Vaporizers have grown to become one of the most popular trends among the smoking community as an alternative means of consuming various products including cannabis, tobacco and other herbal products. Since their inception in 2004 in China, the popularity of vaporizers to smoke nicotine and other products has grown with exponential numbers year over year, creating a frenzy all over the world with primarily younger smokers. Throughout the USA, vape shops are continually popping up, offering vaporizers and e juices while tobacco and smoke shops have begun included these same products to keep up with the ever-growing demand for this smoking paraphernalia.
One of the biggest concerns that exist with payment processor is the lack of regulation for both the vaporizers and the e juices in the rapidly growing industry, which has lead to increased government scrutiny by regulators and organizations as to the control on the sale of these items. Since 2016, vaporizers were first addressed by the FDA and have since been classified as non-combustible tobacco products and future regulation is still on the horizon for both the vapes and the e juices that are being sold at record speed.
The changes at the FDA has affected the financial industry, resulting in vaporizers and e cigs becoming a restricted product category at many payment processors and all but eliminating the ability for many of these credit card processing services to set up vape merchant accounts for e-commerce businesses. These changes have made finding a payment processor that can specialize in all types of vape merchant services, especially CNP transactions, very important for vaporizer businesses during this time of uncertainty and tougher regulations looming in the future.
Vaporizer Merchant Account Table of Contents
Who needs a Vape Merchant Account?
How Credit Card Processing Works
Vape Shop Merchant Compliance
Vape Shop Payment Gateway
Questions for a Merchant Account Provider
Without the open flame or combustion process that is necessary for cigarettes, cigars and other products, the inhalation process with vaporizers is increasingly more effective than traditional heating methods. Vaporizers create smoke with much lower temperatures, allowing for less burn-off of products and more concentrated smoke, allowing users to consume more per occurrence without the toxins believed to be present during traditional burning methods. While most of the scientific research and fact-finding that has surrounded the industry remains in question to whether using a vaporizer is a safer alternative to smoking either tobacco or cannabis.
Vaporizers can come in a few different formats, including electronic cigarettes, cannabis vaporizers, and medical vaporizers, all of which provide essentially the same type of functionality through different designs. The most common type of vaporizer seen today are e cigs which have quickly become one of the fastest growing segments of the tobacco market, starting as a niche product and growing to become a major segment of the tobacco marketplace. Similar to the effect that e juices have had on the tobacco industry, medical cannabis and CBD are increasingly becoming legalized throughout the USA and the demand for vaporizers to heat other oils and hemp products will only increase as more states begin the legalization process for medical marijuana.
What are Vape Merchant Accounts?
A vaporizer merchant account allows merchants the ability to accept other forms of payments other than cash, including Visa, MasterCard, American Express, Discover, JCB and CUP through the various payment card networks. Accepting payment cards allows merchants the ability to increase revenues through online sales and in storefronts by allowing customers to access additional funds not held on hand in cash. As we evolve into a cashless society, the importance of merchants to adapt to the changes and offer customers the most convenient payment methods will help ensure that their businesses can keep up with the changing trends.
Merchants that accept a payment with either a credit card or debit card will be charged a few fees for the services rendered by the various organizations involved in the transaction. The fees billed to merchants are usually determined by the total sales volume along with fixed costs per transaction and other monthly account fees, while other types of vape merchant accounts have been advertised with a flat monthly fee for all transactions, potentially saving the merchant money. Payments that are accepted at a merchant retail location or online through an e-commerce website will be channeled through the same payment card network and merchants will receive a settlement in usually 2 business days after the transaction occurred.
Who needs a Vape Merchant Account?
The availability of payment processing services depends on the type of account that merchants are trying to set up, retail vape shop merchant account services are widely available while e-commerce merchants services for online vape shops is becoming increasingly difficult. Using a merchant account specialized for the vape industry can help alleviate any potential problems in the future and help ensure consistent payment processing services.
Merchants that are operating a retail store vape shop might find it the easiest to contract with a local payment processor, but it is recommended for these merchants to check with a vape merchant account provider to compare rates and find the best solution for their needs. Niche payment processors usually have banking and financial relationships that can offer lower costs than traditional merchant services offered through a local payment processor. This can allow for greater savings and more secure payment processing than what is normally available through non-industry specific merchant services companies.
