Local hookah and shisha merchants have also found that changing local legislation throughout the USA has even made it harder for them to operate stores and hookah lounges through increasing regulations aimed at curbing the growth of the hookah industry, citing health and public safety concerns are the reasons these new laws and restrictions need to be in place. This concern and increasing regulation has also effected the financial industry, making it more and more difficult for merchants to find payment processing services for both retail and e-commerce businesses.
In 2016, the FDA increased their reach in the tobacco industry to include the manufacturing, packaging, labeling, marketing, and sale of hookah tobacco, also known as shisha, along with other hookah accessories such as hookahs, heads, water filtration accessories, flavor enhancers, hoses, and the charcoal. Many of these products had previously been unregulated and were generally easy to set up merchant services with local banking institutions These new government regulations created a new level of difficulty for many merchants operating retail storefronts, and businesses wanting to sell online have experienced an extremely difficult time finding a suitable payment processor to approve an online hookah merchant account.
Finding banks and payment processors willing to accept an online hookah merchant can prove to be very time consuming; between numerous calls to different payment processors and filling out countless applications, many merchants have all but given up on trying to sell online. Partnering with a merchant services provider that operates in the hookah and hookah tobacco industries can help businesses to establish a reliable merchant account with relative ease and speed in this often difficult industry for payment services.
Smoke Shop Merchant Account Table of Contents
Advantages to Hookah Merchant Accounts
How Credit Card Processing Work
Hookah Merchant Compliance
Hookah Payment Gateway
Questions for a Merchant Account Provider
What are Hookahs?
Popular throughout the Middle East and India, hookahs can trace their origins back to the 15th century when the first glass hookahs were made. Today, the smoking of hookahs (also known as waterpipes or bongs) has recently gained popularity in the United States among younger generations, driving the demand for hookahs and flavored tobacco products for smoking at home and in hookah lounges.
The growth of hookah has overflowed onto the internet with distributors offering an endless variety of tobacco types and hookahs, creating a surge in the demand for hookah merchant accounts to handle the online sales. Recent regulation from state and federal agencies has curbed some of the growth that the hookah industry has experienced and some of those restrictions have also carried over to the card associations, creating many limitations among payment processors looking to accept online hookah sales.
What are Hookah Merchant Accounts?
Merchants in need of a payment processing solution for their hookah shop or lounge will want to reach out to a merchant services provider that has a history of being able to establish hookah merchant accounts, whether their business is online or through a storefront. Many merchants in the hookah industry have experienced more intense underwriting policies and procedures for their businesses in recent years as federal and local governments have created legislation to control the industry, many banks and payment processors have responded by becoming reluctant to provide merchant services to hookah businesses.
A merchant account is a type of bank account that is set up through an acquiring bank, a bank registered with the payment card association, that has the ability to facilitate the authorization and settlement of both credit card and debit card transactions being sent to Visa, MasterCard, American Express, Discover, JCB or CUP payment card networks. Payment authorizations through the card networks can be completed in a few seconds and merchants will receive funds in generally 1-2 business days into their bank accounts.
The costs of accepting a credit card or debit card payment are determined based on a percentage of the sale price and some accounts also charge transaction and monthly fees. Even though accepting a credit card payment will cost merchants more than accepting a cash payment, sales are generally larger since customers are not restricted to the amount of money carried on them in their wallets.
Advantages to applying for Hookah Merchant Accounts
Merchants that opt to work with a payment processor that specializes in hookah merchant accounts will be partnered with a company that understands the industry and can adjust to any changes from both the financial industry or government regulators. Newly require federal regulation along with the increasing local legislation has only made the hookah industry a tougher marketplace to operate in and more future changes will more than likely only make it more difficult.
Finding a payment processor that can provide a direct hookah credit card processing solution through a merchant account can be an advantage against other types of sponsored payment solutions. Unlike other types of payment solutions, a merchant account is directly integrated into an acquiring bank and can offer merchants at times higher volume thresholds, faster settlements and higher percentages of approvals versus other online hookah credit card processing services.
