Today, more and more people are embracing holistic and natural forms of healthcare. This has led to explosive growth in vitamins, supplements and other products that are intended to help improve people’s health without drugs or surgery. Nevertheless, since this is such a new and evolving industry with many variables, many merchant services companies are leery of providing payment processing for businesses in this sector. Therefore, most nutraceutical companies will have to use a partner who specializes in high-risk merchant services. Here’s a closer look at the nutraceutical industry, as well as the high-risk merchant services that are available.
Common Types of Nutraceuticals
Although the nutraceuticals industry has hit the ground running, a few things are holding the industry back. Nevertheless, given that this industry creates products that are known for supplementing the diet, or are intended to help improve overall health or combat various health issues, many customers are flocking to products in this industry. Some of the most commonly used nutraceutical products are:
- Dietary Supplements
- Dietary Fiber
- Medical Foods
What Makes Nutraceutical Companies “High Risk”?
Given that the nutraceutical industry is much newer than other types of medical treatments, it’s often perceived by banks as a high risk sector as far as merchant services are concerned. Here are some of the reasons nutraceuticals are considered to be high risk:
Lack of Regulations: Whatever your opinion may be on the validity and quality of FDA review, there are many people who see that as a guarantee of safety in the pharmaceutical industry. Nutraceuticals are not tested or approved by the FDA. Many consumers consider this to be a benefit of this product category because the lack of regulation can allow faster innovation and more options for consumers as they try to optimize their health. However, the lack of regulation can also mean that not every product is safe or effective – which means it takes an experienced processor to understand the risks and make the right recommendations.
Increased Risk of Chargebacks: Because of this lack of regulation, and the fact that the effectiveness of these products is often subjective (in other words, one person may feel better and believe they’re losing weight from using a diet product, whereas another person feels the product wasn’t effective). This can lead to chargebacks if a customer considers that the product didn’t work as expected.
Over-Saturation/Quality Issues: Although many companies provide quality products, the fact that this industry is so lucrative and has very little regulation has made it easy for a wide variety of companies to join this industry, and not all of them are ethical and transparent about their products and marketing methods. This is a key area where NMA clearly leads in this industry – where big-box processors will avoid an entire vertical just because of a few bad apples, NMA’s in-house underwriting and deep experience in managed risk allow us to differentiate the quality businesses in this space and provide the support they need to thrive.
Misleading News: Given that traditional medicine has been the dominant method of medical treatment for quite some time, this has caused many mainstream and alternative news outlets to post misleading information about this industry, which can deter people from using the products. Big banks sometimes perceive this as “reputational risk,” as they are extremely conservative and don’t want to be associated with anything that even might be controversial now or in the future.
Although many areas of the nutraceutical sector are largely unregulated, there are some legal guidelines required to enter into the industry. They are as follows:
Labeling: Not only must the products state what their intended uses are and all beneficial ingredients, it must also include any ingredients that may not be beneficial or that may adversely affect those who take the product.
Classification: Nutraceutical products must be properly classified. They must adhere to all restrictions within the classifications that were created by the FD&C Act.
Traceability: Nutraceutical products must also include some sort of unique identifier on the packaging to make them easy to trace.
Recording: Manufacturers must also create and maintain detailed records of all processes and production systems implemented.
Good Manufacturing: Although they are not directly regulated by the FDA, nutraceutical companies are required to create their own standards and guidelines for all areas of the industry.
Preventive and Corrective Action: Additionally, nutraceutical companies are also required to create a plan to prevent, correct, and address instances of non-compliance.
Notifications: Nutraceutical companies are required to submit notifications for supplements that contain new ingredients.
If you are selling nutraceuticals online, you need to be prepared to follow certain guidelines. Firstly, you are prohibited from making health claims that you are unable to back up with proof (such as scientific studies). There is also a list of ingredients that you are allowed to make claims on, where on others you cannot. Either way, you must include all ingredients on the website, as well as the benefits of your product, as long as they are backed by science.
High-Risk Merchant Services
In order to apply for a high-risk merchant account, you will typically need the following:
- A merchant processing application (MPA) that is signed and completed
- Proof of settlement bank account (voided check or bank letter)
- Proof of business entity (articles of incorporation/fictitious name filings)
- Proof of ownership (driver’s license/passport, beneficial ownership information, etc)
- Supporting financial documents (personal/corporate tax returns, bank statements, processing statements)
- Proof of third party vendor agreements (Advertising networks, CRM providers, fulfillment and customer service)
- Website (we will review it carefully, vetting the product, ingredients, marketing, and compliance)
Once this information has been submitted, the underwriting process begins. The payment processing history of your company will be reviewed and those who are new to the industry will be based on things such as third party vendors and financial strength in general. There may also be a request for additional documentation, as needed. Once approved, the merchant account will be set up.
Get started with your nutraceutical business
Need long-term payment processing? Can’t get approved? Feeling price gouged? Contact National Merchants Association now and we’ll help get you started.