Learn about the risk factors associated with supplement/nutraceutical businesses and how to shield yours from financial loss to maximize profits when setting up a merchant account.
“Nutraceutical” is a buzzword in the supplements industry, but what exactly does it mean?
It’s a combination of the words "pharmaceutical" and "nutrition," and a category of the umbrella term “supplement.” Supplements are isolated, condensed vitamins, minerals and other food derivatives that help fill gaps in an individual’s diet (e.g. vitamin C, magnesium, potassium, etc.), while nutraceuticals aim to go beyond basic nutrition supplementation by enhancing some aspect(s) of an individual’s health. Some examples are garlic capsules, spirulina powder, probiotics and echinacea.
Nutraceutical is not a term endorsed by the FDA, and in most cases falls under the FDA’s categories for dietary supplements and food additives. Supplements and nutraceuticals are terms sometimes used interchangeably and can include weight loss products, athletic performance boosters like creatine, botanicals and even caffeine. Both usually come in the form of tablets, capsules, powders or liquids. They do not need FDA approval before they hit the market, but their sellers are legally responsible for following labeling, advertising and ingredient requirements specified by the FDA.
Federal law forbids supplement advertising that claims disease-preventive effects. According to the FDA, “supplements are not intended to treat, diagnose, prevent or cure diseases.” Therefore it’s important that supplements don’t make claims like “treats Lyme disease” or “relieves pain.”
If they do make such claims, they fall under the FDA classification for drugs and must undergo pre-market testing for safety and effectiveness before approved for sale. Verbiage in labeling and advertising is extremely important to maintain a supplement/nutraceutical business, and BankCard USA offers guidance for startups in this area when setting up their first merchant account. For more information about laws and regulations, visit www.fda.gov.
High Risk Factors
These products tend to run into problems with credit card payment chargebacks. When they elaborately advertise amazing health effects that individuals don’t end up experiencing, customers who pay with credit cards are able to leverage the chargeback system to reverse purchases. The most common example is for weight loss supplements. Americans in particular spend billions in the dieting market, which is flooded with weight loss products and other “miracle” supplements.
Even if the weight loss product is legitimately helpful, customers don’t always change other aspects of their diet necessary to experience its full effects. For example, a customer who takes a weight loss supplement yet still consumes 4000 calories a day with no exercise might not see the same results as a customer who takes the weight loss supplement as directed with other lifestyle adjustments. The first customer is more likely to initiate a chargeback against the business. A few other contributing factors to the industry’s high risk label include:
- Ecommerce as a popular distribution channel, making fraud more of an issue
- Adverse side effects from ingredients in the products
- Misleading advertising and labeling
- Buyer's remorse when the product doesn't meet expectations
- Lack of product integrity (e.g. dilution of active ingredients, selling expired or adulterated products, etc.)
- Regulatory risks (e.g. misbranding, using illegal ingredients, etc.)
- The popularity of free trial and recurring billing business models
While these qualities don’t describe every “nutra” business, they’re prevalent enough in the industry to cause financial institutions to consider them common risk factors for this business type as a whole. Despite these challenges, the market is huge and rapidly growing. Millions of Americans take simple vitamins and minerals, or a multivitamin, as part of their health regimen, and millions have tried weight loss, athletic performance boosting and other products in this industry.
Setting up a Merchant Account
Many merchant service providers won’t do business with nutraceutical merchants—period. It comes down to their relationships with the sponsor banks who dictate which industries are off limits. BankCard USA has longstanding partnerships with sponsor banks who are willing to do business with nutraceutical/supplement businesses, and we have a growing portfolio of clients in this segment, giving us the experience we need to customize a payment solution that will meet your needs. To protect your business and our investment in it, we make sure that you have clear refund and privacy policies, compliance with regulations and chargeback shielding tools as we set up your merchant account.
We offer a wide range of credit card processing products and services including the following:
- Automated recurring billing to accommodate memberships and subscription services
- Chargeback prevention tools specific to trial and free offer business models
- Specialized pricing for B2B enhanced data transactions (this is particularly relevant for manufacturers and wholesalers but can benefit ecommerce and retail merchants as well)
- Ability to accept credit, debit, electronic check, alternative ACH payments, and mobile payments such as Apple Pay, Android Pay and Samsung Pay
- Next-day funding
- Virtual terminal for accepting payments over the phone (MOTO)
- Feature-rich countertop POS system for your retail store
- Online payment gateway to accept payments on your website
- Integration support that allows your payment gateway to work seamlessly with other website features such as shopping carts, loyalty program software and accounting apps (QuickBooks, FreshBooks and more)
- Mobile processing app and small card reader that attaches to your smartphone for the ultimate portability when you need to accept payments at a trade show, event, client’s home or wherever your business takes you
- Advanced fraud detection tools that allow you to set custom filters and thresholds on your payment gateway. For example, you can set a limit on the amount of transactions you accept in one hour, curbing fast, high-volume fraud attempts common in the ecommerce space
- Insightful online reports to measure your business performance at a glance and guide smart business decisions
- PCI compliance fulfillment, including complementary vulnerability scanning for ecommerce and IP-connected terminal merchants
With a supplement/nutraceutical merchant account from BankCard USA, you don’t have to settle for exorbitant processing rates, hidden fees and slow equipment. In fact, our low rate guarantee ensures you’re getting the lowest rate of any verified provider. In a free consultation, we’ll show you exactly how.