Hookah merchant account providers can also provide additional functionality within their merchant services, such as allowing merchants the ability to sell shisha, the hookah tobacco, that requires additional documentation and business registration for merchants to sell over the internet. Merchants working with payment services companies unfamiliar with tobacco products might not have the ability to help a merchant expand into shisha tobacco sales, forcing the merchant to search for another merchant services provider in order to offer their customers these tobacco products.
Hookah merchants operating online e-commerce will also want to consider the payment gateway that they are being set up with through their merchant services provider. Ensuring that the gateway is PCI Compliant, provides reliable services and offers a robust set of reporting and transaction management tools can separate the quality and functionality between payment gateway services.
Who needs a Hookah Merchant Account?
In the past, setting up a merchant account for a hookah lounge or retail store has been a relatively easy process that could be handled by a local merchant services provider. Changes to federal regulations along with the guidelines set forth from many banks and the credit card association have pushed the hookah industry into a grey area, classifying it as a medium to higher risk business and much more difficult to find a merchant services provider.
To help prevent any delays due to application or account closures after approval due to the nature of the industry, merchants operating in any aspect of the hookah industry are suggested to work with a hookah merchant services provider that can quickly approve an account while insuring that the account will remain active indefinitely. Merchants the opt to use a local service provider or someone not familiar with the industry can put the business in jeopardy of having their account closed due to non-compliance with the bank terms.
Hookah businesses that are operating online store are all but required by banks and payment processors to work with a merchant services provider that specializes in hookah sales in a card-not-present (CNP) environment. This segment of the industry has become so difficult for approvals that many businesses have faltered due to their inability to establish a long-term payment processing solution.
Information about Hookah Merchant Accounts
The hookah industry has seemed many changes in the last few years in regard to the regulation from both the government and the financial industry.
How does Hookah credit card processing work?
A merchant can accept credit cards through a number of different ways, whether it is through a credit card terminal in their retail shop or online through an internet payment gateway linked to their website, the process of a credit card transaction is relatively the same once the authorization request is started.
Credit cards or debit cards that are accepted in a retail location are swiped through a credit card terminal that is usually issued by the merchant services company or acquiring bank and provides a secure and PCI Compliant connection to handle the sensitive card account information. Payment cards accepted online require the use of a payment gateway that is also PCI Compliant, providing a secure means for the merchant to receive card account information to send to the merchant services provider.
Once the card information is captured at the credit card terminal or payment gateway, the account information is encrypted and sent through the acquiring bank to the payment card association where the encrypted code is deciphered and account details are determined. Based on the payment card account numbers, the card associations can direct the customer’s authorization request to the proper banking institution; whether its the card-issuing banks such as Discover, American Express, JCB or CUP or to the proper payment card network such as Visa or MasterCard who will determine the card issuing bank.
At the card issuing bank, the customer account information will be checked against any fraud controls; including location and velocity controls followed by verifying the customer has enough available credit to allow for the transaction to be authorized. The response that is determined is sent back through the networks to the merchant acquiring bank or merchant services provider to display at the credit card terminal; either allowing for the transaction to be authorized or declining the transaction.
Unlike how Visa and MasterCard operate, the networks of American Express and Discover are closed loop, meaning that they work directly with setting up the merchants and also work directly with the customers to issue them credit cards. The authorization and approval process is relatively the same, except that with the closed loop networks none of the information is sent outside of their banking network.
The pricing structure for Hookah Merchant Accounts
Merchant accounts can be set up with one of a few different pricing models, depending on what the merchant and the payment services company agreed to work with, understanding the differences in the payment structures can help businesses save money by choosing the best solution for them. Most merchant services companies and banking institutions work with either a tiered, interchange plus or cost-plus pricing free structure when setting up new head shop merchant accounts, but flat fee services have crept up as another way to pay for merchant services.
A tiered pricing structure, one of the most common methods, establishes 3 to 6 different pricing levels, or tiers, that transactions are placed into depending on different factors including card type and how the payment was accepted. What was one of the most popular and commonly used methods in the past, the high costs of downgrades can make this fee structure very expensive for CNP (card not present) and rewards cards and been slowly replaced by a more cost-efficient interchange plus pricing system.
The pricing model that has been gaining popularity recently has been the interchange plus pricing model, where a fixed fee is placed on top of the interchange costs for every transaction regardless of the type of card or what bank issued the card. The reason for its popularity with merchants has been because every transaction is charged the same fee, eliminating any type of price discrepancies due to rewards or CNP transactions that were the case with the tiered pricing structure.
