Top Challenges in Tobacco Payment Processing and How to Solve Them

Running a tobacco business is already a difficult endeavor, but getting the ability to accept payments in all forms can feel like an uphill battle. Brands in the tobacco, cigar, e-cigarette, and rolling paper industries are often viewed as high-risk businesses by banks and payment processors. This limits their ability to accept a wide range of credit and debit cards.

This is largely due to strict regulations, age-verification requirements, changing state and federal laws, a heightened risk of fraud, and chargeback rates that are consistently above average. Most mainstream processors just aren’t prepared, or willing, to handle that level of scrutiny.

As a result, tobacco businesses frequently encounter frustrating issues that do more than just stunt sales. This is where Adaptiv Payments comes into play. We specialize in high-risk merchant accounts and have over a decade of experience helping businesses in restricted categories accept payments safely and legally. We can help you push back against those inevitable industry barriers while moving you toward steady growth.

As a tech-first payment company, Adaptiv understands the unique challenges that tobacco businesses face and creates tailored payment solutions to fit their needs. With a range of banking partners, tools to combat fraud and chargebacks, support for international currencies, and dedicated human representatives, Adaptiv empowers merchants to stay compliant, maintain smooth operations, and grow safely.

Below, we’ll dive into the main challenges that tobacco merchants encounter, and the solutions that really make a difference.

Approval for a Tobacco Merchant Account

Navigating the process of applying for a merchant account can be quite a challenge. Many payment processors are hesitant to process account applications related to tobacco products because this industry is subject to stringent regulations from card brands.

Underwriting teams are on the lookout for proof of compliance, age-verification methods, clear fulfillment processes, and solid financial records. Even if you manage to provide all of the necessary documentation, the processor’s sponsor bank might still decide to reject your business because it is in a high-risk industry.

Possible Solutions

To ensure everything runs smoothly, make sure that your compliance documentation is up to date. Utilize age-verification tools on your website to protect yourself from selling to underage customers. Also, ensure that your brick-and-mortar shops also have a consistent age-verification policy that they stick to.

You should also be upfront about your refund and shipping policies, so customers know what to expect. This step is important to keeping chargeback rates within reasonable limits.

How Adaptiv helps: We collaborate with several sponsor banks, helping tobacco businesses secure approvals that they might struggle to obtain from a single-bank provider. Merchants can also benefit from our team's personalized support during the underwriting process, ensuring their applications are evaluated fairly rather than being dismissed outright.

High Potential for Chargebacks & Fraudulent Transactions

Businesses selling in the tobacco space may have to grapple with a higher-than-normal rate of fraud attempts. Issues such as stolen card testing, friendly fraud, and disputes over age verification all contribute to increased chargeback ratios. With card networks imposing strict limits across various industries, tobacco businesses could easily face account termination if their chargeback ratios exceed a certain threshold.

Possible Solutions

Ensure that your business obtains signature confirmation for high-value shipments to ensure secure delivery. Utilize address verification services (AVS), CVV matching, and 3D Secure for added security.

Offer detailed product descriptions to help prevent any “item not as described” disputes. Maintain thorough documentation on fulfillment and delivery.

How Adaptiv helps: Adaptiv is dedicated to protecting your business from fraud and chargebacks. We offer handy platform tools such as real-time alerts for disputes and proactive risk monitoring to stay ahead of potential issues. Additionally, we offer valuable insights that can help you minimize future processing barriers, such as identifying which card types tend to result in fewer disputes, thereby protecting tobacco companies' cash flow.

Sudden Account Holds, Freezes, or Terminations

High-risk merchants often find themselves facing held funds, unexpected reserves, or even a complete shutdown, usually without any prior notice. Many payment processors rely on just one acquiring bank. When that bank decides to adjust its risk tolerance, which is quite common in regulated sectors, merchants suddenly find themselves cut off from all payment processing abilities.

Possible Solutions

Keep everyone informed about any expected increases in volume by providing accurate transaction data. Try to stick to consistent processing patterns whenever you can.

Avoid accepting high-risk transactions whenever possible. Ensure that you document your fulfillment procedures and any updates related to compliance.

Most importantly, work with high-risk payment processors that have experience with processing tobacco sales.

How Adaptiv helps: Adaptiv’s multi-acquirer model enables merchants to switch to a different banking partner without risk of losing their account. This kind of flexibility is a significant perk that you won’t find with services like Stripe, PayPal, or similar options. Additionally, Adaptiv handles the negotiation of reserve terms, settlement schedules, and fees for merchants, and provides prompt support, often resolving issues while improving your processing costs.