Businesses that currently sell or plan on selling vape and electronic cigarette products might want to consider partnering with a merchant services provider that can offer online sales, known as Card-Not-Present (CNP) as a way to offer merchants additional avenues to generate sales. Many vape merchant accounts that are in use today at retail vape store locations do not offer the ability and flexibility to accept payments other than retail swipe, limiting the options and growth potential of merchants. Partnering with a payment services company that is able to accept online sales will help to expand businesses quickly and easily enter the online marketplace without having to search for and establish a new merchant services relationship.
Advantages to using Vape Merchant Accounts
As is the case with other tobacco businesses, working with a professional in the vape industry can help keep costs lower than non-tobacco merchants, but a payment professional familiar with the industry can help ensure that the vape credit card processing services remain unaffected by any future changes to the banking or legal systems. Similar to the concerns that surround electronic cigarettes, vaporizers fall into a grey area within the laws and that sometimes creates more questions than answers and this is enough to make some payment processors and acquiring banks rethink if the risks are worth the rewards.
Besides using a vape merchant account, merchants have the option to use a sponsored payment service that usually has more liberal terms to the types of businesses accepted and their thresholds for chargebacks and returns with the businesses they partner with. Merchants that choose to use a sponsored solution, similar to an eWallet company, will not always be able to integrate directly into the bank, causing a larger percentage of declined transactions, having to operate with a reserve and delays in settlements, many times these delay run 3 to 4 weeks, problems that are generally not the case with a direct merchant account.
Vape merchants selling online might consider an industry-specific merchant account when selling products on a recurring or membership program where customers are billed on a monthly basis until their agreement is canceled. Many general e-commerce merchant accounts will not accept this form of billing model as it is considered to be higher risk and will make underwriting a much more difficult process. Working with a professional in the vape industry will ensure that there is no problem in the beginning or at any point in the payment processing contract due to the products sold or billing methods.
When e-commerce merchants team up with a vape payment processing company, they will be set up with a payment gateway that is designed to provide safe, secure and reliable transactions for the life of the merchant account relationship. Operating with a PCI Compliant payment gateway is a necessity today for all merchant accounts, but a vape professional can ensure that the payment gateway will provide services to a tobacco or cannabis industry without any future disruptions due to violations of their terms of service or other concerns surrounding the vape industry.
Information about Vape Merchant Accounts
Here is some helpful information to help any type of vape merchant understand more about vaporizer merchant accounts and vape shop credit card processing services.
How do Vape Merchant Accounts work?
Merchant accounts for the vape industry are operated in an identical manner as other merchant accounts, the only difference being the banks and/or payment processors that are used by the merchant to establish the merchant account. Due to the nature of the industry, vape merchant accounts will require a banking relationship that is able to handle the risk that a vaporizer industry poses and offer a solution to accessing the payment card networks.
Vape payment processing can be done through either a retail storefront with a credit card terminal or point of sale machine, allowing customers to either swipe or dip their cards into the machines to authorize the sale. Some vape merchants operate only online or are retail merchants that have to expand their business online, requiring the use of a payment gateway to allow customers the ability to securely process online transactions from mobile devices or at home. Both acceptance methods will handle transactions identically once the card information has been captured and encrypted for transmission to the card networks where the process of authorization and payment will take place.
After the card account information has been captured by the credit card terminal or payment gateway, the information is encrypted and sent through the merchant acquiring bank or payment processor and forwarded to the payment card network associated with the customer card. The payment card networks consist of Visa/MasterCard and their affiliated customer card issuing banks followed by the separate closed loop networks of American Express and Discover that also operate as customer card issuing banks.
Once the payment card authorization reaches the card networks, the information is deciphered and the networks of Visa/MasterCard determine the customer issuing bank and forward the customer request for payment authorization. At the networks of American Express and Discover, they also deal with the customers in addition to the merchants and are able to make decisions through their payment card networks. When the authorization reaches the customer card issuers, various fraud checks are conducted and a verification of available funds is performed before a decision can be made.
