Smoke shop merchant accounts have remained a service in the payments industry that remains in need, but accounts have become increasingly difficult to set up, even when stores have been selling tobacco products and accessories for over 100 years, the challenge still remains. The substantial licensing and regulation between the government and banking industry have made it costly and difficult for merchants to start selling tobacco online; even merchants with existing retail merchant accounts have experienced difficulty in selling online with a smoke shop merchant account. In a time with new trends emerging in the tobacco industry, some banks have even made the decision to drop their online tobacco portfolios due to the levels of risk that they are not willing to accept any more.
Changes to government guidelines have expanded the reach and increased the regulation of many tobacco products, including many of the non-tobacco products and accessories sold in smoke shops such as hookahs, tobacco grinders, and rolling papers; affecting nearly everything from the packing, marketing and sales of these items to customers. These changes have lead to many acquiring banks, along with the payment card networks, to increase their underwriting and regulation of these merchant types with some payment processors going as far as to leave the industry altogether, creating a void that has made CNP (card not present) credit card processing difficult for smoke shops to operate online.
Smoke Shop Merchant Account Table of Contents
Who needs a Smoke Shop Merchant Account?
How Credit Card Processing Works
Smoke Shop Merchant Compliance
Smoke Shop Payment Gateway
Questions for a Merchant Account Provider
History of Smoke Shops
Some of the oldest smoke shops in the world date back to Europe in the 1700’s where the introduction of tobacco started a demand that remains strong through today. First used by royalty and other members of the wealthy class, the enjoyment of smoking began trickling down to the other members of society where it was widely enjoyed and accepted. With the growth of tobacco in Europe, the Americas and the Middle East, the demand continued to grow and eventually became a global industry.
One of the oldest tobacco manufacturers, Lorillard, was established in New York City in 1760 and produced cigars, pipe tobacco, snuff and chewing tobacco for sale throughout the United States. The city of Chicago has one of the oldest smoke shops in the USA that is still in existence, opening in 1857 and continues to offer a variety of tobacco and similar smoking products. The trends today have begun shifting from leaf tobacco to hookah, vaporizers and e liquids, but there remains a core group of smokers that prefer a hand-rolled cigar to any of the newer products being offered today.
What are Smoke Shop Merchant Accounts?
Businesses that decide to accept credit cards or debit cards will need a merchant account to process customer payment cards through the Visa, MasterCard, American Express and Discover card networks. Accessing these payment card networks will require the businesses to partner with a payment processing company and go through the proper application process to establish a working merchant account.
When a business decides to utilize a merchant account, fees will be charged by the merchant services provider they partner with, charging anywhere from as low as 0.10% to 3 or 4% depending on a number of different variables associated with the transaction type and merchant agreement. Funding for transactions is generally delayed by 1 to 2 business days, giving the different banks and financial institutions time to receive and disperse funds to the merchant.
Who needs a Smoke Shop Merchant Account?
Merchants that are operating a smoke shop, whether it’s online or in a retail storefront, need to be set up with a merchant account specialized for their business. The tobacco industry can be challenging for financial services due to the many federal regulations and legal risks that are associated with buying and selling tobacco products to both the merchants and the payment processing companies providing the financial services.
Tobacco businesses that currently have a merchant account for a retail location can generally operate without any problems or at this time future concerns about working with their current payment processing and banking services providers. Merchants that are trying to set up online or expand their current storefront to an e-commerce storefront will need to work with a merchant services provider that specializes in higher risk industries, including CNP (card not present) tobacco payment processing services.
The Advantage of using Smoke Shop Merchant Accounts
As the trends and popularity of smoking have changed over the course of each generation, the types of smoking products and accessories offered in smoke shops have also changed to keep up with the evolving demand of smokers in the USA. What was once simply rolling papers and loose tobacco has become countless types of glass pipes, hookahs and electronic cigarettes that are being used by smokers today, making it important for businesses to partner with a payment processor that can also change with trends without hindering their clients.
Businesses that decide to set up with a smoke shop merchant account will be able to integrate directly into their acquiring bank; allowing for higher levels of transaction authorizations, faster settlements into their business bank accounts and generally with a lower fee structure verse other types of merchant services solutions including eWallets and aggregated merchant accounts that are common among higher risk industries.
Smoke shops that decide to open an online e-commerce storefront will need a merchant services company that can provide an online smoke shop merchant account and payment gateway services that are designed for higher risk businesses, including tobacco. An experienced tobacco merchant services provider will be able to recommend merchants to a PCI Compliant payment gateway that is compatible with their software; and while not all payment gateways operate the same, finding a gateway that offers a robust catalog of transaction management and reporting features can make operating the business much easier.
