Cigar Merchant Account

Cigar Merchant Account: The Industry Guide.

A cigar merchant account is a specialized high-risk merchant account that allows businesses to legally accept credit card payments for cigar sales. Such accounts are suitable for cigar websites and retail stores. Due to strict regulations and age verification requirements, only specialized high-risk PSPs provide cigar credit card processing accounts. Such providers comply with mandatory compliance and underwriting requirements.

Finding a suitable high risk credit card processing company is not easy because there are very few high-risk processors that work with industries like cigars, tobacco, CBD, and vapes. Merchants may take months to find these providers directly.

The cigar merchant services team at QuadraPay has created this guide. The objective of this guide is to make the search easy for you. In this guide we have discussed why cigar merchant accounts are considered high risk, associated fees, the timeline for approval, and the application process. We are sure that after reading this guide, you will have answers to all possible questions that you may have regarding cigar website merchant accounts. Let’s begin.

Why Are Cigar Merchant Accounts High Risk?

Cigar credit card processing is considered high risk by acquiring banks because of several reasons. It will not be wrong to say that at this point in time, onboarding cigar merchants can be one of the most complex assignments for credit card processors. Let’s explore the key reasons.

Regulatory Challenges

Selling cigars, tobacco, and related products (paraphernalia) is a highly regulated activity. Merchants must adhere to various health and age related guidelines. It is mandatory for cigar shops and websites to display disclaimers and checks to ensure that the product is not available to the underage population.

Another mandatory requirement is ensuring health related compliances. Such as putting warning notices regarding the ill effects of nicotine on health. Not adhering to these regulatory guidelines and compliances can result in permanent closure of the merchant accounts and may also impact the payment processor.

Fraud & Reputation Risks

Cigar is a premium product and can be easily sold at secondhand markets. This is why many fraudsters may try to place orders online using stolen credit cards. A high fraud ratio can attract huge credit risk for processors. Some banks prefer to stay away from the cigar business because of the social stigma and reputational risk.

High Chargebacks

The cigar industry experiences slightly higher chargebacks than regular industries. This can be because of the quality of cigars not meeting customer expectations. It may also be because of delays in delivery. Merchant service providers avoid working in industries that can attract high chargebacks.

Complex Compliance

The cigar industry is highly compliance-oriented. Low-risk merchant account providers often avoid the cigar industry. All these factors contribute to the classification of cigar credit card processing as high risk.

Did You Know?

Over 30% of cigar businesses face payment processing challenges, leading to lost sales and operational delays.

KYC Documents for Cigar Credit Card Processing

Let’s take a look at some of the most important KYC documents that you will need to provide at the time of application.

The merchant account application form collects basic details of your cigar business. On this form you will share details about the structure of your company, ownership, sales traffic, expected volume, desired payment instruments, and previous processing experience.

Along with the application, you will also have to share personal and business documents for verification.

For the business registration proof, you can submit the incorporation certificate or any other similar document.

For the photo ID, you can submit the passport or driver’s license of directors.

Additional documents that may be requested include a tobacconist license/registration with the local Public Health Organization or any other documents that may be mandatory for operations at the time of application.

Tobacco CNP Addendum: In addition to the merchant account application, cigar businesses are sometimes asked to fill in a tobacco CNP addendum. It is an additional part of the agreement. It outlines special terms and conditions that educate the merchant about risk factors as well as dos and don’ts that the merchant must be aware of.

All merchants that sell cigars must undergo high-risk registration. This means the merchant will have to commit to paying a fixed fee per year for each card brand they wish to process.

Apart from the above-mentioned documents, the payment processing company may ask for more documents as required to complete the underwriting review.

Cigar Credit Card Processing Rates & Fees

There are very few credit card processing companies that onboard cigar merchants. Since the demand for such providers is higher, the pricing is slightly elevated in comparison to regular low-risk accounts.

The actual rate can only be provided after a full evaluation of the merchant’s risk profile. However, it will be great if you know about some mandatory fees that you will have to pay for using a cigar website merchant account.

Transaction fee. On every transaction, the merchant pays a fixed percentage. This is also called MDR or sometimes TDR. The processor may charge you a fixed fee or an interchange plus fee. In a fixed fee model you pay a fixed percent irrespective of card type. However, in the interchange model, you pay different fees as per card type. The interchange model is preferred by large cigar merchants. While startups and low-volume merchants prefer fixed rates.

Monthly Fee. The processor will charge a monthly fixed fee. Consider this as a monthly maintenance or usage fee for the payment gateway. Usually this is under $50.

Chargeback Fee/Refund Fees. For refunds and chargebacks, you pay a fee. This ranges from $10 to $50.

Cigar Merchant Account Application Process

The application process for a cigar credit card processing account is fairly simple if you get hold of the right processor. It starts with a pre-application, where you submit basic details like your name, email, and website. These details are reviewed by the merchant service providers, and they contact you for additional details.

Next you send a merchant account application with the copies of the KYC documents. The underwriters review the KYC documents. They can either approve or decline your application. Whatever the case may be, you will be notified. Once approved, the team will share login information and an integration guide.

If you apply for a retail cigar shop payment terminal, then the device will be shipped to your business address. If you apply for an online credit card processing account, then you will get API information and a ready-to-use plugin.

Throughout the process, the technical team of the processing company will be in touch with you and will provide assistance. After integration you will make some test transactions using test card details. After successful test transactions, the merchant processor will switch your account to live mode.

Cigar Shop Merchant Services FAQ

What Is the MCC for Cigar Businesses?

The MCC 5993 is for cigar stores and stands. Merchants classified with this MCC sell various tobacco-related products, including vapes, cigars, and pipes.

What Are Good POS Systems for Cigar Lounges?

There are many, but you can explore Toast, Clover, and SkyTab.