Alcohol Merchant Accounts: The Inside Scoop
Merchants in the alcohol industry often face significant challenges when it comes to processing credit and debit card payments. These challenges include strict age verification requirements, heavy government and card scheme regulations, and a high risk of chargebacks. These factors make it essential for alcohol businesses to use specialized merchant account solutions to ensure smooth and compliant operations.
This guide, prepared by the QuadraPay team, explains alcohol merchant accounts in simple terms. It covers how to process credit card payments, how to apply for a merchant account, and the payment solutions available for both in-store and online alcohol sales. The team has invested significant time in creating this guide to help alcohol merchants. Let’s dive in.
Alcohol Merchant Accounts: Breaking It Down
An alcohol merchant account is a specialized payment processing solution designed for businesses selling alcoholic beverages, such as liquor stores, breweries, wineries, bars, and online alcohol shops. These merchant accounts cater to the unique needs of the alcohol industry, which is considered high-risk due to factors like government regulations, age restrictions, and the potential for high chargebacks.
With an alcohol merchant account, businesses can seamlessly accept credit card payments and alternative payment methods while ensuring full compliance with legal requirements. This type of account provides the necessary payment processing capabilities to sustain businesses in this sector.
Why Alcohol Merchant Processing Is Labeled High-Risk?
Traditional credit card processors and sponsor banks typically avoid working with alcohol merchants. Businesses in this industry are better off partnering with specialized high-risk merchant processors with extensive experience in supporting similar operations. Let’s explore the key reasons why alcohol businesses are considered high-risk:
Age Restrictions: Alcohol sales are strictly regulated by age restrictions in most countries. Merchants must ensure they are not selling alcohol to individuals below the legal age limit. Failure to comply with these laws can result in severe legal consequences for both the merchant and the payment processor. Specialized payment processors require robust age verification systems to ensure compliance.
Regulatory Complexity: Alcohol sales are governed by stringent regulations that encompass advertising, packaging, taxation, and licensing. Even minor violations can have serious repercussions for merchants and their payment processors.
High Chargebacks and disputes: Chargebacks are a common issue in the alcohol industry. They may arise from unauthorized transactions, delivery disputes, or product damage. A high chargeback ratio can jeopardize the stability of a merchant account.
Fraudulent Transactions: Fraud is prevalent in the alcohol industry, including cases of stolen credit cards and underage buyers using fake IDs. Such incidents can harm the reputation and financial standing of both the merchant and the processor.
Social Stigma: Many card processors and sponsor banks view alcohol-related businesses as high-risk due to reputational concerns. Social stigma surrounding alcohol sales, similar to industries like CBD, vape, and adult entertainment, can act as a roadblock for genuine businesses.
Secure, stable processing for high-risk merchants
Types of Alcohol Credit Card Processing Solutions
The payment processing solution a business chooses depends on its operational model. In the alcohol sales industry, there are two primary business models: eCommerce and retail. Let’s explore each:
Online Alcohol Merchant Processing: Many businesses sell alcohol online using eCommerce platforms to list products and facilitate transactions. For such setups, merchants require an online alcohol merchant processing solution, which combines a merchant account and a payment gateway integrated with the eCommerce platform.
Key features of online alcohol merchant processing include:
- Age verification tools that automatically validate the customer’s age during transactions.
- Fraud prevention mechanisms to reduce the risk of unauthorized purchases.
- Integration with popular platforms like Shopify, Magento, and WooCommerce.
- Support for multiple payment methods, including credit cards, debit cards, and alternative payment methods (APMs).
Retail Alcohol Merchant Services
Retail alcohol merchant services cater to brick-and-mortar establishments like liquor stores, wine shops, duty-free stores, breweries, and bars. These services include state-of-the-art credit card terminals compatible with magnetic stripe cards, EMV chip cards, NFC payments, QR codes, and e-wallets. Tap-and-pay compatibility for faster transactions. Easy integration with alcohol-specific point-of-sale (POS) systems. Our Alcohol store payment processing terminals are provided in collaboration with leading acquiring institutions in the US, UK, and Europe.