Once the customer card issuing bank has run their checks on the authorization request, an answer will be rendered and sent back through the payment card network to the merchant location, where either an approval or decline will be printed at a credit card terminal or displayed on a checkout screen. Regardless of the type of business that is operating as a merchant, the authorization request process will be identical once the customer card account information is captured at the point of sale.
How are the fees of a Vape Merchant Account determined?
Most merchant accounts today are set up using one of the three most common pricing models; tiered pricing, interchange plus or flat fee – all of which have a purpose to serve but might not be the best solution for a merchant. Factors such as total sales volume, type of cards being used and methods of payment acceptance figure into determining the best fit for a business; whether its costs savings, flexibility or functionality of that merchant account that the business is looking for.
One of the first methods used by payment processors to bill merchants was a tiered pricing model that usually set up 3 to 6 different tiers of rates and depending on the transaction the system would qualify the transaction for one of the tiers. This program usually included a teaser rate for the first tier, a rate at or below 1% that would catch a few cards, usually debit, and then downgrading the remainder of the rewards and other credit cards to more expensive levels. With changes to the banking system and a more competitive merchant services environment, these tiered pricing plans have become costly and generally do not provide the merchants with any savings versus other more common methods.
The interchange plus pricing model is one of the most common methods for payment processors to charge merchants for their debit card and credit card processing services. Interchange plus pricing, otherwise known as cost-plus pricing, charges merchants a set fee (discount rate and transaction fee) on top of the interchange fee that is accessed by Visa, MasterCard, Discover and AMEX for every transaction, usually determined by the customer’s card issuing bank. Most merchants today have opted for this program as it charges the same fee for every transaction and usually lowers merchants fees for debit cards and higher priced credit card transactions.
One of the newest billing methods of credit card processors has been a flat fee program, whether merchants are charged a flat fee per transaction or a flat monthly fee for predetermined sales volume. The idea of knowing exactly what a merchant’s fees are for every transaction or how much in total fees a merchant is going to be paying for the month might sound enticing for a business, the truth is more times than not that these programs end up costing merchants more than the other pricing models due because of low priced debit cards being overcharged or with excess fees found in the fine print. Many times these merchants decide to switch to another billing model after realizing the costs they thought they might be saved through one of these programs is not there.
Do Vape Merchant Accounts require Compliance?
Similar to hookahs and glass pipes, vaporizers have come under scrutiny in the past few years by different payment processing networks due to the quasi-legal status that surrounds the industry and potential legal liabilities of the vape products. In the federal government, the FDA and other health departments have worked with lawmakers to increase the government controls over the usage of vapes and pass legislation extending their reach and allow for more control on these smoking accessories.
In a confusing manner to merchants, some payment processors have begun charging yearly compliance fees for vape and electronic cigarette merchants while other merchant services companies do not currently charge any annual fees related to compliance. Working with Tobacco Merchant Services, customers will always be informed of compliance or regulatory changes that affect any vape or vaporizer merchant accounts, whether the changes come from the federal government or payment networks themselves, merchants will always be informed to ensure all compliance is maintained.
Another part of compliance with the payment card networks is ensuring that the merchant account is established with the correct Merchant Category Code, a system used by the various payment card networks to manage their merchants and any regulations they require. The most common MCC codes used for vape merchant accounts and vaporizer merchants in the payment card network are:
- 5194 – Tobacco and Tobacco Products
- 5993 – Cigar stores and stands
- 7389 – Business Services, Not Elsewhere Classified (Not Commonly Used)
Occasionally, merchants in industries that are challenging or difficult to set up might be placed into an MCC category that is incorrect for faster approval or a merchant could be categorized incorrectly by mistake; regardless of the reason, merchants in the wrong category will not be registered properly with the card networks, opening all parties involved to significant fees or fines if any violations occur.
If any vaporizer merchants are approved under a different MCC that does not reflect tobacco accessories or tobacco product, those merchants are urged to contact their merchant services provider and inquire about the classification. Businesses that are coded incorrectly might be liable to future problems or fines for operating a business other than what was initially stated on the application.
