If you want to run a CBD oil business, then you will need some way of letting customers pay for the products that you sell. This will mean that you will need to have a merchant account to handle credit card and debit card payments for you.
Merchant accounts are used to process payments in stores through card readers and ePOS systems, and can also process online transactions as well.
What is a Merchant Account
A merchant account is like an extra bank account that accepts the money from credit card transactions, and then passes it on to your main business bank account. The reason that you need a second, ‘extra’ bank account is that with credit card transactions, the bank account has to worry about the credit card guarantee for consumers. If a consumer were to make a chargeback or complain about fraud, then the merchant account has to refund the money for that transaction to the card company. It needs to do that whether there is money in the bank account or not. When you set up a merchant account, you are, essentially, getting a revolving line of credit for the transactions that you process.
High Risk Businesses and Merchant Accounts
One challenge you might face in the CBD oil industry is that CBD is considered to be a high risk business. Selling things like hemp-derived CBD is not illegal, but the industry is considered to be on the edge of legality, partly because of the association with TH-based products, and partly because a lot of CBD sellers import CBD or drop-ship it. Where there are delays between a customer ordering a product and receiving it, this can increase the risk factor. With products that are sold online, there is always the extra risk associated with ‘cardholder not present’ too. Add in refund rates, and you’re in a position where your industry is not considered to be particularly appealing to merchant account services providers.
Getting an Account for Your Store
If you want to set up a merchant account for your store, then you will need to find ways to show that your business has a lower than average risk profile. There are several options to help with this.
Firstly, take precautions to ensure that you know who is buying from you. For example, make sure that you will ship only to addresses that match the billing address on the card. Secondly, make sure that you do telephone verification on all buyers. Some people in very high risk industries will go so far as to ask questions about the area that the person lives in, as an extra fraud prevention step. That isn’t something that is likely to be needed in the CBD industry, but it’s a handy tactic to be aware of.
Secondly, make sure that you provide clear information about the products you sell and the shipping times. Avoiding refunds will make your company look lower risk, and making it clear exactly what you sell (hemp-derived CBD products are a vastly different industry to MMJ products) can help as well.
Sometimes, you might find that despite your best efforts you are initially turned away for mainstream merchant accounts. In that case, your best bet is to find a company that caters to high risk businesses and then get an account with them. Manage your account with them as well as possible over a period of 6 months to a year, and then once you have a steady transaction volume and a low chargeback/fraud rate, you can start looking for companies to work with that offer better prices and cater to more traditional businesses.
It is usually easier to get a competitively priced merchant account once you already have an established business and a good reputation. You might be asked a lot of questions about your business, and to submit a lot of evidence. Co-operate as much as possible, because it will save you money in the long run.
Changing Your Merchant Account
There are brokers that work with businesses to try to help them find the best priced merchant account. Using one of these could be a good option for you. These companies will look at how much you are paying for your merchant services now, and consider monthly fees, processing fees, commissions, etc, then work out whether a different company with a different fee structure could be a good option.
For example, if you are currently paying a high flat fee and a low percentage, but you have a high volume of transactions, you may be better off changing to a company that charges a lower per transaction fee and a higher percentage. It’s a balancing act and a lot of the time companies don’t know for sure what the best structure will be for them until they have been established for a while and have some data to look back over.
These brokers often have an understanding of what each merchant account provider is looking for, and can help you to navigate the application process. In return, they take a commission out of the money that you save in your first year with the account.
Third Party Gateways
It can be tempting to use a third party payment gateway such as Stripe or Paypal instead of a merchant account. While this can be useful for small businesses that are just starting up, in the long run it is usually more cost effective, and more professional looking, to have a merchant account, especially if you expect to be processing a lot of transactions. It cuts out the middle man, and ensures that money from each transaction goes directly to an account that you control.
If you’re stuck for a merchant account, then yes, look at third party processors, but know that many of them are wary about CBD oil businesses, and even the supplements industry in general, so you might still encounter account limits and other issues as you try to navigate the accounts process.
