November, 2018 | IBS Payment Solutions

CBD Merchant Account: Challenges faced by the CBD Oil Industry

Cannabidiol acts as a natural remedy for many common ailments. Popularly known as CBD, it is one of the many cannabinoids found in the Cannabis sativa plant.

The rising CBD industry is predicted to rake in at least $3 billion annually. The global CBD Oil market is expected to grow at a CAGR of 31.08% during the period 2018-2022.

This is good news for businesses and vendors of this natural plant. Running an online CBD business is a great idea, but it’s not exactly a walk in the park. Even though, CBD has been gaining significant support and is been legalized in several states, it is yet to be seen as mainstream.

On April 30th, 2018, CBD was classified as a Schedule I Drug after the 9th US Circuit Court rejected a petition from the Hemp Industries Association. This ruling could lead to problems for CBD merchants, who are essentially marketing, according to the federal government, a substance on the same level of illegality as cocaine and heroin.

Credit Card Processing Challenges for CBD Merchants

“It’s hemp..not drugs,” says the CBD shop owner when they received a letter from the bank stating that the bank is closing their CBD store’s accounts due to their business nature. The letter also states that “it is in the best interest” of the bank to close their accounts because of the “elevated risk” associated with a “marijuana related business.”

This is not the only instance. There have been several cases wherein online as well as brick-and-mortar stores selling CBD oil have had bank accounts suddenly shut on similar grounds.

Credit card processors like PayPal and Stripe refuse to process customer transactions of CBD merchants forcing them to go out of business. Account shutdowns are frequent enough and often done without any prior notice.

CBD being closely related to marijuana, which is considered an illegal substance, has become the biggest challenge in finding a way to accept payments for merchants.

CBD products that make ‘unsubstantiated’ health claims also find it difficult to find a credit card processor. Unsubstantiated health claims are those that have not been evaluated by the FDA.

Because of such reasons majority of the CBD industry has to work with cash leading to businesses being vulnerable to constant security threats like theft and break-ins.

Fact: CBD Merchants cannot obtain regular merchant account solutions.

Legal uncertainties as well as constant change in regulations have made financial institutions extremely leery of accepting CBD merchants, tagging them as high risks. Processors and acquiring banks are unwilling to spend extra resources that are required to ensure legal compliance of business that want to open a CBD merchant account.

Finding the right Merchant Account Provider

CBD online and retail stores have the same rights to credit card processing as any other regular legal business.

Banks and financial institutions are finding a way to help CBD businesses, although a slow transition but a welcome move nonetheless.

Meanwhile, High Risk Merchant Account Solutions are the best bet for merchants selling CBD or related products. Yes, it may be a difficult process to obtain a CBD merchant account but with the right credit card processor it is very much possible.

Multi-Level Marketing or MLM Merchant Account Solution

Multi Level Marketing or MLM, is a business system wherein products and services are sold through a network of distributors. Also known as Referral Marketing, Network Marketing or Direct Selling, it is a non-traditional way of doing business which always has room for more people joining in. Amway, Tupperware, Avon are some of the most popular and established MLM business giants.

MLM is a huge business today. The industry that came into existence in the 1950s has been one of the most active industries in the world in terms of member subscriptions for decades now. Be it jewelry, cookware or home products, the MLM industry operates in all types of sectors. Unless you are living under a rock, you’d have encountered an MLM representative at least once.

According to WFDSA, the industry’s sales volume was $189.6 billion in 2017, an increase of 1.6% compared to the previous year. In 2017, 18.6 million people were involved in direct selling in the United States, making it the world’s largest direct selling market.

With amazing stats and numbers to show, the industry is still tagged as High Risk when it comes to financial and banking institutions.

Why is MLM credit card processing risky?

Banks and payment processors are leery of providing merchant account services for MLM business mainly due to legal liabilities, high chargebacks and unpredictable business growth.

– Unlike a lot of merchants that are categorized as risky due to the products/services sold, MLM credit card processing is considered high risk regardless of what they sell.

– The MLM business model is closely related to pyramid marketing which is prohibited, thus creating a legal risk and keeping away payment processors.

– MLM companies have hundreds and thousands of distributors worldwide selling excellent products. Yet, the industry is also plagued by scammers that have turned out to be pyramid schemes preying on unsuspecting distributors and buyers creating an overall negative impression.

– Unexpected and unpredictable growth patterns of MLM businesses are a major factor that processors take into consideration.

