Many nutritional and health-conscious nutra companies have emerged over the last decade, both supplying and stoking the demand for these supplements. Unlike many other segments of the healthcare industry, nutraceuticals have minimal government regulation and oversight. This had led to many different manufacturers creating products and companies, many times affiliate marketing websites, selling them under false pretenses with fraudulent claims about their products. These problems have tarnished the reputation of the industry and branded it as high risk among payment processors, leaving online nutraceutical merchants struggling to find credit card processing.
What are Nutraceuticals?
The nutraceutical industry, also known as nutra, consists of many different types of products. The name is Nutraceutical derives from a combination of the words nutrition and pharmaceutical. Nutraceutical products are food or fortified food products that supplement the diet but can also assist in treating or preventing diseases. While providing medical benefits, nutraceuticals are not tested and regulated to the extent to that of pharmaceutical drugs.
Some of the most common types of Nutraceuticals include:
- Dietary Fiber
- Dietary Supplements
The Nutraceutical Business
Since many of the products sold through nutraceutical and supplement channels have little to no government oversight, results are generally unknown. Many products come with claims of helping with various ailments or providing necessary supplements, many of that are unconfirmed. This has opened the door to numerous online companies and products flooding the retail markets making a variety of health claims. Many times these businesses offer free trials or other programs to sign up customers, only to experience problems later on after the billing cycle has finished.
Currently, the government has not required the same testing and proof as that of the pharmaceutical industry. Some of the larger and more established nutraceutical companies in the industry have performed their own independent testing to add legitimacy to their products. Unfortunately, most businesses do not invest the time or money into testing their products before taking them to market. Until tougher regulation of the nutraceutical industry is required, the industry will remain generally unregulated.
Acquiring banks and underwriters have a tendency to scrutinize applications for nutraceutical merchant accounts because of the liability for both the products and billing practices of their credit card transactions. Many nutraceutical companies have experienced chargeback or other problems with the banks and ultimately a disruption in their payment services.
Merchant Account SIC codes for Nutraceutical Services
Nutraceutical products are generally categorized by the US Government using the Standard Industrial Classification (SIC) System. The SIC system identifies the primary purposes of the businesses and uses that for categorization. The most commonly applied SIC codes to nutraceutical products include:
- 2023: Dry, Condensed, and Evaporated Dairy Products
- 2833: Medicinal Chemicals and Botanical Products
- 2834: Pharmaceutical Preparations
The use of the North American Industry Classification System (NAICS) has become more prevalent among businesses. Since 1997, the most commonly applied NAICS codes for the Nutraceutical industry include:
- 325411: Medicinal and Botanical Manufacturing
- 325412: Pharmaceutical Preparation Manufacturing
- 812191: Diet and Weight Reducing Centers
Allied Payments specializes in payment processing for merchants offering products that fall into any of these industry categories. With an extensive history of partnering with these online businesses, Allied Payments is able to place most merchant accounts regardless of the products, services, or industry.
Nutraceutical Merchant Account Requirements
Businesses can easily begin the process to apply and set a nutraceutical merchant account with Allied Payments. Once completing the quick application, nutraceutical merchants will also be required to submit the following documents to begin the underwriting processing:
- Valid Drivers License or Passport
- A Social Security Number or Employee Identification Number
- Voided Check from the business’ checking account
- Last 3 to 6 months of payment processing statements
- Last 3 to 6 months of business bank account statements
- Fully functional website with a shopping cart
Concerns with Merchant Accounts for Nutra Companies
Underwriters will review the information from the application along with the supporting documents to determine if the nutraceutical business is acceptable for nutraceutical merchant accounts. Some of the most important factors that will be considered when reviewing a merchant’s application package are:
- Low Credit Score
- History of Bounced Checks and Negative Bank Balances
- History of Late Bills and Unpaid Accounts
- Credit card chargebacks over 2%
- Easy to Find and Understand Terms and Conditions including Refund policy
Merchants that pose any type of concern, especially low credit scores, a history of not paying bills, or maintaining cash on hand will run the risk of being declined when applying for a merchant account. Underwriters from the banks will view merchants with a poor financial track record, including credit score, as a potential risk. Businesses that have strong financials but experience excessive chargebacks also run the risk of being declined due to their online business practices.