Stably Increasing Scale

High-risk merchant accounts often come with strict restrictions on the monthly processing volume. Even if there are no limits, a sudden spike in sales can raise red flags for fraud or prompt banks to take a closer look. Additionally, low authorization rates can significantly impact revenue, particularly for merchants catering to international customers.

Possible Solutions

Having well-made documents that forecast growth and share any changes in your business model as they happen. Maintain a clear processing history and minimize disputes arising from refunds (quick resolution shows commitment).

Integrate advanced fraud detection tools and secure payment gateways, particularly if you're an Ecommerce tobacco company.

Make every effort to demonstrate compliance with all relevant regulations and implement all possible security measures to protect customer data and minimize the risk of chargeback rates.

How Adaptiv helps: Adaptiv helps you achieve flexible, scalable volume caps that grow in line with your business. Our dedicated customer support team collaborates with you to enhance authorization approval rates, which in turn boosts tobacco sales. This is particularly beneficial for established companies that handle significant monthly volumes or are venturing into new markets.

Persistent Regulatory Changes & Compliance Requirements

Tobacco merchants must adhere to several regulations, including age-verification laws, state shipping restrictions, FDA regulations, and advertising guidelines. These regulations are always changing, and if you don’t stay on top of them, your business could face severe penalties or even lose your merchant account.

Possible Solutions

Ensure the use of certified age-verification tools. Ensure your company remains informed about both state and federal regulations. Ensure you maintain PCI compliance.

Always provide clear product labeling and warnings to ensure product safety and security. Maintain thorough inventory management to avoid selling any controversial or banned products.

How Adaptiv helps: Adaptiv works to stay one step ahead of the ever-changing tobacco industry as well as the broader regulatory landscape. Our team is dedicated to supporting your company, ensuring you stay compliant with card network requirements, providing insights on acceptable payment practices, and closely monitoring regulatory developments to help you avoid costly pitfalls.

Lack of International Payment Options

Cross-border sales can bring a whole new set of challenges, including dealing with currency conversion headaches, an increase in fraud attempts, inconsistent authorization rates, and high international processing fees. It's no wonder many payment processors just decide to block international transactions for tobacco merchants altogether.

Possible Solutions

Before you expand, make sure you understand local and domestic import regulations. It's also important to have straightforward international shipping policies in place.

Also, don’t forget to regularly review cross-border fees. These vary significantly from one country to another, and if unchecked, can result in unexpectedly high costs. When it comes to this challenge, working with the right payment processors can make a significant difference.

How Adaptiv helps: Adaptiv enables merchants to handle online and electronic payments in multiple currencies, allowing your business to navigate cross-border fees and settlement processes more effectively. Thanks to our extensive network of international acquiring partners, merchants can process payments from customers worldwide, all while maintaining acceptable authorization rates and compliance.

Possible MATCH List Concerns

Once a merchant finds themselves on the MATCH (Member Alert to Control High-Risk Merchants) List, it can be a real struggle to get approval from any other payment processors. The list comprises high-risk merchants that other payment processors or banks have terminated due to high chargeback rates or non-compliance with PCI standards.

Tobacco merchants, in particular, face a challenging road ahead due to the strict rules imposed by card brands. Once on the MATCH List, they lose the ability to accept credit card payments and suffer serious operational costs and downtime until they can find a way off the list.

Possible Solutions

To keep your business running smoothly and avoid being added to the MATCH list, ensure that you maintain low chargeback ratios.

One way to achieve this is to maintain transparency in all policies with your customers, implement robust fraud security systems, and have an effective customer service team in place to resolve issues and disputes as they arise.

Adding predictive analytics to your fraud systems can also help identify patterns in fraudulent transactions, so your company can easily identify and avoid them.

How Adaptiv helps: Adaptiv stands out as one of the rare payment processors that can collaborate with MATCH-listed merchants. Our team will work to stabilize your business, pinpoint the reasons behind the listing, and help rebuild your processing history, allowing you to return to smooth operations.

Find Solutions for Tobacco Payment Processing Issues from Adaptiv Payments.

The tobacco industry is always under the microscope, facing stricter regulations compared to regular retail. But don’t let payment processing hold you back. With the right payment processor by your side, you can minimize risks, avoid disruptions, boost approval rates, and confidently grow your business.

If you’re looking for reliable and secure high-risk payment processing, Adaptiv Payments is ready to assist you. Apply now to begin your journey to secure high-risk payment processing today.