Another type of payment card fee structure that has emerged has been the flat fee pricing model that charges merchants the same fee on every type of card being processed through their network. As enticing as these gimmicks appear, the cost of these transactions versus other pricing models can be much more than expected for businesses once revenues start increasing. An ideal program for startup merchants, it can quickly become one of the most expensive fee structures for businesses to use today.
Do Online Hookah Merchant Accounts need to be Compliant?
Merchants selling only hookah hardware, non-tobacco products, do not have to register with the card associations but are generally placed under stringent reviews by banks and held to tight standards prior to gaining approval and will remain under close supervision during their payment processing service agreement. These guidelines might change as acquiring banks, payment processors and legal regulations change and evolve with the hookah industry.
Hookah merchants that are selling shisha tobacco will be put through a different underwriting process, requiring more information and documentation than merchants solely selling accessories and non-tobacco products. These merchants selling shisha tobacco need to be in full compliance with the card associations, along with any state and federal government agencies before a hookah merchant account can be issued.
Online shisha tobacco sales require merchants to provide a legal letter of compliance from an attorney or other respected organization as to the business practices of the merchant and their understanding of the card association guidelines. Upon approval, the card association of MasterCard will assess the merchant an annual compliance fee of $500 to become registered as an online tobacco merchant if the merchant is operating in the United States.
At Tobacco Merchant Services, we work with merchants to make sure that all businesses are in full compliance and remain in compliance with the tobacco guidelines set forth by the banks and government agencies, preventing any potential disruptions in payment processing services or potential fines for non-compliance.
Why are Hookah Merchant Accounts becoming difficult?
Since the FDA increased their regulation on hookahs and hookah tobacco, including the marketing, labeling, and distribution of these items, many payment processors and acquiring banks changed their guidelines for the industry. These changes resulting in many payment service companies ceasing to accept additional merchants and some companies even terminating their existing merchants without considering their relationship or history with the merchant.
Most payment processors do not want to work in the medium to higher risk industry, preferring to work with low-risk retail or e-commerce companies that do not jeopardize their bottom line as could be the case with hookah products after the FDA increased their regulatory guidelines. The changes by payment processors forced many businesses to search for hookah merchant accounts that could still accept payments from these customers without concerns or having the processors impose tougher restrictions on the merchants.
Finding a hookah payment processor that specializes in the medium to higher risk e-commerce industry can usually provide hookah merchant accounts with fees comparable to other lower risk/general e-commerce industries. The real benefit of a hookah merchant account is that it can save a merchant time and money by eliminating the risk of having their account closed early due to the nature of their products or the industry they serve.
Using a Hookah Payment Gateway
Online merchants that have been in the hookah or other higher risk industries understand the importance of working with payment gateway service provider that can provide everything required of e-commerce merchants.
- PCI Compliance is a requirement of all e-commerce merchants to ensure that they are protected and covered from any fraud or security breaches affecting their merchants.
- Merchants will want to work with a payment gateway that will quickly integrate into their existing shopping cart, but will provide merchants with a simple dashboard to manage their business. Having the ability to easily run reports, manage transactions and operate as a virtual terminal can significantly help the business operate better.
- One of the most important aspects of a hookah payment gateway is to check the reliability or uptime of the payment application. Choosing a payment gateway that consistently is operational with little to no downtime will ensure those customer authorizations will continually be sent through to the card network without delays or errors.
The hookah and shisha industry can be classified as a higher risk business model making it important for merchants to check with the gateway service provider that they allow these products to be sold through their application. Finding out after integration can delay and cost a merchant while they scramble to find a new payment gateway with lost sales and added technical support fees.
What is needed for a Hookah Merchant Account?
Underwriters reviewing a hookah merchant account application will be checking for a number of different factors about the merchant and the business based on their financial and business history. Confirming that the merchant is able to successfully manage and maintain a merchant account and that the businesses is operated in a compliant manner, following all laws and financial regulations is essential for approval.
