You may be surprised sometimes that the product is legal and the business is licensed, but still, why do most of the payment processors refuse to offer merchant accounts to businesses that sell e-cigarettes, vapes, and other headshop accessories?
It will help if you know the real reason behind the same. Smoke shops, vape retailers, and headshops are all classified as high risk by most of the acquiring banks in America, Europe, and australia. This is because of many reasons and not just one. And yes, these are not related to the legality of business. The legality aspect is a general term, and all merchants should have legally registered businesses. The reasons that demotivate payment processors to onboard Vape, ecig , hookah, CBD and Head shop merchants are listed below in this table for you. I hope this helps.
| Risk Factor | Detail |
|---|---|
| Dual-use product perception | Pipes and related accessories are mostly legal for tobacco, but they are often associated with cannabis, which can definitely create caution among low-risk payment processors. The solution is to find a High Risk PSP. |
| Regulatory uncertainty | Vape and e-cigarette regulations frequently change at federal, state, and local levels. The laws can also vary based on the nation of the merchant’s registration. US , EU Australia, Zealand, and Canada are all nations that have laws that vary. Providers working with international merchants are required to go through the strict and complex rules of various nations if merchants sell internationally. That’s a complex task. |
| Age verification requirements | Federal PACT Act and state laws require strict age verification for online tobacco and vape sales. Similar laws are applicable in other nations. Merchants must ensure they comply as per the laws in each nation where they sell. |
| High chargeback exposure | Consumable products such as e-liquids and disposables have higher dispute rates. If the chargeback ratio touches 1%, then most Low risk providers will shut down the account. Some may even do it early. |
| Banking restrictions | Many acquiring banks restrict tobacco and paraphernalia merchant category codes. Banks do this for regulatory reasons and also to protect the reputation. |
| CBD crossover | Retailers that also sell CBD products face an additional risk classification layer. It becomes difficult to board such accounts. However, if the merchant ensures to remove challenging products, then approvals can become easy with specialized high-risk psp’s. |
| Kratom crossover | Stores stocking kratom may face additional scrutiny from payment processors. Please note that sometimes the main reason for the decline of applications is because the merchant sells kratom at a head shop. For Kratom specialized accounts, solutions should be explored. |
| Online sales complexity | Card-not-present vape or tobacco sales require strict PACT Act compliance. |