Advantages to Online Smoke Shop Merchant Accounts
Businesses looking to open their smoke shops to a larger audience can do so by selling on the internet but will need an online payment services provider to assist with the setup and maintenance of an online tobacco merchant account. Merchants will want to have a merchant account that is fully PCI Compliant and working with a payment processor that can assist with fraud monitoring and prevention along with offering the compatibility of API integration into most of the largest shopping cart providers, ensuring a simple and fast set up process.
Using a tobacco merchants services provider that offers an extensive payment gateway can make business management a much easier task through simple record keeping and reporting, merchants can easily track sales and manage customers without much effort. Merchants operating with both a storefront and online store can combine both parts of the business into one by using a virtual credit card terminal linked to their payment gateway, allowing for all sales to be run through the payment gateway instead of a separate credit card terminal.
Understanding Smoke Shop Merchant Accounts
Having a firm grasp of the merchant services industry can help a business, its owners and managers, to better understand the functionality, costs, and features that can help a business succeed.
How do Smoke Shop Merchant Accounts work?
A merchant account operates through a secure financial network involving the smoke shop (merchant) on one end through to the card issuing bank used by the customer. Merchants will contract through a merchant services provider and be set up with a credit card terminal, either a payment gateway, credit card machine or POS System, depending on the smoke shop and the types of transactions they are accepting. Smoke shop merchant accounts can accept payments a few different ways; primarily through the use of credit card terminals such as credit card machine or POS Systems, online through the use of payment gateways that are integrated into a merchant’s website shopping cart or through the use of a virtual terminal.
When a customer is prepared to make a purchase using a credit card or debit card, the payment card is swiped or dipped into the credit card machine at the storefront, beginning the process of entering the card account information into the secure payment network for payment authorization. Transactions that occur online will begin once the customer opts to check out the items in their shopping cart, entering in their payment card information into the secure portion of the merchant website to be sent to the payment card network.
Once the card account information has been captured by the credit card terminal and encrypted, the secured data along with the amount of the authorization, is passed through the payment processor to the acquiring bank where the transaction is sent to the card association where the secured files are decrypted and the card issuing bank is determined so files can be sent over for transaction authorization. Transactions originating online are encrypted on 2 occasions, first between the web browser and the payment gateway and again from the payment gateway to the card association, ensuring that the transfer from the customer device to the payment card network is not compromised, leading to any fraud or other losses.
At the card issuing bank, the transaction is examined against a number of different fraud detection programs along with a financial check of available funds to help the bank best validate or decline the authorization request in a prompt manner. Once a decision has been made, that response is sent back through the card network by means of the acquiring bank and payment processor along to the merchant location to either be displayed on a printed receipt or in the shopping cart of the customer’s web browser.
Within a matter of seconds, the merchants will receive an answer to the authorization request for merchants and customers as either a print out for retail transaction or on the screen in the customer’s web browser for online transactions. In addition to stating if the transaction was approved or declined, all responses will display a code informing the customer with the bank’s confirmation number or a code explain the reason for declining the transaction.
How does Smoke Shop Merchant Account pricing work?
Smoke shops and cigar stores, both the online and storefront businesses, have many different pricing options for merchant services when it comes time to set up a merchant account; some payment processors offer gimmicks like flat fees for all transactions or other offer flat monthly fees for all transactions. The two most common methods used by most smoke shop merchants today are either tiered pricing or interchange plus pricing methods, cheaper alternatives than many of the gimmick pricing that is offered today.
Tiered pricing establishes from 3 to 6 or more different price points that transactions qualify for after being authorized; with teaser rates around 1% for the lowest priced tier, tiered pricing can appear to be a fantastic deal for merchants looking to minimize their fees. With debit fees becoming extremely low in recent years, tiered pricing has become a more expensive alternative and given way to interchange plus pricing as the lowest cost pricing structure for merchants looking to lower costs in their smoke shops.
The most common method for merchants today setting up a business with merchant services is to use an interchange plus pricing model that discounts transactions with a consistent pricing for all transactions being processed, regardless of the type of card or how the card was accepted. Merchants that opt to use a cost-plus pricing model generally save money verse a tiered system; the savings on mid and non-qualified cards might not be huge, the savings from qualified cards and debit cards are substantial, making the cost plus structure a preferred method for smoke shops and other retail businesses.
