The last few months have been a tumultuous roller-coaster ride for anyone hoping to process payments in the CBD and hemp industry. Ask any vendor who sells CBD and hemp products who they’re using to take customer payment information and they’ll undoubtedly give you an eye-roll followed by a “WELL, let me tell you.” In fact, this very second, many CBD companies, some doing millions of dollars of business a year, are unable to take online payment currently. In this piece we’ll break down what a payment processor is, why it’s so hard for CBD merchants to find one and give some tips as to where CBD companies should be turning now if they don’t have a processing solution they’re happy with.
What is a payment processor?
It’s probably prudent to first define what payment processing is so that we can better understand why it’s currently lacking in the CBD space. The below illustration helps to show what happens when you enter your debit/credit card information online to purchase a product.
You can see that a payment processor is vital to this process, helping with steps 2 through 6. Essentially, the payment processor works as a “middle man” between the merchant (the website or store where you’re looking to purchase something) and the acquiring bank which provides funds to the merchant until the customers funds are then received by the bank. These processors must uphold strict financial and technology standards, such as being Payment Card Industry Data Security Standard (PCI DSS) compliant.
Why can’t CBD merchants find payment processors?
There are thousands of purchases processed successfully online every minute, so why can’t CBD and hemp companies find someone to process their payments? The real issue lies with the acquiring banks on the back-end. It’s these banks that are assuming all the risk with your transaction. These bank’s algorithms make nanosecond decisions on whether or not they think a customer’s card has the appropriate funds, authorization and verification to quickly and legally provide the required payment for a transaction. As such, these banks like to work with merchants whose customers and their associated transactions provide as little risk to them as possible. Additionally, they have to make sure that they’re following the latest letter of the “t”. And when those laws don’t yet exist, they interpret the existing laws to put themselves at as little risk as possible. The banking industry is all about minimizing risk.
All of this is to say that CBD merchants are being promised the world by payment processor brokers currently who know full well that they can’t provide what they’re promising. Payment processors take a percentage of each transaction, in addition to the percentage that the acquiring bank is taking. This often means making false promises to these merchants on the time it will take to get their applications approved and even being not exactly transparent about the associated fees. It is a numbers game for a lot of these brokers. They are trying to get as many names and businesses loaded into their customer funnel, whether they are confident they can actually get merchants up and running with CBD processing. Then, say something breaks loose with the industry (which has been said ad nauseum for the past 60 days) they can then turn these ‘leads’ into customers.
What solutions many CBD merchants have found are often charging exorbitant rates for their services. One of the most ubiquitous payment processing services, for example, is Stripe. For most businesses, Stripe charges 2.9% and $.30 on every transaction. They are an all-in-one solution like PayPal. They do authorizing and payment processing within the same platform, instead of calling out to an authorizer, like authorize.net or NMI. Additionally, Stripe offers approval of accounts in minutes. Payment processors that CBD companies have been having to turn to, on the other hand, are offering rates as high as 9% and can take weeks or even months to be approved meaning that these merchants are losing out on valuable sales.
So why does the guy selling t-shirts get a better rate than the gal selling CBD tinctures for processing the exact same individual’s credit card? Both products are legal; CBD as we now know, thanks to the 2018 Farm Bill. At least, I’m fairly certain t-shirts are still legal too but I’m not up to date on the most current apparel legislation. The reason these banks and payment processing companies give these two companies different rates all goes back to the idea of risk. The acquiring banks and then in-turn, the payment processors only want to work with merchants who have very low rates of charge-backs, returns, fraud-attempts, refunds and cancellations. All of these cause more work and thus higher cost for the acquiring banks and payment processors and they, therefore, either charge insanely high rates for offering their services or simply don’t offer their services at all to these merchants. These types of businesses are often considered “high-risk.” There are payment processors that deal specifically with these types of businesses but even some of these don’t allow CBD merchants. Just take a look at these businesses that Stripe classifies as “high-risk”.
