Is your online tobacco or alcohol business struggling to get a fair deal on a merchant account – or even to be accepted? NMA can help. Read on for our expert view on the challenges you face and then get in touch for more information about how we reduce your risks and costs.
Online alcohol sales have been thriving for years, and in 2019, American consumers spent $983.4 million on alcohol online. In 2020, this long-term growth has been supplemented by the effects of the Coronavirus, which have seen online alcohol sales increase by as much as five-fold in 2020 compared to the same period in 2019. So while it’s possible that once more stores and malls re-open, some of these new sales will shift back offline; however, trends we’ve observed in many other industries seem to show that much of this online shift will ultimately become permanent.
So it’s critical for anyone in the spirits business to have a robust online presence, marketing strategy, and secure payment processing in order to remain viable into the future.
The outlook for tobacco is not quite so positive but remains strong. Thirty-four million American adults smoke (13.7% of the adult population), and experts valued the industry at approximately $48 billion in 2019. While the customer base has shrunk in recent years (in 2005, 20.9% of the adult population smoked), future predictions project that industry value will remain steady at its 2019 level into 2020 and beyond.
Why Are Online Businesses Who Sell Tobacco and Alcohol Considered High-Risk By Banks and Credit Card Processors?
Selling tobacco and alcohol online combines the typical risks of selling tobacco and alcohol with the risks of selling online. With alcohol, tobacco, and online stores individually flagged as high risk profiles by themselves, it’s no surprise the combination makes some banks and credit card processors reconsider whether they want to get involved.
Specific risks include:
- Heavy regulation subject to frequent changes and the difficulty for online retailers to successfully and legally navigate the wide range of state and federal laws.
- The health risks to customers and the subsequent reputational risks this brings.
- Increased chargeback risk associated with online shopping.
- The increased risk of inadvertently selling products to minors, triggering liabilities.
- Delivery problems, such as late deliveries and broken bottles, can increase chargeback risks.
Together, these risks make it difficult for merchants who sell tobacco and alcohol online to get a merchant account. When they do get an account, the fees are often punishingly high for the service that is provided.
How To Reduce Your Risk
Online merchants for alcohol and tobacco can reduce their risk through the use of best practices, including:
- Shipping items quickly. Late deliveries increase the risk of a chargeback.
- Enabling returns and replacement items for wrong or damaged products quickly.
- Supporting responsible drinking.
- Putting processes in place to prevent sales of products to minors.
- Staying on top of regulation to ensure your business stays within the law.
How NMA Can Help You Manage Your Risk
Unlike a typical bank, we can help seemingly high-risk companies to manage their risk effectively through a combination of careful underwriting, relationship building, and ongoing monitoring. By taking care of the small details, we turn ‘high risk’ accounts into ‘managed risk.’
Together, our payment processing solutions and global network of strategic partnerships enable your business to save money, reduce risk, and help you get funds deposited safer and quicker than with other competing solutions.
Please note that alcohol and tobacco are highly regulated industries, so this article isn’t intended to provide legal advice; please consult your attorney before launching any marketing or sales campaign.