KYC for Online Alcohol Merchant Accounts and Retail Alcohol Store Credit Card Terminals
To obtain approval for a merchant account for online alcohol sales or retail alcohol store credit card terminals, it is crucial for businesses to comply with Know Your Customer (KYC) requirements. These are basic requirements for any banking institution. A robust KYC process helps processors and merchants comply with local and international alcohol sales laws. By thoroughly verifying the legitimacy of businesses, payment processors keep bad actors at bay.
It has been observed that processors conducting deep KYC vetting and risk evaluation face fewer chargeback issues with merchants. By sharing all the required KYC documents, the merchant positions itself as stable and professional.
Before receiving approval for the merchant account, businesses must complete the KYC process, during which directors are required to submit various documents. Keep in mind that KYC documents for e-commerce processing and retail processing may vary. Let’s take a closer look at these in detail.
KYC for Online Alcohol Merchant Accounts
For e-commerce-based alcohol payment processing solutions, businesses are required to submit the following:
- Certificate of Incorporation, Business License or equivalent
- Tax Identification Number (such as Tax ID, VAT, or EIN)
- Another document required to confirm the physical presence of the business is a utility bill, lease agreement, or any other document that verifies the proof of the business address.
- It is important for the credit card processor to have valid information about the ownership details of the company. For this, merchants must provide valid government-issued photo IDs such as passports, driver’s licenses, or any other national identification documents for all business owners and stakeholders. Utility bills or bank statements are also required to confirm the proof of residency of the business owners.
- For any business looking to sell alcohol online, its website must be compliant. The website must include evidence of tools or plugins that validate the customer’s age. The site should also have clearly visible and comprehensive terms and conditions, including sections for privacy and refund policies. Every product listed on the website should have detailed product descriptions, including any disclaimers for restricted sales.
- The payment processor will also require the merchant to submit detailed banking information, which helps the processor confirm the depository bank account where the funds will be sent. This bank account must be in the exact name of the company applying for the merchant account. Voided checks or bank letters are generally provided to fulfill this requirement.
- Certain industry-specific compliance requirements include a liquor license, which is a document that confirms the business is authorized to sell alcohol. Another document that may be required is the legal compliance certificate, which serves as proof of adherence to regional alcohol sales laws and regulations.
KYC for Retail Alcohol Store Credit Card Terminals
For businesses selling alcohol at retail locations, all the documents required for e-commerce merchants must also be submitted. Additionally, a retail merchant is required to provide details of the point-of-sale (POS) system being used. It is important for merchants to confirm, before the application process, whether the terminal can be integrated with the existing POS system. It is also mandatory to verify that the merchant’s POS system integrates with age verification tools and fully complies with PCI DSS standards.
How to Apply for an Alcohol Merchant Account
Setting up a merchant account for an alcohol business involves various steps to ensure compliance and minimize risk. Let’s take a detailed look at these steps.
The process starts with the initial consideration phase, where the business submits basic details to the payment processor. This is also known as the pre-application stage. At this stage, underwriters evaluate the business model to determine whether it meets the requirements for further assessment.
The next step is the application stage, where the merchant submits the completed application along with all necessary KYC (Know Your Customer) documents for detailed review. The payment processor evaluates the legitimacy of these documents and verifies the details with various third-party sources, including credit bureaus and court records.
After evaluating the documents, the credit card processing company initiates a merchant site inspection to confirm the physical presence of the business. Throughout this process, underwriters assess the risks involved in onboarding the merchant. If the risk is deemed acceptable, the merchant will be presented with an offer in the form of a merchant account agreement and a term sheet. This document clearly defines the rates and fees the merchant will be required to pay for using the processor’s services.
