How to Choose a CBD Payment Processor
A customer making a CBD purchase at a CBD shop
Credit: Adaptiv Payments
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A reliable CBD payment processor is one of the most important tools you can have for your business, boosting both cash flow and customer satisfaction. However, the hemp-derived CBD product industry is classed as a high-risk industry by payment processors, meaning you need to choose the right payment processor for your needs. This article will outline the high-risk merchant services you'll need for seamless card payments.
What You’re Actually Choosing (Payment Gateway vs Payment Processor vs Merchant Account)
Payment processors, payment gateways, and merchant accounts are all part of the transaction ecosystem, each with its own role in the process.
A secure payment gateway allows the smooth transfer of payment information to the payment processor. These gateways use encryption and tokenization to prevent fraud. Payment processors then transfer the money from the customer's account to the merchant's account by authorizing the payment, capturing the transaction details, and settling the balance.
Credit card companies will not allow you to accept payments without a dedicated merchant account. This account is an intermediary between the customer's account and your business bank account. It holds funds until the processor has fully settled the transaction. Chargebacks or reserves are held here until everything is settled.
With a CBD-friendly merchant account and a compatible payment gateway, CBD businesses have everything they need for seamless transactions.
How to Choose the Right CBD Payment Processor
Many traditional banks and other financial institutions do not work with CBD businesses, meaning these companies turn to high-risk payment processors. Choosing the right CBD payment processing company requires considering how their policies and processes align with your needs, as well as whether they have robust security measures that will protect you from fraud.
Underwriting Fit
Payment processing services have an underwriting process to ensure that your business model does not pose an unacceptable risk. What may cause a denial by one payment processing service may not be a problem for another. Consider these factors when determining whether a payment processor meets your needs:
- What product types does the processor accept?
- Is there clear guidance around payment processing for hemp-derived versus cannabis-derived CBD?
- Are there restrictions on THC content?
- What are the lab testing expectations?
- Do they request Certificates of Analysis?
- What are their website or policy review expectations?
Asking these questions ahead of time can ensure a swift CBD merchant account approval and faster funding.
Chargeback Management
Chargebacks are a common problem due to issues like delayed shipping, canceled subscriptions, or confusing descriptors on invoices. A good CBD payment processor will have advanced chargeback prevention and management tailored for high-risk industries.
Look for chargeback alerts and monitoring, dedicated account managers to assist with representment, and clear evidence standards for chargeback requests.
Fraud Protection Without Compromising Profit Margins
Any company that accepts credit card or debit card payments must have a fraud protection system. Many financial institutions charge higher processing fees to address payment card fraud, thereby reducing revenue.
Quality CBD payment processors will have robust fraud protection for high-risk merchants without high fees. Address Verification Systems (AVS) or Card Verification Value (CVV) are a baseline, while velocity checks and device or IP signals can also track potential fraud in real time. 3DS is an additional security measure that can be used for high-risk credit card processing, such as larger transactions.
Integrations and Checkout
A quality high-risk industry payment gateway should ensure seamless integration with your existing systems. Integration support means that the payment processor provides tools, such as a REST API or SDK, to connect with your website, POS system, or CRM system.
Some high-risk payment processors also have pre-built plugins for common ecommerce platforms, making it easier to set up your gateway.
Tokenization and hosted checkouts provide extra data security for merchants, as it means that sensitive information, such as credit card numbers, is never stored on your servers. The money is transferred from the customer's account to your CBD merchant account without your system processing anything.