– There are instances of small or start-up companies that sell cheap or fake products and services to make quick money. This leads to customer dissatisfaction and ultimately the business is shut.

– The industry also has a reputation of being unlawful with many businesses operating illegally.

– The legal issues associated with MLM lead to excessive chargebacks. Customers demanding refunds or companies getting shut unexpectedly are not unheard of in this industry.

How to obtain MLM Merchant Account Solutions?

While the risky nature of MLM business model has made traditional banks and credit card processors skeptical, merchants may also find certain banks willing to take on their business. But, this MLM Merchant account will come with high expenses and unnecessary application processing fees.

In fact, several processors offer their services to these businesses without proper industry knowledge. And when the business starts to gain sudden high monthly sales volume and growth, the account gets flagged and shut off by these merchant account providers.

A merchant account provider who knows the business nature, risks and trends of an MLM business will be able to provide efficient MLM merchant account solutions to businesses.

In order to increase your chances to get approved for a MLM merchant account,

Ensure that your business follows legal compliance terms and regulations

Ensure a long and positive processing history along with low chargeback ratio

Steps should be taken to prevent fraud and high chargebacks

If you are looking for a MLM merchant account, search for a genuine merchant account provider who will not only offer comprehensive merchant account services but also help a merchant expand and grow their business.

Aggregate Merchant Account v/s Dedicated Merchant Account: Which is best-suited for your business?

With the world going digital, many merchants are looking for a way to accept payments online. Finding the right merchant account provider along with the correct integration for their businesses is a job half done.

The online world can be a bit confusing for merchants taking a step into the digital payment ecosystem. But in order to take an informed decision on the kind of payment solution best suited for your business, it is important to understand the basic types and terms in the payment world.

When approaching a merchant account provider, a merchant is presented with different options based on the various parameters of their business. One of the most important decisions to be made is, whether to set-up a dedicated merchant account or choose an aggregate merchant account.

Now, a lot of merchants don’t necessarily know the difference between the two and may get confused. It is a common question asked while trying to decide between the two. And understanding this difference will help merchants make the right business choice.

Dedicated Merchant Account v/s Aggregate Merchant Account

Dedicated Merchant Account

This is a separate account set up exclusively for a single merchant. With a dedicated merchant account, a merchant can determine custom processing rates depending on their business. The rates are specifically based on monthly volume of sales and the products you sell- Less sales, low cost. High sales, high cost.

The merchant is in-charge of the rates and most importantly, in control of your cash.

Aggregate Merchant Account

As the name suggests, an aggregate merchant account combines and is used by several different merchants and companies. Here your funds are pooled with other merchants into a single merchant account.

While obtaining an aggregate merchant account is quick and easy, a huge drawback being you have less control on how long the money takes to complete the transaction process.

Stripe, PayPal, Square are an example of Aggregate Merchant Account.

Which is best-suited for your business?

Do I need an Aggregate Merchant Account?

An aggregate merchant account is usually preferred by businesses that are new and have low volume sales. For most online businesses, obtaining a dedicated merchant account is not entirely necessary.

In fact, it is difficult for new businesses with poor or little to no credit history to get approved for a dedicated merchant account. The approval process for a dedicated merchant account is lengthy, often confusing and complicated. There is always a risk that your business will not be approved. In contrast, you can set up an aggregate merchant account quickly, sometimes within a day, with fewer hassles.

Should I get a Dedicated Merchant Account?

While it is harder to get approved for a dedicated merchant account, it also offers far more benefits than an aggregate merchant account.

Merchants with high sales volume usually require a dedicated merchant account. Apart from negotiating custom processing rates, a merchant is in full control of their account unlike an aggregate account which is shared among several businesses.

The transaction or settlement process with an aggregated merchant account takes time. The processing time may take up to 2 days or sometimes even a week, whereas with a dedicated merchant account, funds are settled quickly and within a day.

While setting up an aggregate merchant account is quick, it is also slightly risky because the same account is used by many merchants. If a single merchant from the pool turns out to be fraud, other merchants have to suffer too.

With a dedicated merchant, the responsibility lies solely with a single merchant whom the account belongs to.

In conclusion, a dedicated merchant account is always the better choice as it involves more options and freedom to manage your own merchant account.

But merchants who are just getting started and do not wish to bother with complex payment mechanisms, an aggregate merchant account is the right choice for you. For such businesses, it is advised to start with an aggregate merchant account and switch to a dedicated merchant account once your business grows.

At the end, the choice is yours. Choose wisely!