Partnering with Tobacco Merchant Services will ensure that all merchants are properly identified on applications and all registration and compliance information is handled in a timely format to prevent any unnecessary fees or disruptions from the payment card networks.
What makes Vape Credit Card Processing High Risk?
The vaporizer industry can be classified by many payment processors as either a high risk and low-risk industry, depending on how the business accepts payments and the types products being sold can affect the risk assessment of the company. Many other business types that are classified as higher risk generally have higher than average chargebacks or returns, though businesses in the vapor industry rarely experience numbers that are of a concern or would designate them as high risk.
Electronic nicotine delivery systems (ENDS) became a federally regulated product in 2016, requiring manufacturers, importers and retail locations to abide by the new federal regulations put in place for the industry. New requirements for age verification along with additional health warnings placed on all packages and at store registers is an attempt by the federal government to curb the usage of these products, along with other types of tobacco and tobacco accessories. The constantly increasing regulation by the Federal Government to control the vaporizer industry will justify the decisions made by payment processors and acquiring banks in the past to keep vaporizers as restricted product and limit the amount of vaporizer credit card processing solutions available to merchants.
Once the FDA expanded their reach and began regulating the vapor industry, the payment card associations took note and began to input restrictions and compliance requirements to ensure that vape merchants operated in a manner that would not violate any tobacco or other government guidelines. Vape merchant accounts are regulated in the same fashion whether the business operates online or through a retail storefront, though some payment processors will not accept online vape merchant accounts because of the increased risk of violations stemming from selling in a Card Not Present (CNP) environment.
As the vape industry grows and federal laws evolve surrounding the legality of tobacco, shisha, and cannabis; the likelihood of changes or increases in regulation of vaporizers continues to loom overhead. Vape businesses should remain aware of any changes or additional guidelines that might become required of merchants in the future from either the government or payment processing network that might affect their retail or online stores.
Is Vape Shop Credit Card Processing also High Risk?
Vaporizer and electronic cigarette stores that sell strictly vaporizers and eJuices are generally classified as most other retail locations, as long as all local and federal guidelines for the sale of e Cigs and Vapes are followed. Vape shops that are also selling online might not be able to use the same payment processor as their retail location due to the perceived increase in risk that comes from selling vapes online.
Many vape shops sell a variety of tobacco and cannabis products, including CBD (Cannabidiol) and occasionally Medical Marijuana (MMJ) in addition to hookahs and glass pipe tobacco accessories that could potentially require merchants to use vape merchant accounts instead of a general e-commerce payment service. Depending on the payment processor, some companies are able to work with retail locations that sell these products, while other payment processors might require the merchant to remove certain MMJ or CBD products from their store to avoid the risk of violating any of the guidelines from the payment card industry.
Most vape shops would not be considered high risk, though depending on the state and the legality of MMJ or CBD, some vape shops might opt to carry cannabis products which might be of concern for certain payment processors. Understanding that removing certain products might make finding merchant services an easier and less expensive experience than working with a payment processor that can accept a variety of higher risk products.
Using a Vape Payment Gateway
Vaporizer merchants that are selling products online, either exclusively or in addition to a retail storefront, will need to use a payment gateway to accept payments. Some retail locations have also opted to use the virtual terminal function in their storefront with a card reader as a way to manage payments and easily track sales.
When using a payment gateway, there are a few important factors for merchants:
- Fully PCI Compliant – Prevent fraud and combat theft.
- Easy Functioning – Simple reporting and transaction management.
- Flexibility – Easy integration into most shopping carts.
- Virtual Terminal – Allowing merchants to run MOTO transactions through it.
Requirements for a Vape Merchant Account
Vaporizer businesses that are ready to set up merchant services will usually need to provide the same sets of supporting documents for underwriting to the payment processing company they decide to partner with. Merchants with businesses online might have to provide additional documents or be required to complete additional registrations to satisfy the requirements of the bank and/or payment card networks.
