Posted by tina on Aug 15, 2016

 

E-cigarette Merchants Diversify for Success

E-cigarette Merchants Payments Impacted by Regulations 

The market for e-cigarettes continues to soar.  Online sales of e-cigarette represents an undeniably lucrative market for merchants.

Over the past few years, tobacco companies have been pivoting to the e-cigarette market.  Powerful competition combined with changing health regulations can impact your ability to obtain payment processing accounts.

Overview of E-cigarette Industry

The CDC reports that younger people are less likely to start smoking or buy traditional cigarettes. Tobacco consumption is also down considerably around the world, with developed countries showing the greatest reduction.

But, there is no doubt that e-cigarettes are gaining ground. Large tobacco companies are salivating at the market potential.

Big tobacco is is eager to push forward.  British American Tobacco - one of the world’s biggest tobacco companies - says that new e-cigarettes could help reduce the health impact of tobacco.

E-cigarettes are new and exciting enough for younger people to try them. They can be manufactured in a number of flavors and packaged uniquely every time. Manufacturers can reduce the amount of nicotine and add new ingredients to the filters offered with the e-cigarettes to enhance smoker experiences.

E-cigarettes can be manufactured cheaply and sold online, which makes them a lot more accessible for people. Vaping is starting to gain traction as a cultural phenomenon. 25% of US adults have tried it and the market is now estimated to be worth $1.7 billion.

Health Regulations Limit Growth

Vaping devices are generally considered safe, but most experts agree that further studies are needed.

This puts e-cigarette vendors in a tight spot. To keep growing, e-cigarette sellers need an environment that supports startups that are trying to create a new market. But the industry is held back by the slow pace of research and the stranglehold of medical regulations.

Not only does this limit the market for a fast-growing new sector, it also makes it difficult for retailers to get access to payment solutions.

E-cigarettes Classified as High Risk

Banks consider the e-cigarette business high risk. Certain businesses are generally considered high risk merchants due to the threat of chargebacks or fraud.  Yet most ecig merchants have very few chargebacks.

Whenever there is uncertainty about an industry, including regulatory risk, businesses in that industry are automatically thrown into a high risk classification category.  Uncertainty makes banks nervous.  

And the lack of clarity in terms of regulation is considered a major risk factor for both tobacco companies and e-cigarette retailers.

A high risk classification does not mean you can't get processing.  It does mean that your choices are much more limited than standard risk merchants.  

Solutions for Payment Processing

Ecig merchants are considered high risk by payment processors.  Still, you can obtain access to online payment gateways that mitigate the risk of the business model and allow you to get paid by customers from around the world. 

Reliable credit card processing is essential for you to maximize online sales.  US shoppers prefer card payments.

Some domestic acquiring banks are still boarding ecigarette merchant accounts.  And domestic accounts are the best solution due to fast settlement times and high card approval rates.

Still, given the regulatory environment in the US, it's wise to consider adding international merchant accounts to your processing mix.

Diversification of processing accounts is simply a prudent strategy for ecig merchants. The combination of domestic and offshore merchant accounts is the ultimate way to protect your business operations from uncertain regulatory outcomes.  

Conclusion

The e-cigarette industy will continue to grow.  All you have to do is take a look around you to see people vaping everywhere.

Yet, uncertain health regulations and the intrusion of big tobacco have created challenges for online retailers.  Among these challenges is payment processing.

There are still good e-cig merchant account solutions available to you. Consider diversifying accounts to best protect your business.  A combination of domestic & international payment processing ensures that your customers will always have a way to pay you.

Do you sell e-cigarettes online?

Contact us and learn more about payment processing for the e-cigarette industry.