Limiting the risk of losses is the goal of underwriters reviewing nutraceutical credit card processing applications. Merchants that want a fast and simple application process can make sure they have a strong financial history before applying. Keeping the chargeback ratio below 2% is also important during the application process. Businesses that can do this will generally be set up with fewer restrictions than another nutra merchant in the industry might face. This can include lower rates, higher monthly volume limits, and no reserves placed on merchant accounts.
Merchant Account Problems in the Nutraceutical Industry
One of the largest problems in the nutraceutical supplement industry is chargebacks. Chargebacks occur when a consumer does not accept the charge placed on their credit or debit card and has taken up the issue with their bank. Chargebacks claw back the funds from a merchant within a window of 6 months from the date of the sale. Having an excessive chargeback ratio is both costly and problematic for merchants and banks.
Merchant acquiring banks have serious reasons to be concerned about a business’ chargeback problems. High levels of chargebacks can jeopardize the relationships the acquiring banks have with the various credit card networks. Acquiring banks will also want to make sure that merchants cover the costs for their chargebacks. High levels of chargebacks will equate to high fees and if merchants do not pay, it is the acquirers’ obligation to pay.
Billing with Nutraceutical Credit Card Processing
Many nutraceutical merchant accounts operate using a continuity-based subscription model. This means that customers will be charged monthly until they contact the merchant to cancel their subscription. Many times these billing models start with a low introductory fee, possibly even a free trial, but will rebill customers at much higher prices. This can come as a shock to some customers and cause them to dispute the charge direct with their bank instead of contacting the merchant first.
Another problem occurring in the nutraceutical industry surrounds the products and their unsubstantiated claims. As an unregulated industry, many of the products sold online today are not required to have their products tested to validate their claims. This means that consumers purchasing these products in a trial order could very well not experience any of the results promised. This leads to many customers becoming unhappy and deciding to take up the issue directly with their bank or credit card company, instead of the nutraceuticals company.
Business Solutions helping Nutraceutical Merchants
There is no absolute solution to fix chargebacks. Every case will have its own unique reasons that might not be covered with a blanket change done by the merchant. But there are a number of steps that can be taken by businesses to help reduce the number of chargebacks they are receiving.
One of the easiest ways to lower chargeback rates is by refunding customers that are unhappy with a product. While many merchants might try to dispute any problems with producst or services, many times it is better to simply refund the charge and forgo any more problems. Merchants that try to dispute a chargeback will be required to explain the full situation and only at that time will the bank decide an outcome.
Many times chargebacks can be traced back to the actual description of the transaction. This can occur when customers are reading through a monthly payment card statement and realize that they do not recognize a transaction. Having a clear and concise company name and customer service phone number will allow customers to reach out directly to merchants. In the event that customers are unable to speak to the merchant, they might opt to call their bank and question the transaction. This will start the chain of events that can end up with an ensuing chargeback.
Another good business practice is to keep customers informed about their purchases. Providing receipts for transactions can help customers understand and acknowledge that their payment charge has been or will be charged soon. Providing customers with a phone number and email address to question their charges, or cancel future billings, will help drastically lower the chances of chargebacks and having merchant accounts closed.
A final way for merchants to prevent chargebacks is through a 3rd party system specializing in chargebacks. These companies utilize proprietary software services that work with the payment card networks to alert and respond to potential chargebacks. These programs are ideal for nutraceutical merchants and other subscription-based products that face a high percentage of chargebacks which could otherwise be resolved by refunding the consumer. Many banks and payment processors have services available to help monitor and alleviate these problems.
Open a Merchant Account and Process Nutraceuticals Payments
Merchants in the nutraceutical industry in need of a reliable payment processing service are welcome to contact our team. Our knowledge of the nutra industry has helped us become a leading nutraceutical processor of recurring and subscription-based products. Our strong relationships throughout the banking industry will allow us to work with all types of nutraceutical businesses, from startups to established companies. Even for companies that have a potential chargeback problem, our team can help align a business with the right services to help.
Merchants with sales that are currently processing payments in the nutraceutical industry are welcome to contact us with questions or price quotes on our nutraceutical merchant accounts. Startup companies can usually get approved with very reasonable credit limits in as little as 24 hours through our team of experienced high risk underwriters. We look forward to forging new and long-term relationships in the nutraceutical merchant services industry.