Match the Right Payment Processor to Your CBD Business Model
As the CBD industry continues to grow, companies increasingly want tailored services that precisely match their business model. A reliable processor can offer additional services, like inventory management for subscription-based models or low transaction fees for cross-border sales. Ensure your payment processor has the infrastructure and experience to handle your business model by considering these factors.
| What Matters Most | What to Ask | What to Prepare | |
|---|---|---|---|
| [Subscription] (https://adaptivpayments.com/industry/subscription-merchant-account)or continuity CBD packages | Recurring billing transparency and consistent processing | What support do you provide for subscription billing, such as automatic renewal notifications? | Average monthly transaction volume for subscriptions |
| High AOV and high-ticket processing | Robust fraud prevention using AVS,3D Secure, and real-time monitoring | Do you have daily or monthly transaction limits, and what chargeback management services do you provide for high-ticket items? | Transaction record showing average order value |
| Cross-border sales | Reasonable monthly fees and payment processing in multiple currencies | Are you familiar with the international CBD market, and how do you minimize transaction fees for foreign currency? | Processing statements with average transactions by region and currency |
| New store or store with no processing history | Common-sense underwriting policy based on the business model | What payment processing history do you require, and are there alternative underwriting documentation guidelines? | Bank statements, any available processing history, and comprehensive business plan |
| THC and delta-8 product support | Industry experts with regulatory experience | Do you only handle CBD transactions, or do you also provide support for THC and Delta-8 products? | Certificates of Analysis from third-party labs and proof of regulatory compliance |
Payouts and Funding Times
Funds are not released immediately from your acquiring bank into your business bank account. The delay may be as short as 48 hours, not excluding weekends and bank holidays, or as long as a week, depending on the payment processor's policies.
Payout schedules vary depending on chargeback rates, average order value, and security measures. Before signing up with a CBD payment processor, ask them about their funding schedules and reserve releases, including what factors into payout times and how the processor determines a merchant's risk.
Reserves and Holds
Rolling reserves mean that the payment processor holds a percentage of your credit card transactions, typically 5% to 20%, for a set period. This could range from 90 to 180 days, depending on the level of risk. Once that period is over, the funds are released.
Rolling reserves are standard practice in high-risk payment processing, as they protect the processor from financial losses. However, even a standard payment processor may trigger rolling reserves due to high chargeback rates, fulfillment delays, or spikes in transaction volume.
A reliable CBD payment processor should provide transparent terms around rolling reserves, including what percentage is held and for how long. They should also explain any contingencies, such as holding a higher percentage in reserve based on specific triggers like a change in chargeback ratios.
Provider Types for CBD Transactions
A CBD customer making an online purchase through a secure checkout
Credit: Adaptiv Payments
There are several types of CBD payment processors, making it crucial that you choose the right one for your needs.
- Payment Aggregators or Payment Facilitators (PayFac): A payment aggregator groups many smaller businesses under one master merchant ID, while a payment facilitator is an Independent Sales Organization (ISO) that works with an acquiring bank. These processors offer quick onboarding, low setup fees, and strict monitoring, but they are more likely to shut down restricted categories, such as CBD merchants.
- Dedicated High-Risk Merchant Account and Gateway Stack: These CBD payment processors offer merchant accounts and payment gateways, meaning one processor handles each step of the process. There is more underwriting involved, meaning onboarding takes longer. However, these processors offer more customizable services and greater stability.
| Payment Processing Type | Pros | Cons | When to Choose |
|---|---|---|---|
| Payment Aggregators/PayFac | Quick underwriting, low setup cost, strong chargeback mitigation | May unexpectedly close CBD business accounts | Good for low transaction volume with small customer base |
| High-Risk Merchant Account and Gateway | More control over services and long-term relationship with processor | Longer and more rigorous underwriting process | Good for those who need customizable processing and high transaction handling |
FAQs
The CBD industry is considered a high-risk business model because of the legal complexity, age verification requirements, and high chargeback rates.
Why Adaptiv Payments Is the Best CBD Payment Processor for Your Business
Adaptiv Payments' high-risk merchant accounts are tailored to the unique needs of CBD businesses, with customizable processing and dedicated account representatives with years of experience in the industry. With advanced chargeback mitigation, real-time fraud monitoring, and integration support, we ensure you and your customers can enjoy a seamless payment experience for brick-and-mortar or online sales.
When you work with us, you're building a relationship with one of the most trusted names in the CBD payment processing industry. Contact us to get a free quote and learn more about our approach.