Once the contract is signed by both parties, the next step is activation. For an e-commerce solution, the processor provides the login credentials for the payment gateway and the necessary integration information. For retail locations, the processor supplies a payment terminal. Using the provided information, the merchant can easily activate the terminal or integrate the gateway. Finally, the merchant performs some test transactions before switching to live mode.
FAQ: Alcohol Credit Card Processing
What is the difference between an alcohol merchant account and a standard merchant account?
An alcohol merchant account is specially designed for businesses that sell alcoholic beverages and operate in highly regulated and high-risk environments. These merchant accounts include extra compliance features such as age verification, high-risk underwriting, and industry-specific fraud prevention tools.
Can I use a standard POS system for alcohol payment processing, or do I need a specialized one?
For alcohol sales, some standard point-of-sale systems and credit card terminals can work fine, but it will be better to use a point-of-sale system that is designed specifically for alcohol sales. These specialized terminals ensure proper age verification as well as efficient inventory management for regulated products such as wine and spirits.
Which features should I look for in a POS system for liquor stores?
You should primarily look for features such as integrated age verification, inventory tracking SKU-wise and as per case sizes, real-time sales reporting, and the ability to manage promotions such as loyalty programs and gift cards.
Do alcohol merchant accounts support recurring billing or subscription models?
Alcohol sales are generally one-time sales, but in some cases merchants may require recurring billing or subscription payment collection. This can be done under strict controls. Subscription alcohol services are offered to wine clubs. These specialized solutions require clear, transparent terms and conditions, opt-in confirmations, and reliable age verification at both the point of sale and the delivery stage.
Can I accept international payments with an alcohol merchant account?
International payments for alcohol sales can be a complex process, and that is why they are not usually made available; however, if your business has such a type of requirement, you should reach out to high-risk processors that allow international transactions. Keep in mind that they may impose restrictions based on regional alcohol shipping laws and customs regulations.
How does chargeback insurance work for liquor businesses?
Chargeback insurance is an optional service that helps alcohol merchants cover losses from customer disputes. Alcohol businesses may be eligible for this if they have demonstrated low-risk behavior, such as a low refund rate and strong customer service practices.
Can I integrate alcohol merchant processing with Shopify, WooCommerce, or Magento?
Yes, many high-risk merchant service providers offer plugins and custom integration with major eCommerce platforms like Shopify, WooCommerce, and Magento. However, whether you will be able to accept payments on these platforms will totally depend upon the terms of service of these specific e-commerce platforms.
Is age verification at checkout mandatory for online alcohol sales?
Absolutely all merchant service providers require real-time age verification at the checkout process. This can be easily done through third-party plugins or built-in tools, and it will help you to comply with local laws and payment processors’ policies.
How do I switch from a standard merchant account to a high-risk alcohol processing provider?
If you are using a standard merchant account for your alcohol business, chances are that your experience will not be good. You will potentially need to switch to a high-risk alcohol payment processing provider. Keep in mind that you will have to submit a new application and go through enhanced underwriting and reintegrate the checkout process. For this, your business license and liquor permits must be up to date.
Are there payment processors that work with new alcohol businesses with no processing history?
Yes, if you are just starting an alcohol business, then you can approach payment service providers for a merchant account; however, you must ensure that you provide strong documentation, proof of license, and a clear business model with a compliance adherence plan.
What types of alcohol businesses can get a merchant account?
Retail liquor stores, breweries, distilleries, wineries, online wine clubs, alcohol delivery apps, and duty-free alcohol shops are all eligible for alcohol merchant accounts; however, it also depends on the license.
Can I accept EBT or SNAP payments for alcohol products?
No, our payment solution providers do not allow merchants to accept EBT or SNAP payments for alcohol, tobacco, cigars, and related products.
Can I use mobile card readers like Square or Stripe for my alcohol business?
For this, you will have to check the terms and conditions on the official websites of Square and Stripe to see if they support alcohol businesses or not. However, we advise you to work with a high-risk merchant account provider that has experience in supporting businesses operating in the alcohol and liquor industry.
