5 Things You Need to Know Before Choosing a High-Risk Merchant
As a CBD or other so called “high risk” company, it’s next to impossible to find a reputable merchant account. But the only thing worse than not having a payment merchant is choosing the wrong one and locking your company into a long-term contract that drains your profits. In our 20 years of experience, we’ve found that if you know these 5 things before choosing your CBD payment gateway or third party processor, you will find the stability your company needs to be successful in today’s volatile market.
Despite the global cannabis market being set to eclipse $30 billion dollars by 2021, financial institutions still consider clients in the CDB industry to be high-risk. This leaves honest companies struggling to find stable payment processors, or worse, forces them to work with merchants that charge extortionary prices to offset the risk. Between hidden setup fees, extortionate processing costs, and lengthy application processes, dispensaries and other CBD, hemp oil, or medical cannabis companies find it extremely difficult to find a credit card processor that both allows them to mitigate short-term risks and maintain long-term stability.
Why you should never rush your merchant decision
It’s the reality of the market that leads many companies to rush into their decision and take bad long-term deals. This is a major mistake that must be avoided for the sake of your profitability. If you rush your decision, you will:
- Pay more for each transaction, eating into your already thin profits
- Lose long-term flexibility by signing long contracts
- Suffer from lack of customer service
- Perhaps never gain instant access to your funds
And many more negative consequences. In an industry fraught with danger and where cash flow is vital to survival, this mistake can prove fatal.
You must think this decision through carefully and work with trusted experts that know the industry inside out.
Why You Have to Work with a CBD Merchant
While the global market for cannabis continues to grow (especially in the USA), the federal government still considers the drug to be Schedule 1 and therefore prohibited.
So as long as cannabis is part of the Controlled Substances Act, federally regulated institutions generally do not offer services to companies in the industry. The high risk is due to the fact that federal institutions can supercede state regulations and seize the funds should they desire.
This leaves companies like yours with only the option of private financial institutions. And this has lead to merchants who specialize in providing services to high-risk clientele.
But there is a problem….
The issue here is that merchants know your predicament. Most cannabis, hemp, or medical marijuana clients are in a tough situation. You need a payment merchant so you avoid all of the drawbacks of being a “cash only” company. If you can’t sell online or can’t accept credit cards, you are severely limited in terms of profitability.
In this situation, the leverage is entirely on the merchant’s side. You need them to survive. This leads to exorbitant setup fees, lack of services, and expensive processing costs.
Luckily, there are some good merchants that have made a reputable name for themselves (the Southern Institute has been helping our clients reduce costs and stay in business for two decades). Over the years, we have noticed that the best payment processors have a mixture of these 5 qualities.
Before doing business with a merchant, you must find out this information:
1. Cannabis Industry Legal Expertise
It should go without saying, but you’d be surprised how often we work with clients who explain the nightmare scenario of working with a CBD merchant who didn’t understand the complex legal structure of the cannabis industry.
While it is legal in many states, even in these circumstances you are subject to sets of laws and financial regulations that must be followed strictly. This is true for all companies but especially so for those in the cannabis industry where the government examines everything under a microscope.
In the CBD, hemp, or medical marijuana industries, your merchant must know how to deal with suspicious authorities who attempt to freeze your money at every juncture.
Before contracting with a company, be sure to test their knowledge of legislation or institutions such as:
- FinCEN Guidance: After the January 4th rescission of the so called Cole Memorandum, banks are in a precarious position when it comes to lending or providing payment services to banks. However, the Financial Crimes Enforcement Network (FinCEN) has a set of guidelines for institutions wishing to offer banking services. Be sure to quiz your merchant on their knowledge of these guidelines.
- Bank Secrecy Act
- The Department of Justice
- The Controlled Substances Act
At the Southern Institute, our partnership with the Steward Group gives us unprecedented access to high-risk experts that have forged deep relationships with big names in the industry. This deep familiarity puts us in the position of being a thought leader and expert in the inner workings of banking, government, and business when it comes to the cannabis industry.
2. Fee Transparency
While even the most honest companies will still charge higher fees than average for their services (this is to offset the immense risk they are taking on), good ones will never bombard you with hidden fees or charge unfair processing fees to their clients.
Make sure you are well aware of your merchant’s:
- Gateway fees
- Setup fees
- Monthly fees
- Transaction fees
- Administration fees
Of course, if the merchant is reputable and charging a fair price for each transaction, they won’t charge you any monthly fees or extras such as setup fees. And if they charge for something like customer service, then you need to run away immediately.
Tip: Be prepared to pay higher fees than average based on the risks the merchant incurs. However, never pay for termination, setup, or customer service fees. These are unfair and no reputable merchant does so.
3. Volume Transparency
It seems a bit counterintuitive at first (you’d think a merchant would want to do more volume), but the cannabis industry functions a bit differently. Sure, there are plenty of merchants willing to take on high volume transactions, but there are many that will degrade their services and even refuse to do business if it’s over a certain volume. The reason being because the more transactions they service the more they are responsible for. Remember, the federal government examines this industry under a microscope to a degree not experienced by any other. If your merchant starts doing heavy volume, the federal government will become more interested.
As a CBD client, you need long-term stability. Something you can rely on. Not someone who is going to discourage you from doing more business.
Ask your prospective merchants how they feel handling $10,000 per month in transactions, then build from there. Do they have the infrastructure to handle $100,000? You need a merchant that will help you grow not hinder it.
4. Customer Service Matters More Than You Think—Ask About it
At the Southern Institute, we pride ourselves on the level of customer support we provide all of our clients, and we only work with select clientele to maintain that support.
In an industry as volatile as this, customer support matters more than in any other. For example, if you were an ordinary business, you’d contact your merchant for minor payment issues or perhaps downtime. In the CBD industry, your merchant may have to battle the federal government for you or keep your company afloat when someone is trying to freeze your funds.
Our chargeback prevention feature is a major aspect of our customer service. It offers early warnings regarding bank data, rapid response, and automation features. Aside from that, we offer numerous other features and perks for clients that help you turn a long-term profit. Don’t contract with any company that doesn’t have a stellar record of customer service or commitment to providing extra services.
5. How Flexible is Your Payment Provider?
As your business grows, you will soon find yourself combating a number of new issues. And as you evolve, so do your needs and obstacles. Aside from fast and stable online payment processing, you must also contract with a company that offers customized services. For example:
- Do they serve international clients?
- Do they offer customized subscriptions?
- What are their recurring payment options?
- Do they offer chargeback protection?
These are just a few of the questions you should ask. Make sure you know as much as you can about the peripheral services offered by each merchant so you can plan for the future.
If you are in the CBD oil, hemp, medical cannabis, or other high-risk or high-volume industries, the merchant you choose will be absolutely vital to your survival. In a volatile industry, you must have intricate protections, legal expertise, fast response, and long-term stability to go along with transparency and affordable fees. If your merchant doesn’t offer you that, it’s time you look elsewhere. At the Southern Institute, we have been helping high-risk clients keep their doors open and maintain profitability by offering specialized payment services for a long time. If you are in the cannabis industry, consider using a payment merchant with a proven track record of serving industry clients for over 20 years.