Bankruptcy lawyers; remote technical support; psychic services; essay mills; chain letters; door-to-door sales; medical benefit packages; telemedicine and telehealth services; travel reservation services and clubs; airlines; cruises; timeshares; circumvention, jamming and interference devices; prepaid phone cards, phone services; telemarketing, offering substantial rebates or special incentives as an inducement to purchase products or services; telecommunications manipulation equipment; forwarding brokers; negative response marketing; subscriptions over one year; extended warranties; government grants; embassy, foreign consultate, or other foreign governments; charities without proper registration; credit card and identity theft protection; the use of credit to pay for lending servicefrom stripe.com
Airlines? Remote technical support? Timeshares? Many of these are legitimate and even vital business that these payment processing companies have classified as “high-risk” for one reason or another. With a current climate like this, where can CBD merchants even turn?
Members of congress whose constituents are stakeholders in the issue, specifically Kentucky Congressman Andy Barr, has been pushing the House Financial Services Committee for answers on the problem saying “I’ve had constituent businesses tell me that their access to financial products, specifically card services, have actually deteriorated since we descheduled industrial hemp in the Farm Bill. This obviously conflicts with congressional intent.”
Current CBD payment processing solutions
On March 15th, rather inconveniently the day we officially launched, Elavon Bank sent a letter to merchants who were processing with them through many different brokers and payment processors, that they would no longer be accepting payment after May 31st. This sent the industry into a bit of disarray as merchants struggled to find new solutions. Some estimates are that a majority of CBD merchants did their business through Elavon. First Albany Bank, one of the other large players in the space announced around the same time that they lost their VISA issuance and had to stop accepting payments from 1 of the big 2 players.
As May 31st drew nearer and nearer merchants worked with their payment processor representatives to find solutions. Many moved “offshore” and found international solutions that still had high rates. These solutions also often require a business to set up a foreign entity. Worse, they often lead to high decline rates for customer credit cards and/or foreign transaction fees which can be totally out of the merchant’s hands.
Others decided to use Square, PayPal, or even QuickBooks to exclusively and send invoices that way. This is risky choice however because there have been many reports of these companies seizing funds for weeks at a time from merchants utilizing this option. Still others have started using e-checks on their sites which requires a customer to enter their routing and checking account number to check out. None of these solutions are seamless to the customer and they are not long-term sustainable.
Currently there are a few solutions that we’re aware of at the time of writing this article. We as a company succeed when the whole industry succeeds so we want to be as transparent as possible in making these solutions widely available.
- Square has (quietly) announced an invite online pilot program for CBD merchants.
- Greenbox offers custom built solutions with their own proprietary CRM solutions on the back-end. This does require a decent amount of custom coding if integrating with custom sites however they do offer a WordPress plugin that integrates with WooCommerce. There have been unconfirmed reports that this solution has a lot of issues and customers have stopped using.
- HSBC is an international bank that has US offices. They have reportedly slowly started taking CBD merchants, starting with those with the highest volume. However, there have been reports of long start-up times once approved as HSBC is now having to build unanticipated infrastructure between the authorizing institutions.
- Mission Valley Bank is currently accepting applications but only for high-volume merchants ($250-500K depending on which broker you speak with).
- National Merchants is taking applications, but the communication is muted and approvals are not being reported.
- T1 Global Processing is an international solution that has higher rates but lower monthly volume requirements. There can be other higher fees here for both the merchant and the customer. You can also expect some higher decline rates as some customer’s banks will see as foreign transactions regardless of how cleverly routed the payment seems.
Know any solutions that we missed? We’d love to hear about them! Drop a comment below or send us a note to firstname.lastname@example.org
Our site is still active with one of aforementioned solutions. We’re working to find a better, less-cumbersome solution but in the meantime we’d still love to have you on-board and find an answer for your CBD needs. Just follow the instructions in the pop-up at checkout!