Allied Payments has the ability through our banking network to help merchants that other payment processors are unable to work with. In the higher risk alcohol industry, merchants need a partner that can provide consistent and low-cost payment processing services. Utilizing our network of banks, Allied Payments is able to establish financial relationships that specialize in high-risk merchant account services.
Online Alcohol Credit Card Processing
Similar to the tobacco industry, alcohol sales are highly regulated by the government and have strict age restriction guidelines. Different states have different laws for the sale of alcohol and Card Not Present (CNP) alcohol transactions. Understanding the different requirements for each state can make the sales process much simpler and reduce the merchant’s potential for liability.
With a solid knowledge of laws and the proper methods for verification, Allied Payments can help businesses grow without the concerns of legal issues. As the potential risk of underage sales looms, merchants struggle to prevent minors from beating the system. Improved verification and authentication programs have fueled the growing confidence of merchants selling online. The introduction of digital signatures and online age verification programs are drastically improving the safety and security of the alcohol e-commerce industry.
Requirements for Online Liquor Credit Card Processing
Payment processors that accept alcohol businesses will have additional guidelines for the merchants to complete prior to account approvals. Most financial institutions will provide a list of the legal documentation along with internal documents required the payment card networks. Most general e-commerce merchant services companies are unwilling to take these risks and will not be able to properly set up this business model.
Going through a complete and thorough underwriting process extremely important and necessary to prevent problems in the future. Payment processors are required to register their alcohol businesses with the payment card association as a card-not-present merchant. This requires a yearly fee paid into the payment card networks to cover fees incurred through Visa/MasterCard and Discover. In addition to becoming registered, many processors will also require merchants to seek out a legal review by a 3rd party to ensure full compliance of all laws.
One of the final parts of the underwriting process is a hands-on review of the merchant website. Underwriters will confirm that the merchant is using an age-verification program to control the sales of alcohol and limit the chances of underage sales. Payment processors will also want to verify that merchants are charging customers sales tax during the checkout process, eliminating another potential legal issue.
Why are online alcohol sales high risk?
Due to the high government regulation of the alcohol industry, payment processors are increasingly reluctant to take chances of working with these businesses. The costs stemming from problems with alcohol merchants outweigh the benefits for many financial services companies. While merchants are required to be licensed while maintaining age-verification programs on their websites, most processors still won’t accept them.
Along with strict age restrictions, merchants are also held under the microscope when it comes to collecting sales tax. As one of the most important fractures of alcohol sales, payment processors can be affected if proper sales tax is not collected. In addition to verification of sales tax being charged in the shopping carts, many payment processors will have merchants complete additional documentation for legal purposes surrounding sales taxes.
Some of the alcohol resellers will offer customers a type of membership program that bills on a preset frequency. These types of business models generally experience higher than normal chargebacks and returns than one-off sales. When a payment processor reviews this kind of merchant account, these concerns will usually make it a higher risk business type. If the application is approved, many times it will require a reserve or sales verification.
Another potential issue that can prevent a payment processor from approving an alcohol merchant is due to the infrastructure and inventory required to properly sell and process orders. As a capital intensive business, merchants need to package and ship orders in a timely fashion. This concern has translated into problems for smaller merchants that are unable to process sales in the same manner as larger distributors.
Reasons Alcohol Merchants experience Chargebacks
Chargebacks can occur for a number of reasons. A common problem for merchants in the alcohol industry concerns buyers remorse or a consumer that decides they do not want the product after purchasing. Whether the customer does not want to wait for the delivery or have another reason to cancel, some customers will chargeback rather than ask for a refund. While generally, this is not due to the merchant, it does cost merchants with extra fees and other expenses.
Problems with the shipping of products can be a significant factor behind a chargeback. Whether the item is back ordered or a problem occurs during the delivery process, customers will want their items arriving in a timely fashion. Delays will prompt customers to demand refunds or even chargeback on the transactions. While this is not the case with most merchants, it can become a problem and create concerns for the processors.
Customers that enter into a membership or buying club through an alcohol merchant have also been a reason for concern. These types of billing models can create both confusion and discontent months or even years down the road. Many consumers do not understand the agreement they are entering into or do not know how to cancel. Whether its high refunds or high rates of chargebacks, payment processors pay additional attention to these businesses.
Preventing Chargebacks with Alcohol Sales
Businesses looking to safeguard against chargebacks have a few ways to prevent those losses. While no method is completely chargeback proof, there are programs and tricks for merchants to follow that can help lower the potential likelihood.
One of the easiest ways for merchants to prevent problems, and potential help with chargebacks, is to provide the customers with clear and concise terms of sale. This can be done by making customers check off they understand the terms in the shopping cart prior to checkout. While many will still not read the terms, for the few that do it might help merchants prevent some of the potential problems businesses face.
Another method of limiting the threat of chargebacks is through ID verification. Though age verification is mandatory for online liquor sales, recording customer information can change some of the actions of consumers. By associating extensive consumer information to a customer, they might feel less likely to want to chargeback since the merchant knows them. While online alcohol sales are not as personal as a retail storefront sale, consumers might become more likely to work with the merchant than a more anonymous transaction.
After the order has been placed, expediting the packing and shipping process can help reduce losses during this process. Slow handling or delayed shipping can aggravate customers and end up with demands for refunded sales. In some cases, customers will contact their bank and request that the funds be returned to their payment card. While not all merchant’s problems can be simply prevented through these steps, some instances can be stopped before becoming costly.
The growth of Alcohol
The alcohol industry is a multi-billionaire dollar a year segment of our economy with annual sales exceeding $250billion. While the demand for alcohol continues to increase year over year, the types of alcohol have changed. The next generation of alcohol consumers has been turning the traditional industry upside down with their change in taste and consumer habits.
Beer consumption has dropped as consumers have shifted from mainstream brewers to craft brewers. The spending on beer has increased as the average price for a case of beer increased year over year. This is explained with the craft beer industry with consumers willing to pay more for a glass of beer while consuming less. This generational change has led to the creation of numerous local and regional breweries that would have not necessarily existed a decade ago.
The wine and hard alcohol industries have seen an uptick in popularity among drinkers. As consumers have flocked to more niche drinks, the rise in specifically crafted spirits has carved out its own industry. What was once claimed by wine vineyards, the spirits industry is seeing a resurgence. The demand for both wine and hard alcohol has led to the overall rise in costs associated with these alcohols.
Its never been more important for brewers, wine, and spirits makers to evolve with today’s consumers. Drinkers today are willing to pay more for a specific drink instead of settling for the cheaper alternative. This trend has been the driving factor behind the growth of online sales by producers to sell directly to consumers or through distributors anywhere in the USA.
Benefits of Alcohol Sales with Allied Payments
Merchants in the online alcohol industry need to partner with a payment processor familiar with their needs. At Allied Payments, we understand online alcohol businesses along with many of the problems and concerns facing the industry. Merchants that have an online beer, wine or hard alcohol companies are encouraged to contact our sales team for additional information about selling online. We would be happy to answer any questions or help you solve a problem with your current merchant services program.