an "A" for accuracy, not an “E” for effort. Make sure you fill out the application accurately and entirely. Only submit it when you have all requested supporting documents gathered. Remember, these underwriters are more strict and you want to show that you are a legitimate business and a responsible owner. When you turn in a neat and professional looking application, you’re more likely to be approved.
- And lastly, Read your contract thoroughly!
Make sure that your provider goes over your contract with you so that you understand exactly what you are agreeing to and being charged. Make sure you understand your rates as well as any terms and requirements. You may need to establish a reserve account and/or enroll in a chargeback management program. It's just important to make sure you understand what’s required of you, as well as what it will cost you.
For head shops, high-risk credit card processing is attainable.
Bankcard International Group has been proudly providing world class service to the high-risk industry for almost 20 years. We have an ETA-Certified team of highly experienced payment professionals. During that time we have created dependable and long-standing banking relationships.
We are well equipped to offer the most affordable and dependable payment processing services in the industry to our high-risk merchants. We take the role of Merchant “Service” Provider seriously. And are committed to providing superior customer service no matter what type of client you are. If you are a Head Shop, Smoke Shop, or provide ancillary services to the cannabis industry, we would be happy to show you what a fair and reputable merchant service provider could do for your business.
Do your due diligence and call Bankcard International Group today, or click on “Get a quote” and have one of our ETA CPP representatives call you!