Selling alcohol online might sound easy. However, what about the payment solutions for alcohol sales? Well, there is a bit of a story to that.
The payment solutions for alcohol come with unique hurdles and compliance headaches that the majority of merchants never encounter. From state-by-state legislative labyrinth to age verification requirements, processing payments for alcohol sales is a whole new level of difficult.
Let’s be honest here…
Alcohol merchants are typically tagged by payment processors as “high risk”. That is in a nutshell, meaning the merchant should expect higher fees, more robust terms, and a substantial amount of paperwork. Failing to handle the situation the right way could get a merchant account terminated, which means the business is stuck with no ability to take payments.
Without going through all of the peculiarities of Alcohol Payment Processing Solutions Guide, we’d like to help you navigate through it.
The list of the things you can find in this blog:
- The reason behind a merchant being tagged as high risk;
- The Regulatory Infographic every alcohol merchant needs to know;
- Peculiarities and Solutions to the Challenges with alcohol payments;
- Search for a Payment Partner for Alcohol Merchants.
The Reason Behind a Merchant Being Tagged as High Risk
Banks and payment processors have sufficient reasons to be suspicious about alcohol businesses. There are industry-related risks which make traditional processors very apprehensive.
Let’s look at the reasons behind why alcohol is considered a high-risk business.
Age Verification Requirements
Each alcohol purchase should be compliant with a legal purchase age. When it comes to online sales, this brings tremendous challenges as opposed to buying something online or at a retail store. At a retail store, the seller can easily check the ID. In the online world, however, digital age verification services are required.
One should get this wrong at their own peril. Serious penalties such as hefty fines, revocation of license and hefty legal actions, etc., are present.
Complex Regulatory Landscape
As we stated above, in most of the cases, alcohol laws differ in every state. A method of selling alcohol, which is compliant with the law of California, might be totally prohibited in Utah. Hence, if the processor will not account for the differences, it will make a transaction more challenging. Working with a specialist provider like 2Accept for your alcohol merchant account can help navigate these complexities with confidence.
Higher Chargeback Rates
Subscription wine clubs, delayed shipments, product quality claims all lead to higher chargeback rates. Based on Stripe, any merchant that experiences a chargeback rate of over 1% will likely have a high-risk business model and could face chargeback penalties from their payment processor.
Chargebacks have severe implications such as additional fees and administrative burdens to your costs and, in the worst scenario, termination of your account.
The Regulatory Infographic Every Alcohol Merchant Needs to Know
The regulatory framework and anti-fraud compliance requirements that alcohol payment processing solutions should address can be depicted with this infographic:
Peculiarities and Solutions to the Challenges with Alcohol Payments
We have enumerated the most critical problems with the payment processing solutions for alcohol online and offline. The next step should be looking at how we can tackle those problems.
High Processing Fees
For a Merchant of Record, being classified as high risk is inevitable. That, by far, does not imply it is impossible to decrease the cost. A company can lower processing costs by:
- keeping chargeback ratios to a minimum with transparent and well-documented policies;
- providing top-notch customer service to rectify disputes at the early stage;
- using Fraud prevention tools and services to decline dubious transactions;
- building a positive processing history with stable processing volume.
Account Termination Risk
Payment processors are taking their eye off the merchants’ chargeback ratios. According to industry data, Visa merchants that reach a 0.9% chargeback ratio are flagged by the payment processor. One more tick over this invisible but strictly tracked limit can make your business lose its account with little to no notice.
The solution to the issue of keeping chargebacks under control is proactive chargeback management, which implies the usage of well-documented policies with clear billing descriptors. Hence, businesses should have refund policies and extremely responsive customer support to handle chargebacks, as they occur.
Integration Complexity
Alcohol payment processing solutions have to be integrated with numerous age verification services, inventory control systems and databases, and compliance databases. There is no denying the fact that if a processor has a built-in system to integrate with the mentioned services and platforms, it will save time and reduce errors.
To put it simply, the processing service provider should have the alcohol industry experience to be ready for all of the alcohol industry specific requirements.
Search for a Payment Partner for Alcohol Merchants
On one side, every merchant has its standard set of requirements for payment partners. However, with alcohol payment solutions, a provider should not just tick off the boxes. There is a very high chance of you getting a solid payment partner with general experiences who, at the same time, can handle the challenges from the list provided above.
There are a few important things to search for in a payment processing solution for alcohol merchants:
- The capability of dealing with alcohol regulations
- Built-in or integrated age verification tools
- Chargeback prevention tools
- Straightforward fees model and lack of hidden fees
- Responsive compliance support.
Besides the search, a person should be able to pick up the red flags when it comes to a provider.
There are few red flags a person should pay attention to when it comes to selecting a payment processing partner for alcohol merchants:
- Limited knowledge about alcohol industry regulations;
- Hidden fees and unclear contract terms;
- Limited support and solutions for compliance issues;
- The lack of chargeback management tools.
The appropriate payment partner understands alcohol payment processing is not about moving the money from one point to another. It is about handling an incredibly intricate regulatory environment and satisfying all of the compliance requirements at the same time to protect both the merchant and the consumer.
Wrapping Things Up
The challenges that alcohol payment processing solutions should be prepared to handle are far from being simple. The whole range of age verification, state-by-state legislation compliance, and high chargeback risk makes this a unique industry.
On the bright side…
We have both the solutions and the tools to address the complexity of payments in the alcohol industry. Understanding of the regulations, taking specific and complicated compliance measures, and working with an experienced payment processing partner are critical for an alcohol business to run smoothly and make a profit.
Here are the main takeaways from the blog:
- Alcohol merchants are labeled as high-risk due to regulations and high chargeback ratios.
- State-by-state differences requires flexible solutions;
- Proactive chargeback management is necessary to protect your merchant account;
- Specialized payment partners know the unique requirements.
The regulatory environment is continuously evolving. Staying informed and working with the experienced partner is the best way to ensure alcohol payment processing solutions will be addressed successfully.