The CBD industry is exploding, but payment processing still remains one of the trickiest parts and the most expensive hurdles for the merchants. Many CBD business owners are unknowingly overpaying thousands of dollars every year simply because they don’t understand how high-risk merchant processing pricing works.
If you are really serious about maximizing your profit in your CBD business, then you need to get crystal clear about how payment processing fees are structured in this industry and how you can negotiate like a pro.
The Harsh Truth: CBD Payment Processing Is More Expensive
CBD is a high-risk industry, and that is why PSPs pad the pricing with extra layers of fees to offset potential legal, reputational, and financial exposure. However, you do not have to blindly accept the excessive charges just because you’re desperate to get a merchant account. You should have all the information that you need to understand the pricing so that you can negotiate well and get a rate that works for you.
The Core Components of CBD Payment Processing Fees
These are the most common fees and prices that you will see on the statement. If you don’t understand it, then the processors can charge you significantly high, but if you understand it fully, then you can negotiate and sometimes even force the processor to remove some of these charges fully.
1. Interchange Fees (Non-Negotiable)
These fees are non-negotiable. These charges are set up by card networks and are paid directly to issuing banks; you will not be able to negotiate these fees.
2. Processor Markup (Negotiable)
This is where the real negotiation happens; however, it is important for you to understand that processors are running a business and they also need to make money, but they should not exploit your situation. The markup should not be exceptionally high.
3. Monthly Account Fees
You will be paying some fees on a monthly basis to the payment processor; these can also be negotiated provided you can bring in a substantial volume of transactions each month. The monthly fees include the gateway fees, statement fees, and account maintenance charges. With our multiple years of experience in the high-risk payment processing industry, we can say that we have seen some of these fees totally removed by the payment processor on the basis of the merchant’s processing history and the transaction volume that the merchant commits.
4. Risk Reserve/Rolling Reserve
Payment processors may hold a small percentage of sales for a fixed period of time to cover the risk of chargebacks. This is called the risk reserve. Some payment processors work on a fixed reserve model where the merchant deposits a specific amount in the process account and only gets it after a fixed period of time, while other processors work on a 5% to 10% rolling reserve held for 90 days or 180 days. You might be surprised to know that these can also be negotiated over time based on good performance.
5. Chargeback Management Fees
This is the fee you pay if your merchant account gets a chargeback. Sometimes a slight negotiation on the chargeback fee is possible.
6. Other Hidden Fees
Other fees, like batch fees, PCI compliance fees, and termination penalties, are also there, but if you are a good negotiator, you can always push the payment processor to reduce their bottom line so that you can increase yours.
Why Many CBD Merchants Overpay (Without Realizing It)
Many CBD merchants that come to us already pay high fees to their current merchant account processor. There are many reasons why they pay high fees. Some of the merchants are desperate to get approved quickly, and because of this desperation, they work with the shady processors and pay high fees.
Some processors review the pricing while the merchant’s money is still with them. Because of the pressure of the funds being held by the processor, merchants accept even higher pricing. We call it a hostage pricing situation.
And the most important reason why CBD merchants overpay is because many of them do not have a proper understanding of the industry pricing standards.
The result is that most of the CBD businesses pay 5% to 7% as an effective rate when far better pricing options are achievable through the right partner.
The Power of Interchange-Plus Pricing (Your Negotiation Weapon)
The most transparent pricing model a CBD merchant can get is the interchange plus pricing model. In this structure, you pay the true interchange fee, which is non-negotiable, along with a small transparent markup, which is the genuine fee. With QuadraPay, our CBD merchants secure extremely competitive interchange plus rates that are mostly capable of beating the industry average.
Factors That Influence Your CBD Processing Fees
Factors that can definitely have a significant impact on your CBD processing fees, and we believe it is important for you to know these factors so that you can make the situation more favorable.
The product type can have an impact on the pricing; for example, topicals and injectable products both can have different rates because the risk involved varies.
Businesses that do not think professionally and avoid important documents like the COA lab certificate pay high fees because such merchants do not fit in the compliance requirements of our high-quality processing partners.
Website compliance and legal disclaimers also play a critical role in your approval and pricing. If a merchant is aware of the web compliance requirements and implements them well, then that merchant will definitely pay low fees.
Your monthly processing volume can motivate the merchant processor to offer you reduced pricing.
Expected chargeback ratio can also make an impact on the pricing; the more control you have on chargebacks, the better rates you can expect.
The interchange plus pricing varies based on the geographical market. Domestic rates are generally a lot cheaper than international transactions, so if you have a lot of international customers, you will be paying high fees, but if you only sell in the domestic market, then you can potentially save a lot. However, in today’s market, most merchants sell internationally.
How to Avoid Getting Ripped Off
Getting ripped off in the CBD industry by a shady payment processor is not new. If you check on Reddit or LinkedIn, there are hundreds of stories like that, but if you are well prepared, you can definitely avoid such situations.
Make sure that you always demand an interchange-plus pricing breakdown from your payment processor.
Before saying yes to any option, explore various options in the market.
Carefully review your merchant account agreement, especially the termination clause.
Work with the processor that specializes in high-risk CBD accounts.
Why CBD Entrepreneurs Choose QuadraPay
There are many reasons why CBD entrepreneurs choose QuaraPay. The most important one is our specialization in high-risk processing. Over the years, we have worked with merchants from various industries that are considered difficult by regular, low-risk payment processors.
Our merchants work with us because our pricing is honest and truly transparent. For our merchants, we are their negotiation warriors, and we negotiate. We push the processors to give better pricing to merchants. Our solution comes with zero hidden or junk fees.
Stop Overpaying Starting Today: Request Your Free CBD Merchant Account Savings Analysis and unlock better rates.
Frequently Asked Questions (FAQ)
Q1: Why is CBD payment processing more expensive than regular industries?
It is true that CBD payment processing is slightly more expensive than regular industries. This is primarily because of the higher perceived legal risk, the potential of chargeback, and the regulatory complexity. Processors charge slightly higher fees just to offset these potential liabilities.
Q2: Can I lower my processing fees over time?
Absolutely, we have seen many CBD businesses renegotiating the rates. For this, you should follow the processor’s terms and conditions, bring in regular volume, and then you go back to the processor after 90 days and say, Let’s get this together and look at the statement. You can demand a better deal based on proven performance.
Q3: Is offshore CBD payment processing cheaper?
Merchants from all the high-risk industries think that offshore solutions are the best. As a matter of fact, offshore payment processing solutions should always be the second option. This is because in such a scenario, the payment processor is not located in your home country.