Editor’s Note: This article is intended for information purposes only. Because state and municipal laws vary greatly, as do the circumstances of individual cases, readers are advised to contact an attorney for specific legal advice. © Scott C. Tips 2017

We all know that having a merchant account is critical for both online and brick-and-mortar stores. In fact, before a store even opens its doors or website, it must open a merchant account first if it wants to accept debit or credit cards in payment (1). In the case of online businesses, payments are made almost entirely through credit cards or debit cards and a payment gateway (which verifies that a customer actually has the funds that he or she claims to have) is what allows the customer to make that payment. With each transaction, the customer’s payment goes into a temporary holding account before it is then transferred on either a daily or weekly basis into the online store’s own bank account. The temporary account is called a merchant account.

The problem, however, lies not just in finding an affordable bank or merchant-account provider and then opening an account but in keeping it open once you have one. It seems bankers and merchant-account providers do not like the dietary-supplement industry.

Our ProblemDespite supplements’ very impressive safety record — a record that makes taking FDA-approved drugs and eating USDA-certified foods look like you are jumping out of a plane without a parachute —the medical and disease-care establishment, which insidiously percolates throughout our entire economic structure, dictates that dietary supplements are “pseudo-pharmaceuticals” that are dangerous, unregulated and not to be trusted. Banks in turn take their cues from this silly disinformation and thus rate any businesses selling dietary supplements as “high risk.” So, we are classified up there with other high-risk businesses such as porn sites, 1-800-type chat sites, and risqué women’s lingerie (2). As Major Kong quipped in the film Dr. Strangelove, “Hey, a guy could have a great time in Vegas with all this stuff.”

Unfortunately, all too often, the result of being painted with this “high risk” tar brush isn’t a “great time in Vegas” but a sudden and abrupt rupture in merchant-account services when the ignorant provider suddenly “discovers” that your website has “unapproved” (by them) health claims. I say ignorant because usually the provider’s health-claims reviewer has only the barest sketch of an idea of what claims are truly legitimate or not. These ruptures in service usually go something like this one posted online by a gentleman with the initials KS: “After bootstrapping my new store with a lot of blood, sweat and tears for 3 months, I have now been informed by a gentleman in management that I cannot use the [e-commerce name redacted] payment gateway to process debit/credit cards because I am in violation of the TOS [Terms of Service]. He referred me to section B5 for “Prohibited Businesses” which reads: ‘Any product, service or activity that is deceptive, unfair, predatory or prohibited by one or more Card Networks.’

The post from KS continues, “Apparently vitamins, herbs, supplements, botanicals, etc. fall under the category ‘pseudo-pharmaceuticals’ which is ‘prohibited by one or more Card Networks.’ Now, my only option is to make a merchant account through my bank and use Authorize.Net which conveniently charges a $49 set up fee and a $25/month gateway fee. I am extremely unhappy with this turn of events for a few reasons:

“1) You would think that the term ‘pseudo-pharmaceuticals’ would be mentioned under the long list of items in the TOS because you can read it until you’re blue in the face and nowhere does it mention any of the items I sell. “2) You would think that [name redacted], being such a popular platform, would have had other shop owners selling similar items and would have let me know upfront that this gateway isn’t an option instead of letting me set it all up and then ban me after I make my first sale. “3) You would think that having a list of prohibited items from guns, to tobacco, to timeshares, that they could throw in Vitamin B or Chia Seed Oil, after all the possible liability from selling those items must be though the roof.

“Now, I am left with the prospect of moving my store to another platform because as a new entrepreneur I can’t afford to basically double my monthly expense just because [redacted name] wasn’t clear on their TOS. It seems the only ‘deceptive’ service was from [redacted name]. Had I known that to have a store with full payment gateway options was going to cost me $54/month instead of the basic $29/month plan, then I wouldn’t have wasted 3 months and 100s of hours of time [there]. And a final word, sorry for my rant, and yes I understand risk management, but the TOS is unacceptable.“

Health-researcher and author Bill Sardi recounts another horror story: “A dietary supplement company that had been doing business for over a decade online was in the middle of a December 2015 year-end sale when it ran out of the product. With the consent of consumers who wanted year-end pricing, orders were taken but not processed and a promise to ship in mid-January 2016 was offered.

“Three weeks went by before the company could resume shipping. When they did, the huge jump in sales volume to make up for back orders caught the eye of a bank merchant account auditor.  The merchant account service that processes all the online orders for this business called the company in question and wanted to know why the company was suddenly selling so much product.

“The bank, one of the biggest in the World, thought something fraudulent was going on and gave the vitamin company 10 days to find another merchant account before they would pull the plug. The dietary supplement company appealed but the bank merchant account service said they had reviewed the company’s website and found unsubstantiated advertising claims but refused to identify them. Their decision was final. The company had been in good standing for over a decade and had never received a correction letter from the FDA or FTC” (3).

As Sardi so aptly put it, “They are criminalizing the successful sale of dietary supplements arbitrarily via the online merchant rather than a regulatory agency.” I agree.

Sadly enough, these stories are just two of many. And they do not even take into account those start-up dietary-supplement businesses that applied for merchant accounts only to be turned down flat because they were launching a “high risk” enterprise.

Where to Look for a Merchant AccountIn America, we are used to opening a bank account in a New York minute. So why should opening a merchant account be any different? Yet it is. And when a new or even an established company gets rejected, desperation quickly sets in as the business’ very existence is threatened. Such desperation spawns a loose willingness to work with whomever will take the business on as a client. This, however, is a huge mistake as the market is competitive and there are many options. One need not settle.