Whether merchants are applying for cigar shop or smoke shop merchant accounts, there will be a fee involved; including monthly account fees, network fees, transaction fees, and most notably interchange fees. While these fees might be hidden inside a flat fee or combined with another fee, having transparency in a merchant account is the best way to ensure that costs are minimized regardless of how big or small they might be.
Compliance of Smoke Shop Merchant Accounts
One of the requirements that have been challenging at times for tobacco merchants can be the compliance requirements of the payment processors and card networks for acceptance of a merchant account through their network. Merchants that disregard any of their requirements or do not provide the proper documentation risk being denied a merchant account or having their merchant services terminated for lack of compliance.
Merchants that decide to partner with Tobacco Merchant Services will always be registered properly with the payment card networks, assuring businesses that they will not experience problems for accepting credit card without having the proper paperwork in place. Once merchants are set up, we will also ensure that all our merchants maintain the proper registration and are always made aware of any changes that might affect their business now or in the future, eliminating stoppages in service and unnecessary costs.
Part of our compliance services offered ensure that all merchants are set up with the proper Merchant Category Code for their smoke shop merchant accounts, a small, but important check that is needed for merchants in medium to higher risk businesses.
The most relevant MCC codes used by the payment card network for smoke shop merchant accounts:
- 5194 – Tobacco and Tobacco Products
- 5993 – Cigar stores and stands (Most Common)
- 7389 – Business Services, Not Elsewhere Classified (Rarely Used)
At Tobacco Merchant Services, we are familiar with the requirements of both the banks and the card associations, so if merchants need assistance becoming compliant we can put them in contact with lawyers and banking underwriters to help expedite the process and ensure that there are no discontinuations in the future of their payment processing services.
Why are Smoke Shop Merchant Accounts Higher Risk
Smoke shops that are operating through a retail storefront are not generally considered high risk, needing to provide little more than a tobacco license along with the basic underwriting documentation to be set up with a merchant account at most payment processors. The risk of any sales to minors or other violations is relatively low in a retail setting making smoke shops a safe business for most payment processors to work with when sales are originating by swiping or dipping into a credit card terminal.
The concern of payment processors and the card networks that does effect smoke shops are sales that occur online in a CNP (card not present) environment where merchants are unable to verify the identity of their customer like they can during a storefront sale. Simple website functions such as age verification or an address verification check can help deter fraud or any sales to minors, but some payment processors are unable to take on the risk that remains for working with smoke shops or other types of tobacco businesses in an e-commerce environment.
Government fines weigh heavily into the decision of many payment processors and banks do not accept merchants in the online tobacco industry, limiting the number of banks and payment processors that are willing to venture into the online tobacco industry. Understanding the difficulty of online tobacco sales makes merchants realize the reality and severity of the risks and to always take proper precautions to prevent any potential legal problems for their businesses or themselves.
Aside from following all the laws, it is also important for businesses to partner with a merchant services provider that specializes in smoke shop merchant accounts while remaining current with any potential legal or card network changes. An experienced partner in the tobacco industry can help merchants avoid disruptions of service, any legal costs associated with noncompliance or fines from government agencies for operating in a manner that is not acceptable.
Smoke Shop Payment Gateway
Merchants that decide to sell online will need a way to securely accept payments from their store’s shopping cart and submit them into the payment card network without risking the integrity of their merchant account. Merchants shopping around for a payment gateway to fit their business’ needs will realize that there are many different choices and that not all of the payment gateways are the same.
Its important for the merchant to look for a payment gateway service provider that is able to offer a secure payment gateway solution that provides a robust catalog of management functions while allowing for medium to higher risk businesses to use their network. Before integrating, making sure that payment gateway can provide the necessary services and testing to make sure that reporting and management features are sufficient can save businesses time and money in the future by partnering with a quality gateway from the beginning.
Important Functionality of a Smoke Shop Payment Gateway
- API Integration with compatibility into over 100 Shopping Carts
- Easy Transaction Management Features
- Full Online Reporting Capabilities
- Full PCI Compliance
Applying for Smoke Shop Merchant Accounts
The process of applying for a smoke shop merchant account operating out of a retail location will be a rather simple process, not requiring nearly as many documents as an application for online smoke shop merchant accounts. Merchants that are operating in a Card Not Present manner will need additional documents, but this will vary between different payment processors.
Some of the most common items needed for a complete application package
- Completed Application including Merchant’s Social Security Number
- Copy of a valid Government ID (including Drivers License or Passport)
- Voided Check from the Business Bank Account
- Legal Letter of Compliance for Online Tobacco Sales
- Previous 3-6 months of Bank Statements (Depending on Processor’s requirements)
- For Existing Merchants; Last 3-6 months of Previous Processors Statements
The underwriting process between payment processors will vary depending on the requirement of their underwriters and the requirements set forth by the acquiring banks. Most payment processors will require that merchants submit a completed application including their full name, social security number and business information along with a voided check to complete a financial check of the applicant, ensure the integrity of the payment network is not compromised while knowing where to send settlement payments once the account is set up.
