The vaping industry has been growing at a furious rate, encouraging business owners to invest in the e-commerce space. The World Health Organization estimates that the number of smokers around the world has declined from 1.4 billion in 2000 to 1.1 billion today, yet vaping has become more popular among teenagers and young adults in the 2010s.
The number of e-cigarette users surged from 7 million in 2011 to 35 million in 2016, and the figure is expected to reach 55 million by 2021, according to a BBC study. The publication’s research also found that spending on e-cigarettes has risen from $4.2 billion in 2011 to $22.6 billion in 2016, with $12 billion in sales coming from U.S. vapers.
Selling e-cigarettes and cartridges online is becoming an especially lucrative business, as one of the industry’s biggest names in Juul saw its sales increase nearly 800% in its last fiscal year. Nevertheless, a series of challenges, new regulations and charges associated with implementing a payment processing services provider for online sales of e-cigarettes have made it difficult for e-commerce vape businesses to thrive in 2018.
Challenges With Finding an Online Merchant
Right off the bat, one of the challenges with opening an online vape store is finding a merchant willing to take on the risk associated with tobacco products. Selling any form of tobacco merchandise, whether it be e-cigarettes, vaping cartridges and accessories is high risk, which is why may merchant account providers will avoid doing business with you altogether.
Payment aggregators such as PayPal and Square are likely to turn you down or freeze your merchant account without warning as these companies would rather be safe than sorry. Even mainstream financial institutions such as banks are shying away from the vaping industry due to the aforementioned risk factor.
The e-cigarette world is considered to be high risk due to the increased chance of chargebacks and fraudulent charges associated with the business. Not having a card present for the sale of tobacco products makes it difficult for banks to accept vaping businesses. Plus, it’s harder to enforce the sales of tobacco products to minors when selling online.
These factors, combined with a number of new U.S. Food and Drug Administration (FDA) regulations, make it a challenge to find a vendor willing to take on that risk.
New FDA Regulations on Vaping Payment Processing
Back in August 8, 2016, the FDA passed a new law that have negative repercussions on payment processing services for vape products. The rule states that vaporizers, vape pens, e-liquids, e-liquid containers, cartridges and several other products associated with the use of electronic cigarettes will be regulated in the same way as cigarettes, according to the 2007 Family Smoking Prevention & Tobacco Control Act.
As far as payment processing services go, online e-cigarette vendors will now have to pay $1,000 a year to accept credit cards as a form of payment for their products. This is because $500 will go to Visa and the other $500 to MasterCard to register with the two credit card companies, continuing a law that affects the online sale of cigarettes and other tobacco products.
In most cases, e-commerce vaping businesses will also have to obtain a letter from their attorney, stating that the store is in compliance with age verification and other applicable laws. This means that starting an online e-cigarette business will cost at least an extra $1,000 a year, before considering attorney fees and new product registration fees.
Due to all of these factors, it is harder than ever for an online vape store to find a merchant who’s willing to take on these risks. Your best choice moving forward would be to find a high-risk merchant with experience dealing with online tobacco vendors. They’ll be able to deal with the risks associated with fraud and chargebacks at a reasonable price.
Our team at MerchACT offers high-risk merchant payment solutions for businesses of all sizes across the world. We’ve been in business for over a decade, helping online companies in the U.S. and abroad navigate through the challenges of credit card processing.
There are countless e-commerce businesses that have chosen us to help them develop their first merchant payment portal. Contact us today.