What risk management tools are used on E-Cigarette payment processing accounts?
Processing companies have a wide variety of tools and strategies to mitigate the risks inherent in e-cig businesses. A common mitigation strategy is to require higher fees on each transaction than merchants in low-risk industries pay. Another tool regularly employed by processors is the creation and maintenance of a cash reserve of some type. Reserves can take a number of different forms, depending on the type of business and the individual situation of the high risk merchant in question. The two most commonly employed are:
- A rolling reserve is one of the most commonly used reserve model that holds back a fixed percentage of successful transactions (typically 5-10 percent) will be held in an account to pay for chargebacks, fraud or similar issues.
- A capped reserve holds back a percentage percentage of successful transactions (usually 5-15 percent of the transaction) until a fixed “goal” amount is reached. The amount of that goal is typically between one-half and a full month of the merchant’s monthly processing volume. Once the reserve goal is reached, the merchant no longer has to contribute to the reserve account.
A reserve is not always necessary and Durango can successfully setup processing without reserves if your business is doing less than $10-15K in volume per month. Higher volumes will typically require a reserve, but it’s case-by-case depending on financials, personal credit & processing history. A common fraud prevention tactic that many high-risk processors employ is to impose limits on both maximum individual charges and monthly credit processing volume; if your account exceeds these limits, the excess is withheld in your reserve account until the payment processor has verified there’s no fraud going on. If the right approach isn’t adhered to, then an unlucky merchant growing their business and doing all the right things – going to vaping conventions, employing great marketing, developing savvy social media presence – could still find themselves penalized for under appreciating the many risk mitigation strategies developed for the industry.
The e-cigarette industry is a legitimate field of business with a loyal and growing community of customers, and merchants who serve that community need e-cig credit card processing services from providers who won’t gouge them with fees, hide undesirable terms in the fine print of their contracts, or ignore phone calls when a merchant has a concern. The high-risk nature of the vaping industry means somewhat higher rates, but don’t settle for exorbitant fees and lousy terms because you think you can’t do better. Durango Merchant Services has helped hundreds of businesses find ecig merchant accounts with reasonable terms and room for growth for years to come.
Durango Merchant Services is here to help secure your E-Cigarette Merchant Account
Our dedicated team has negotiated on behalf of more than 12,000 clients. We understand the back and forth and give and take of negotiating processing accounts for high risk merchants, including hundreds of vape supply merchant accounts.
We know that there aren’t always easy answers. But remember, there is almost always a way forward and if you can make it through the first few years with a good track record, life will become much easier and your business will be better for it.