What happens if I sell alcohol without a compliant merchant account?
This can create significant challenges for you. The payment service provider might terminate your account and hold all the funds and even initiate legal action against you. Along with that, this can also potentially list you on the MATCH/TMF list, which basically restricts you for a few years from using any type of credit card processing solution. We encourage you to be honest with your payment processor and declare your business model and avoid any misadventure.
How do payment processors verify a liquor license during onboarding?
Most payment processors will request a copy of your state or local liquor license and will also cross-check it against various databases or even contact the issuing authority for the verification.
Can alcohol merchants accept mobile wallet payments like Apple Pay and Google Pay?
Yes, most alcohol-friendly point-of-sale systems and payment gateways allow merchants to accept mobile wallets, provided that the terminal and the gateway you use are NFC compatible.
What are common reasons alcohol merchant account applications get denied?
The most common reasons include incomplete KYC documents, lack of a valid liquor license, high chargeback ratio, unclear refund and shipping policies, noncompliance with age verification, and shipping to locations that are not approved by the payment processor.
Is a rolling reserve mandatory for all alcohol merchant accounts?
It is not mandatory that every alcohol merchant will have to accept a rolling reserve; some get accounts with zero reserve as well. However, if the profile of the merchant is not good enough, then the processor may initially implement 5% to 10% of a rolling reserve. This is common for new businesses with no previous processing history.
Are there any alcohol-friendly processors that offer next-day funding?
Yes, some high-risk payment processors offer next-day funding, but this totally depends upon your business transaction volume, processing history, and the overall risk profile.
Can I get approved for an alcohol merchant account if I run a home-based business?
It’s possible but more difficult. Even if you operate your alcohol business from your home, you will still need a registered business, a valid liquor license, and secure product storage. Along with that, you also need a complaint website with proper age verification tools. Eventually it depends on the policies of the payment processor and the decision of the underwriters.
Can delivery apps for alcohol use third-party payment gateways?
Yes, most of the alcohol delivery apps use online payment gateways provided by high-risk payment service providers.
How can liquor stores manage compliance during holiday sales or flash promotions?
By using advanced point-of-sale systems that include inventory alerts and automated age checks, merchants can ensure compliance during busy days. All promotional activities must restrict underage customers and clearly display the disclaimer as per regional laws and card processors’ guidelines.
Do alcohol merchants require PCI DSS compliance?
Yes, whether you sell alcohol online, at your retail store, or through your mobile application, all merchants must process credit cards while being fully compliant with the PCI DSS requirements. This is to protect customer information and avoid issues with the processor.
Can I use Buy Now, Pay Later (BNPL) services for alcohol sales?
It is very unlikely that any BNPL provider will allow you to sell alcohol. This is primarily because of regulatory and reputational risk. However, some specialized processors may support installment payments under strict controls.
What should I look for in an alcohol merchant processing solution?
When selecting an alcohol merchant processing solution, consider the following factors:
Industry Experience: Choose a processor with proven expertise in handling transactions for alcohol merchants. Allowing businesses in this industry to accept credit and debit card payments requires specialized skills and knowledge. A lesser-known but experienced processor is often a better choice than a well-known yet inexperienced newcomer.
Security Measures: Ensure the processor implements advanced security tools to monitor account activities 24/7. This proactive approach helps mitigate the risk of fraud and chargebacks, safeguarding your business.
Point-of-Sale Compatibility: If you plan to accept retail payments, verify that the processor’s terminals are compatible with your existing point-of-sale (POS) systems. This ensures a seamless integration and uninterrupted operations at your alcohol store.
What Payment Methods Can I Accept with Alcohol Merchant Processing?
With alcohol merchant processing solutions, you can accept payments through various methods, including credit cards, debit cards, mobile payments, e-wallets, and alternative payment methods. Additionally, in most nations, mobile payment options like Apple Pay and Google Pay can also be used. For retail locations, payment methods such as tap-and-pay, NFC, and QR code payments are also available.