The most common documents required by payment processors for a merchant account include:
- Copy of merchant’s Drivers License or Passport
- Voided Check from Bank
- Letter of Tobacco Compliance (for merchants selling tobacco)
- Last 3-6 Bank Statements
- Last 3-6 Processing Statements from Existing Merchants
Proof of the merchant’s identity along with banking documents will ensure that the merchant’s information on the application along with the banking information is correct; preventing any fraud concerns or delays in payment settlements. Underwriters will generally only require 1 form of identification, either a drivers license or passport and a voided check showing both the account number and bank routing number to confirm business financials.
The underwriters at the payment processors and acquiring banks will confirm that the merchant has an acceptable credit score, generally in the 600 range to ensure that the merchant does not pose a risk for unpaid bills or fees that they might incur from the payment card networks. Underwriters will also need to confirm that the merchant and business are not listed on any type of TMF/Match List for problems stemming from previous merchant services, including excessive chargebacks or outstanding balances owed to other payment processors.
Businesses that are currently operating will usually need to provide a copy of their last 3-6 months of credit card processing statements so underwriters can review their accounts and verify the account history while some underwriters will also ask for the last 3-6 months of bank statements to understand their transactions and how they manage their company finances. These requirements will vary between financial institutions and underwriters, some might not even request this level of documentation to set up a hookah or tobacco merchant account.
Merchants that are planning on selling hookah shisha online will be required to provide additional documentation for their hookah merchant accounts, needing to have a letter of compliance completed by either an attorney or other reputable organization, that is able to attest to the merchant’s practices and their compliance with all local and federal regulations regarding the sale of tobacco. After the underwriting process is completed for hookah shisha credit card processing, upon approval, shisha merchants will be required to pay an annual compliance fee to MasterCard to access the card network.
How to find reliable Hookah Credit Card Processing
When a merchant decides that selling online is a service they want to offer their hookah customers, finding a partner that is able to provide the service is essential. One of the most important factors is security, protecting both customers and clients from any potential fraudulent breaches by using reputable banking and technology services that offer merchants complete PCI Compliance with all of their services.
When applying for merchant services, confirm that the payment service provider offers a direct API integration for your shopping cart to the payment processor to allow for quicker transactions and settlements. If this is available, check that the shopping cart on the merchant website is compatible with the payment gateway to prevent any delays once the account is approved.
Confirming that the hookah merchant services provider can assist with any bank or card association compliance is another question that merchants should address to prevent any surprises or further delays during the application process. While some industries, especially ones not selling products requiring government licensing, might not need to be registered, banks and payment processing companies might have their own regulations that can slow down approvals and delay the start of processing.
Hookah Merchant Accounts with Tobacco Merchant Services
At Tobacco Merchant Services, we have become a leader in the hookah industry by working with a number of different hookah retailers and distributors to help set them up with online hookah credit card processing and payment gateway services. Our fast and free application process allows a merchant to start processing credit card transactions quickly and save money through our low-cost rate structure for all hookah merchant accounts.
The hookah merchant accounts offered by Tobacco Merchant Services provide some of the highest authorization percentages and consistent pay with our timely settlements, preventing merchants from having multiple declines or having to wait days to receive settlements from transactions. The customer service team at Tobacco Merchant Services is almost always available and is glad to help merchants with everything from website integration to merchant account questions, making us a leader in the hookah credit card processing industry.
Set up with an Online Hookah Merchant Account today!
Merchants looking to set up online hookah merchant accounts or similar types of merchant services will want to work an experienced merchant services company that understands the industry. Partnering with a specialist in the hookah industry will ensure that merchants are setting up merchant accounts that are affordable and secure, eliminating the risk of any disruptions or closures of hookah merchant accounts.
Tobacco Merchant Services offers hookah merchants:
- Online and Retail Storefront Solutions
- Discount Rates for Debt and Credit Cards
- Full PCI Compliance for Payment Gateway and Terminal Services
- Award Winning Online Fraud Protection
- Industry Leading Customer Support
Hookah merchants in need of online hookah merchant account or online hookah credit card processing services can call and speak to our Tobacco Merchant Services hookah specialists. Our helpful representatives will be happy to assist merchants with all of their needs and to help get businesses processing credit cards online.
Apply for Online Hookah Credit Card Processing Today!