For underwriting at most vape payment processors, application packages will require merchants to provide some or all of the following documents for an electronic cigarette merchant account:
- Completed Application including Merchant’s Social Security Number
- Copy of a Merchant’s Driver’s License or Passport
- Copy of a Voided Check from the Business Bank Account
- Previous 3-6 months of Bank Statements (Varies by Processor)
- For Existing Merchants; Previous 3 to 6 months of Processing Statements (Varies by Processor)
The required documents for underwriting can vary by payment processor from the list above for reasons including the size of the business, the types of transactions the merchant is accepting or underwriting requirements of the payment processor and acquiring bank. As a good rule of thumb for businesses, the more information a merchant can provide during the initial application, the faster the vape merchant account can usually be established and transactions can be accepted.
The Know-Your-Customer, KYC, is also an essential part of the underwriting that is performed through verification of the Drivers License or Passport of the applicant. Knowing the ID of the merchant, verifying that they pass government checks for money laundering and other national security along with verifying with the payment card network Match List that the merchant has no outstanding problems, including debits or negative history accepting payments, the card associations, acquirers and payment processors and is suitable for a partnership.
Another part of the application process performed by the merchant acquirers, whether its the payment processor or acquiring bank, is requiring merchants to undergo a credit check to determine if they are a worthy business to partner with. While a 750+ credit score would be ideal, it is not required by payment processors, rather merchants will want to have a score above 600 to ensure that the bank is comfortable with extending the requested credit card volume limits in the form of available credit or they might need a co-signer to help with the account approval.
Existing businesses will almost always need to provide the last 3-6 months of payment processing history, so bank underwriters can see the types of transactions and a recent history of sales. Businesses that are currently processing, along with some startups, might be required to provide a copy of bank statements for the last 3-6 months so underwriters can view the financial history of the business to ensure that money is handled properly by the merchant.
Not all underwriters will require the same sets of documents from new applicants, but if available, it makes the application process much faster when the merchant account underwriters receive a full package of documents and do not have to go back to the merchant requesting more information.
How to Find the Best Vape Merchant Accounts
Making sure that the merchant or business managers are asking the right questions when researching vape merchant accounts can save businesses time and money in the future by finding the best partner for their industry and business goals.
What to ask a Vape Payment Processor
When a merchant begins their search for a vaporizer credit card processing provider, there are a few questions that businesses should ask when interviewing potential merchant services providers that offer vaporizer merchant services.
- Verify they specialize in vape shop credit card processing
- Ability to allow a merchant to accept CNP (Card Not Present) transactions
- Direct API integration for the Payment Gateway
- Fast Authorizations and a High Success Rates
- Daily settlements without reserves or other holdbacks
- Secure handling of customer card account information
- Complete Technical Support for the business
- When needed, verifying re-billing business models are acceptable
- What kind of fee schedule is used, preferably Interchange Plus.
These simple questions asked up front can save e Cig and Vape merchants time and money by knowing how each tobacco payment processor operates before contracting to use their merchant services.
Get Started with the Best Vape Merchant Account Provider
Finding a payment processor to partner with can become a challenge when looking at the variety of merchant services providers offering vaporizer merchant accounts, this makes it very important to ask the right questions and check as to the history of the company a business looks to work with.
Benefits of using Tobacco Merchant Services
Merchants that partner with Tobacco Merchant Services will be working with one of the top vape merchant account processors in operation today, having built a reputation of providing reliable credit card processing services with some of the lowest cost vape merchant accounts in the industry. Maintaining a vast banking network to provides merchants with multiple options while shopping payment processors, eliminating the time that used to be needed to search out a vape payment processing service.
Online merchants in the vape industry that work with Tobacco Merchant Services will also be able to use our tobacco approved PCI Compliant payment gateway that provides direct API integration into the merchant’s shopping cart, ensuring that all transactions through our vape merchant accounts are handled quickly and securely. Our tobacco payment processing network provides solid and reliable merchant services for businesses in all aspects of the vape and electronic cigarette industry, regardless if you sell through a retail storefront or only online through an e-commerce website.
Merchants in need of vape payment processing or with any questions regarding vape merchant accounts are welcome to contact Tobacco Merchant Services for more information and answers. Our helpful sales professionals would be more than happy to discuss with merchants any questions or concerns they might have regarding vape merchant accounts or vaporizer credit card processing services.