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Posted: by Bronte

Reasons Why Your Nutraceutical and Supplement Business is High-Risk

Alternative forms of health supplements are not new to the market, but they are exploding. Growing awareness of these products and its alternatives are causing more businesses to open up in the industry. In fact, the nutraceutical market is expected to grow to over $570 billion in the next 5 years. But surprisingly, even with higher acceptance and use, supplements such as these fall into the high-risk category at most banks and payment processors. This causes new businesses hunting for nutraceutical merchant services to have a harder time than traditional industries. To further understand why businesses such as these are considered high risk, you must first understand the industry itself.

Nutraceuticals and Supplements Are Gaining Popularity

nutraceutical daily pillEating cleaner, losing weight, and monitoring cardiovascular health are all aspects of the current craze across the world. People want to take better care of themselves. But it isn’t always easy to do this by only eating well and working out. Sometimes supplements and “nutra” products benefit us and help us track our goals.

Market research has found that a focus on each ingredient that goes into our bodies has increased. With nutraceuticals, limiting these supplements to consist of only natural, non-synthetic ingredients is easier for consumers. This is beneficial for customers because people perceive natural ingredients as being healthier.

There is a lot of love for the nutraceutical industry. Nearly two-thirds of the American population consumes supplements each year. Whether that be for dietary reasons, health concerns, or its perceived benefits, consumers generally use them long-term and faithfully.

The Nutraceutical Industry is High-Risk

The amount of banks willing to work with your business is small. In addition to that, the fees for a nutra account are much higher than other, low-risk payment gateways. But why is that? Merchants love it, people use it, and it clearly is a high-earning space, so what could it be?

Each bank has their own list of requirements that they check off for new merchant account application that measures that businesses amount of risk. These reasons can be as simple as: 

  • Does this business owner have a good credit score?
  • Is this company new on the market, does it have any history?

Or as complicated as:

  • Does this industry type pose any reputational risk to our institution?
  • How strict are the government regulations on this business type?

As you can see, some stipulations have a simple answer, while others do not. And any hint of risk can immediately complicate your application and flag you as hard-to-place.

Common Hard To Place Factors in Supplement Businesses

  1. No Government Oversight
  2. Claims can be Misleading
  3. Legal Action is Probable
  4. High Chargeback Rates

One of the biggest issues with this industry is that there is little to no government oversight monitoring production. So if anything goes wrong, there is no accountability for how or what makes up the consumable. The possible allergy issues, mismeasured doses, etc. make banks nervous to put their name behind businesses selling these items.

In addition to that, claims that are made to consumers can very well be purposefully misleading. A common tactic for selling supplements is fabricating beneficial effects in order to get customer attention and spur them to purchasing. Sometimes this just expands the truth while other times it has completely unsubstantiated claims.

Supplement Oil Capsules

Unregulated markets have higher odds for legal action. With no oversight, people find ways to take advantage of it. Just another reason why many banks would pass up this business type for a safer alternative.

Chargebacks are another big reason for nutraceuticals to be tagged as high-risk. In fact, it is an issue associated with many online businesses. Customers seek a refund through their bank rather than reaching out to the business owner for a resolution. This leads to a hassle for the bank and a penalty for the merchant. Unfortunately, this process often happens without the merchant’s knowledge. Then once it does happen, their account is flagged and sometimes even shut down.

Popular Nutra and Supplement Businesses that are Risky

There are so many opportunities in this space for branching off of the main line of nutraceuticals. Merchants can fall into one of the four basic divisions among supplements such as:

  1. Vitamin-based
  2. Mineral-based
  3. Fat-based
  4. Antioxidant-based

Or they might decide to focus on helping a specific health reason such as:

  1. Dietary Supplements
  2. Multivitamins
  3. Weight Loss Nutra
  4. Performance Enhancers
  5. Cognitive Enhancers

Whatever the breakdown is that a business owner structures their supplements, it is sure to gain traction with consumers. But along with this, any one of these businesses is seen as a higher risk to their bank. All merchant account holders in nutra will end up paying higher fees, requiring a cash reserve for incidentals, and may struggle to find a payment processor in the first place.

Partnering With a High-Risk Nutraceutical Payment Processor

It is all about reputation when it comes to your payment gateway provider. They should be transparent, fair, and easy to communicate with. Along with that, be sure that they can support your business type to begin with. Without the right banking relationships in place, getting a high-risk nutraceutical merchant account for your supplement businesses will be a long, hard road as a merchant. There is no reason to play guess and check with your company’s processing. Get it right the first time and choose a high risk payment processor that is adept in the industry.

Once you have narrowed down the list of processors that CAN support nutra, look at what they WANT to offer you. Chargeback mitigation programs, fraud protections, and other industry protections will come in handy as you grow to protect you and your business. Without these programs in place, safely selling your products is in jeopardy.

Ensure that you can grow with your business. Scaling for any company can cause growing pains, but it doesn’t need to. With the structure of an appropriate banking relationship, you can expand as you need to. No need to worry about developing too quickly, because that is what your processor is there for. Allow them to guide you and work on your behalf to get the best rates, reduced fees, and reductions as you age your new nutraceutical business.