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Why Are Supplement Merchant Accounts Considered High Risk?

Human beings want to feel good and perform at their best. At work, in their home lives, and in their athletic pursuits, people have a natural tendency to want to look slimmer, feel better, and be stronger. That desire has created an opportunity for enterprising e-commerce merchants in the supplement (or nutra products) industry—the internet has made it possible to connect more customers with nutrition supplement products than ever before. The problem is, many banks consider the supplement businesses to be high risk, and so getting a merchant account that will enable your nutra products business to accept credit card payments represents a significant challenge. With years of credit card processing experience, E-Commerce 4 IM knows the secrets to getting and maintaining a high risk merchant account. Below, we reveal some of the reasons why banks approach supplement merchant accounts with a considerable degree of caution.

The regulatory black hole

First and foremost, the manufactures of dietary supplements are not required to obtain the approval of the U.S. Food and Drug Administration (FDA) before offering their products for sale. Anyone who sells a supplement or nutra product is responsible, on their own, for ensuring three things:

  • The supplements manufactured or distributed are safe for human consumption
  • No claims are made about the supplement that are false or misleading
  • The supplement complies with the Food, Drug, and Cosmetic Act in all other respects.

Because the FDA does not make a determination on the safety or efficacy of a supplement before it is sold, the banks see a certain level of risk in maintaining merchant accounts for businesses selling these products. An emerging safety or customer satisfaction issue with a particular supplement or nutra product could trigger a large number of chargebacks in a supplement business’ merchant account. If the retailer goes out of business as a result of a controversy regarding their product, the bank could be on the hook for those chargebacks to make their customers whole.

High chargeback rate

If you are new to the world of e-commerce, some of the terminologies may seem a bit mysterious. The concept of chargebacks is something that supplement retailers should be familiar with. Often, the bank has already placed the funds for the purchase into the supplement retailer’s merchant account, from which it can be withdrawn as profit or used for other purposes. If the supplement merchant goes out of business or has an insufficient cash reserve to cover the amount of the chargeback, the bank will have to cover that amount with the bank’s own funds. Statistically, supplement and nutra product businesses incur higher rates of credit card chargebacks, so the banks consider these businesses to be a significant risk to their bottom line. In fact, many banks refuse to provide merchant accounts to supplement businesses at all.

Higher than average bankruptcy risk

Supplements are a successful and growing segment of the e-commerce economy—in 2016, supplement and vitamin products racked up an eye-popping $35 billion in retail sales in the United States alone. Even though supplement and nutra product sales are a successful line of business for many entrepreneurs, the fact is that getting started is risky. The supplement business ecosystem is crowded with new entrants looking to market that “next big thing.”

In such a competitive environment, bankruptcies are common. If a supplement retailer goes out of business, banks could find themselves adding unpaid fees and chargebacks to the negative side of their balance sheet. Because of the frequency at which supplement and nutra product businesses go through bankruptcy, banks are hesitant to extend credit to them in the form of a merchant account.

The situation isn’t hopeless!

Whether you sell sports supplements, weight loss products, anti-aging products, colon cleanses, African mango, forskolin, or brain care supplements, a merchant account that will unlock your business’ profit potential doesn’t have to be out of reach. E-Commerce 4 IM specializes in helping high risk businesses get the merchant accounts that they need—our personalized service, experience, and a network of domestic and international bank partners guarantees that you’ll not only get a merchant account but one with the terms and conditions right for you. Contact us via our website or call us at 1-800-570-1347 today.

  

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