How Long Does It Take to Set Up an Alcohol Merchant Account?
The setup timeframe for an alcohol merchant account depends on several factors, including the acquirer’s turnaround time, the merchant’s unique requirements, onboarding complexities, rate negotiations, and the completeness of the application. On average, merchants can begin processing payments within 4 to 7 business days.
What Are the Merchant Classification Codes (MCC) for Alcohol Merchants?
MCC 5813 is the code that applies to merchants selling alcoholic drinks at establishments such as drinking establishments, nightclubs, beer parlors, cocktail lounges, breweries, bars, comedy clubs, lounges, discotheques, microbreweries, pubs, saloons, tap rooms, taverns, and wine bars. MCC 5921 is the code for merchants selling packaged wine, beer, and liquor. Liquor stores are a typical example of businesses that fall under this MCC.
When applying for a merchant account, it is helpful to be aware of related SIC and NAICS codes. SIC Code 5182 is for wine and distilled alcoholic beverages. SIC Code 2085 is for distilled and blended liquors. SIC Code 5921 is specific to alcohol stores. and NAICS 312140 is used to classify distilleries.
What Are the Fees Associated with Alcohol Credit Card Processing?
In an alcohol credit card processing account, merchants are required to pay various fees for accepting digital payments. These fees typically include:
Merchant Discount Rate (MDR): A fixed percentage charged on each transaction, generally ranging from 1% to 5% for alcohol merchants.
Transaction Fee: A small fixed amount per transaction, typically around 20 cents or less.
Rolling Reserve: In some cases, merchants may need to agree to a 5% to 10% rolling reserve to mitigate risk.
Monthly Gateway Fees: Merchants might also incur monthly charges for using the payment gateway.
At QuadraPay, we partner with multiple alcohol credit card processing solution providers, enabling you to negotiate directly with them to secure the most competitive rates.
How Can Alcohol Businesses Reduce Chargeback Risk?
Alcohol businesses can take several steps to reduce the risk of chargebacks. Providing accurate and detailed descriptions on your website helps set proper customer expectations, reducing the likelihood of disputes. Implementing age verification systems on your website ensures compliance with legal guidelines and creates a secure platform. This also limits the use of fake IDs, directly reducing the risk of chargebacks. Opting for slightly higher-priced but advanced payment gateways allows businesses to use fraud detection tools that intelligently identify and block problematic transactions.
Clearly defined refund, shipping, and return policies help prevent misunderstandings that could lead to disputes and chargebacks. Since alcohol products are perishable and fragile, working with reliable shipping partners ensures timely delivery and safe handling, reducing the risk of dissatisfaction. Train your team to address customer queries and complaints promptly. If a customer is unhappy with the product’s quality or delivery timeline, it might be more prudent to offer a refund immediately to avoid escalation. Partnering with chargeback mitigation companies like MIDigator and Chargebacks 911 can provide advanced tools and strategies to handle disputes effectively.
How Do I Increase My Processing Limits for Liquor Sales?
At the time of initial approval, the processor likely allowed you to accept a limited volume of sales each month, typically around 25,000 USD. However, it is quite natural for progressive businesses to quickly meet that threshold. Payment processing companies adjust the monthly approved limit based on the merchant’s profile. To increase your limit, it is important to maintain a low chargeback ratio for several months. By demonstrating a solid processing history, your current processor may review your account and approve a higher limit.
Final Words About Alcohol Credit Card Processing
With the availability of online and retail card processing solutions, it has become much easier for merchants to get started quickly. The right choice can help merchants process payments efficiently with minimal hassle. However, selecting the wrong option can lead to numerous complications. Therefore, it’s always wise to consult a professional to determine the best merchant services solution for your alcohol business. Reach out to us today and let us help you make the right decision.
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