Please understand I have not vetted any of the following list of merchant accounts, credit-card processers, and aggregators such as Square, Stripe and PayPal that sometimes charge higher processing fees for the convenience of using them. I am not recommending any of them, nor do I have any negative information about them. They are simply companies I have come across in the course of my research. None of them pay me even a thin dime for listing the company’s name here.  In fact, they do not even know I exist.

I would recommend you read an online article by Jacob Weindling about his experiences working for merchant services (4). In addition to the other industry articles cited in my endnotes this article will help ground you in the basics of merchant accounts as well as warn you of some typical sales scams.

So, whom do we have to look at?CardFellowis a marketplace where credit-card processors compete for your business and you can compare quotes. It’s a way to possibly get competitive rates. (Seewww.cardfellow.com) Others have touted (and you yourself can also investigate)Heartland(www.heartlandpaymentsystems.com),Durango Merchant Services(www.durangomerchantservices.com), andPayline Data(www.paylinedata.com). There are many others, some of which might better suit your purposes, so it could pay off to explore those other options.

Be careful, though, of pretend reviewers, who front for particular merchant-account providers and put up “review” websites that give high ratings to those companies to whom they want to funnel customers.5  Such fake reviews seem to be just as common here as in numerous other industries.

Read Your Contract!Regardless of whom you settle on as your merchant-account provider, to avoid any initial surprises or other downstream problems, you absolutely must read the proffered merchant-account contract before signing. While some salesmen might claim that their merchant account is “contract free,” I have yet to see one that is. So, despite the contract being long and tedious, you must definitely read their written Terms and Conditions. Often, we all (yes, even I) click on the “Accept” button for an online purchase without bothering to read through the boring minutiae of each and every term and condition. But with your merchant account, you really must read it and watch for any of the catches that typically accompany an offer of a low payment-processing fee that is “too good to be true.”

So, among other things, look for these pitfalls in your Terms and Conditions agreement with any merchant-account provider or aggregator: 1) The payment processing amount is increased for premium and corporate cards (i.e., “non-qualified transactions”); 2) Early cancellation penalties if you terminate the contract before it runs its course (some are $0 while others are $400); 3) A higher payment processing amount if you don’t swipe the physical card; 4) Business volume commitments that, if not met, will lead to higher processing fees; 5) An unreasonable monthly fee; and 6) Excessive chargeback fees. Despite the pressure put by banks upon online and physical dietary-supplement and other such businesses, the merchant-account business is still sufficiently competitive for you to be able to shop around, negotiate, and obtain better terms and conditions.

Possible Alternative SolutionsFor those who absolutely cannot get reasonable merchant accounts, eChecks might be an alternative solution. In particular, you could look toGreen Money(www.green.money/echeck) for this online payment option. Along with Bitcoin and other crypto-currencies, this approach for making secure, online payments is growing rapidly. Overall, online sales of dietary supplements represent 15.5% of overall sales and climbing. Still, according to Sardi, new online supplement companies “are scrambling to find merchant account services that will accept their business” (6).

Selecting the best possible merchant-account provider is a critically important decision and could have a dramatic impact upon your business. Be sure to choose the provider with the best overall service rather than simply the one with the lowest processing rate. They are out there.

As you have seen, solutions exist; but be aware that those who fear the online supplement industry are trying to dismantle it one vendor at a time. Fight back by using the free market to find competitive bids for your merchant-account business and by running a clean business that is beyond reproach.WF


1 For an excellent and detailed explanation of merchant accounts and credit-card processing, see Amad Ebrahimi, “The Complete Guide to Credit Card Processing Rates & Fees,”Merchant Maverick, January 21, 2016, athttps://www.merchantmaverick.com/the-complete-guide-to-credit-card-processing-rates-and-fees/.

2 Amad Ebrahimi, “Are You a High-Risk Merchant,”Merchant Maverick, January 10, 2016, athttps://www.merchantmaverick.com/highrisk-merchant/.

3 Bill Sardi, “Department of Justice Now Uses Bankers as Henchmen to Strike Off Online Dietary Supplement Marketers,”LewRockwell.com, July 7, 2016, athttps://www.lewrockwell.com/2016/07/bill-sardi/doj-banker-henchmen/.

4 Jacob Weindling, “I Spent a Year Working for Merchant Services—Here's How They Screwed Small Businesses, and Here's How to Avoid It,”Paste Magazine, August 15, 2016, athttps://www.pastemagazine.com/articles/2016/08/i-spent-a-year-working-for-merchant-servicesheres.html.

5 While I do not know whether this is one such “review site” (and indeed Mr. Parker disclaims being one such), the pretend review sites do look similar to: Phillip Parker, “Best Nutraceutical Merchant Account Providers,” January 10, 2017, athttps://www.cardpaymentoptions.com/credit-card-processing/best-nutraceutical/. If real, then Parker’s suggestions could be worth investigating.

6 Sardi,supra.

A graduate of the University of California at Berkeley Law School, Scott C. Tips currently practices internationally, emphasizing Food-and-Drug law, business law and business litigation, trade practice, and international corporate formation and management. He has been involved in the nutrition field for more than three decades and may be reached at (415) 244-1813 or by e-mail at scott@rivieramail.com.


Published in WholeFoods Magazine August 2017