Tobacco Friendly Merchant Accounts

So you decided to start an online tobacco business, whether it was because smoking cigars is a hobby of yours or you own a hookah bar and you want to sell your shisha, for whatever your reason you have decided to take your tobacco products or accessories and sell them online. Once starting, you initially figured that finding distributors or installing an inventory management system might be one of the most difficult hurdles to clear on your way to opening your online store, but for many businesses finding tobacco-friendly merchant accounts has been one of the most difficult steps to launching.

Why use tobacco-friendly merchant accounts?

Merchants have discovered over the last 5 years that being approved for a tobacco merchant account through a retail storefront can require a completely different merchant services provider to process online transactions, making e-commerce for tobacco businesses increasingly more difficult. The lack of banking institutions and payment processors willing to work with merchants online has created a demand for service providers, filled by either tobacco specific payment processors or by high-risk payment processors that are willing and able to work with hard to place merchants.

Most merchant services companies located in the USA are unable to approve an online tobacco retailer or online tobacco wholesaler through their existing payment processing company due to the legalities and risk that tobacco companies carry when selling products in a card not present environment. Faced with potentially large government fines along with the need for stricter underwriting guidelines, many payment processors have opted to exit the online tobacco merchant account services industry and focus on other less risky merchant services types.

Who needs tobacco-friendly merchant accounts?

Currently, merchants selling tobacco are the only businesses that need to apply for a tobacco merchant account, while it is highly suggested for merchants in similar industries consider working with a merchant services provider that is familiar with the tobacco landscape. As laws change and public perception of certain industries shift, it is not uncommon for banks to make a decision overnight to leave an industry due to the concerns over the risk associated with those type of merchants.

A perfect example of a changing industry has been with the glass pipe manufactures and retailer selling online, while these merchants do not sell any type of tobacco or otherwise regulated product, the perceived risk from the industry has made finding a merchant services company able to accept these businesses increasingly difficult.

As a result, many merchants have reached out to tobacco credit card processing companies to find payment processors still willing to work with these similar, medium to higher risk industries such as online glass pipe sales.  Similar types of changes like this can happen rather quickly making it important for merchants in loosely regulated industries such as e cig or hookahs to be prepared in case there are changes with their merchant acquiring bank’s guidelines.

What is required for tobacco-friendly merchant accounts?

  • Registration as a 5993 Merchant
  • Age Verification Program
  • Legal Compliance Letter
  • Annual Registration

Merchants that sell tobacco products are required to register with Visa and Mastercard under the MCC (merchant category code) code of 5993, reserved for Cigar Stores and Stands regardless if they have a retail storefront or operate through an online store. Merchants selling other tobacco products, such as hookah tobacco or loose tobacco are also registered as 5993 merchants while merchants selling accessories, including glass pipes and e cigs are registered under MCC 5999, reserved for miscellaneous and specialty retail stores.

Another requirement for websites using tobacco-friendly merchant accounts is the utilization of an age verification program to prevent the sale of tobacco products and accessories to underage individuals. Most payment processors and merchant services companies require that the users fill out an age form or use another type of verification to acknowledge that the customers are over the age of 18, or older in certain states, before allowing the shopping cart to send the payment authorization to the payment gateway. These types of velocity control help merchants stay in compliance with the card associations guidelines of ensuring that customers are of age to purchase tobacco products.

Online tobacco businesses have one more step to fulfill prior to acquiring merchant services and that requirement is for their website, along with their business operations, to be reviewed by a verified legal or otherwise qualified party to ensure that all guidelines set forth in the Mastercard Security Rules and Procedure document for card not present (CNP) tobacco sales are being met by the business. This letter of compliance requires that:

At the time of registration of a Merchant or Submerchant in accordance with this section, the Acquirer of such Merchant or Submerchant must have verified that the Merchant’s or Submerchant’s activity complies fully with all laws applicable to Mastercard…….Such verification may include, but is not limited to, a written opinion from independent, reputable, and qualified legal counsel or accreditation by a recognized third party.”

Mastercard Security Rules and Procedures
Merchant Edition
20 September 2016
Section 9.4.3

Most businesses that have tobacco-friendly merchant accounts online have had their legal compliance letters drafted by local attorneys after providing a copy of the MasterCard Card Not Present guidelines and once their e-commerce website is active the professionals are able to review and render a decision as to the businesses tobacco sales practices in consideration of local and federal laws along with the required CNP guidelines.

The last requirement from MasterCard is the annual registration fee charged to merchants in the MCC 5993 that grants merchants access to the payment processing network as an online tobacco merchant. This fee, assessed upon approval within the proper MCC, is described as an assurance from the acquirer to MasterCard that the merchant is currently and will remain in compliance with the tobacco card not present tobacco guidelines. The government closely monitors tobacco sales to make sure that merchants are fully abiding to laws regarding the sale and distribution of the products.

Frequently Asked Questions about tobacco-friendly merchant accounts

The additional requirements requested by MasterCard result in frequent questioning by merchants as to the reason for the yearly registration free and necessity of having a compliance review and letter written by a legal professional.  The reasoning given by MasterCard is vague at best, but acquirers complying with the terms set forth from in the MasterCard Security Rules and Procedures are correct by requiring those documents.

The biggest gripe from tobacco merchants is the requirement of the yearly MasterCard registration fee, charged by the acquirer to the merchant upon approval of their tobacco merchant account.  Many times merchants have asked about forgoing MasterCard and only accepting Visa on their website, and while this seems like a plausible way to prevent the fee, banks do not allow merchants to avoid one of the card association members.

Another one of the most common questions from merchants has to do with the legal compliance letter that is required during the application process with questions surrounding the parameters of the letter, what the guidelines entail and who can write the letter.  The guidelines for MasterCard’s tobacco merchants is laid out here, the guidelines also state that any qualified legal council or an accredited individual by a recognized third party can write this letter.

Where to find tobacco-friendly merchant accounts?

Most higher risk payment processing companies are able to accept tobacco businesses that abide by the local and federal laws, though depending on the region, the card associations might not require any type of compliance letters or annual registration.  Merchants in all segments of the tobacco industry looking for merchant account services are encouraged to ask the acquirers about their understanding and experience with tobacco payment processing.  Finding a reliable and knowledgeable merchant services provider is key to building a successful online tobacco company.

Merchants with any questions, or ready to get started with a tobacco merchant account are encouraged to contact one of our tobacco merchant account professionals, we would be happy to go over any questions and help your business get started accepting tobacco credit card sales.

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