When the underwriters begin the process of reviewing the merchant in question, a credit check along with a background check into the payment card history of the merchant and business will be performed to build a complete picture of the merchant. A sub-par credit score or any listings on the MATCH list maintained by the card networks might affect the application and set up process, whether that means having the application denied or set up with certain restrictions, such as a reserve, the payment processor will want to know who they are working with to prevent the chances of losing money with that merchant account.
One of the requirements from the card networks for online smoke shops is the review of the website by an attorney or other respected authority in the tobacco industry as to the website and practices of the merchant as it pertains to the sale of tobacco. Along with this letter, the payment card network of MasterCard does impose a $500 annual fee on merchants and businesses using their network to accept payments, viewed as an assurance that all local and federal laws are being abode by, this fee is only assessed to merchants operating in the United States.
Prior statements, whether it’s for banking or payment processing, will vary based on the requirements of each processor, some requiring a full 6 months for existing merchants while others might not require anything to get the merchant approved. Underwriters that require statements are generally interested in seeing how the merchant handles their accounts for their business bank accounts and credit card processing, ensuring that funds accounts are not overdrawn or experiencing higher than normal chargebacks or returns, all tell-tale signs that the business might not be a solid partner to work with.
Tips for Finding Quality Smoke Shop Merchant Accounts
Merchants that are ready to start looking around for the best smoke shop payment processor are encouraged to ask their potential payment services provider some important questions before signing a contract to use their services.
What to ask a Smoke Shop Credit Card Processor
- Ensure they specialize in smoke shop or cigar store merchant accounts
- Ability to accept CNP (Card Not Present) tobacco transactions online
- Does their payment gateway integration with an API?
- Are Authorizations Fast with high success rates?
- Ensure that they provide daily settlements of transactions
- Do they provide secure handling and offer fraud protection for customers?
- Do they offer full customer support for all merchant services products offered?
- Will they offer an Interchange Plus pricing schedule?
Merchants that are shopping for a cigar store merchant account can use the same questions whether their shop is in a physical location or online, these questions are equally important to ensure that the merchant is working with the best processor for their cigar shop.
Set up Smoke Shop Credit Card Processing Services Today!
At Tobacco Merchant Services, we work with merchants to make applying for a smoke shop merchant account as quick, simple and affordable as possible and have become a leader as a company focused on providing quality merchant account solutions to businesses in all segments of the tobacco industry. Our quick application process along with our fast merchant setup makes starting a merchant account with us a simple process for businesses of all sizes, regardless if the business is a startup or an established organization.
Merchants with a smoke shop or cigar shop merchant accounts from Tobacco Merchant Services have many advantages that businesses might not have with other banks and payment processing companies providing services to the online tobacco industry. All merchants that work with us are set up directly with their acquiring bank, eliminating any middlemen or other organizations from handling transactions or settlements. Working directly with the merchant bank, businesses are approved for merchant accounts with higher volume limits while having fewer restrictions placed on their accounts.
Benefits of Smoke Shop Merchants Accounts include:
- Low-Cost Merchant Accounts
- Fast Authorizations and Daily Settlements
- Direct Banking Relationships with FDIC Insured Banks
- Reliable Customer Services for Merchants
Businesses processing payments through one of our smoke shop merchant accounts will experience faster authorizations and settlement times than merchants using many of the other payment processing services. Our customer service team prides itself by ensuring that all merchants questions, concerns, and problems are addressed in a timely manner, being one of the driving force behind our solid record of merchant retention and growth within the tobacco payment processing industry.
Benefits of Tobacco Merchant Services
Smoke shops looking to set up a merchant account for their online business, a storefront or both can benefit from partnering with Tobacco Merchant Services for all their merchant services needs. As one of the largest providers of cigar store and smoke shop merchant accounts, we have built our business on providing quality payment processing services with minimal fees.
For businesses looking to expand their business into the online smoke shop or cigar store industry, Tobacco Merchant Services is one of the few payment processors that can work with these business models. With our track record of reliable merchant account solutions coupled with our affordable pricing models, Tobacco Merchant Services has continued growing for nearly the last 10 years.
For more information, or to set up your business with credit card processing services, please contact one of our helpful representatives and they will gladly answer all your questions.