Tobacco Merchant Account: The Best Options & Tips for 2024

Tobacco Merchant Account and Payment Gateway Solutions

If you own a tobacco business, you’re likely familiar with how frustrating and complex it can be to navigate how transaction processing works in the tobacco industry.

Add ever-changing laws, varying regulations, higher processing fees, taxation, new products constantly entering the market, and unforeseen economic conditions on top of that, and you’ve got a lot to figure out.

Where do you start, and how can you ensure you’re all set up to accept payments from your customers? A dedicated tobacco merchant account and payment gateway solution could be exactly what you’re looking for.

 

What is a Tobacco Merchant Account?

A merchant account is a specialized bank account for business transactions.

tobacco merchant account enables establishments in the tobacco industry, including online retailers, cigar shops, and smoke shops, to set up a processing account. It’s designed to process payments efficiently, securely, and smoothly within the highly regulated sector of tobacco. 

As tobacco retailers are considered high-risk by financial institutions due to age restrictions, trading regulations, and country-specific legal statuses of the products, a reliable and all-inclusive tobacco merchant account is an absolute must.

Inexperience and inflexibility in the trade can lead to legal and financial risks or, ultimately, termination of your account.

 

Two people shaking hands after transaction

Types of Tobacco Products & Merchant Accounts

Today, the tobacco industry includes more products than ever, all of which face several and seemingly endless restrictions.

To get a better overview of the industry, it’s important to understand the differences between the sub-categories, as each requires a unique approach to ensure successful transaction processing.

The tobacco industry is divided into the following sub-categories:

  • Cigarettes: The classic cigarette is one of the more traditional categories of tobacco products, yet the distribution of cigarettes is still very regulated today. In the EU, for example, the packages must show clear health warnings and information on how to quit smoking.

  • Cigars: A cigar is a tobacco product traditionally consisting of a roll of tobacco wrapped in a tobacco leaf. As with cigarette distribution, cigar retailers must comply with the packaging regulations and report to EU countries on the specific ingredients used in the goods.

  • Smokeless: Smokeless tobacco goods include products that may be snuffed, chewed, or dipped. All the regulations that apply to cigarettes and cigars apply to smokeless products. Additionally, it’s important to know that any claims of a tobacco product being less harmful than others are prohibited as well.

  • Tobacco accessories: Cigarette papers, pipes, smoking materials, and other tools primarily designed to enhance the smoking experience are considered the accessories of tobacco. Gadgets made to “improve” the smoking experience aren’t as regulated as products that contain actual tobacco or nicotine but still require following rules such as packaging that doesn’t appeal to minors.

  • eJuices: The liquid used to fuel a vape or an e-cigarette is called eJuice, also known as e-liquid or vape juice. In many EU countries, trading flavored eLiquids or e-cigarettes is forbidden. Whereas some countries have allowed menthol and tobacco-flavored products on the market. This law came about after policymakers found that flavors play a big role in youth initiation and the overall attractiveness of tobacco products.

As mentioned, each comes with unique challenges and restrictions. Classic cigarettes are less regulated than modern vapes, for example, because they’re different products with different components and ingredients.

Regardless of the sub-category, all of these products require different certifications, and the import-export business of tobacco products, in general, remains highly regulated, along with online sales.

 

Tobacco Merchant Category Codes

Furthermore, each of these products is categorized under a specific Merchant Category Code (MCC), which plays a significant role in payment processing. The MCCs also help ensure regulatory compliance within different sectors.

Improper use of these codes can lead to noncompliance with regulatory standards, resulting in massive fines or the closing of an account. 

Some of the more common tobacco industry MCCs include:

  • 5993 – Cigar stores 

  • 5194 – Tobacco products

  • 5999 – Miscellaneous retail stores

A series of lock icons connecting digital devices to a central POS system, illustrating encrypted payment processing for high-risk businesses.

 

*Note that your MCC, even as a tobacco business, is different from your merchant ID number. We find people often confuse the two. Learn more about your merchant ID number here.

Why Merchant Services for Tobacco Businesses Are So Complex

Businesses in this industry require specialized tobacco merchant account and payment gateway solutions to execute transaction processes securely and must adhere to laws to keep an establishment in this sector up and running.

Since the industry is so highly regulated and varies depending on regions and the specific products sold, it’s impossible to find a one-size-fits-all guide for these kinds of businesses. 

Factors that influence the high-risk status of the tobacco industry include:

  • Age restrictions

  • Country-specific legality

  • Ethicality of a product

  • Packaging/labeling requirements

  • Account restrictions

  • Transaction fees

  • Taxation

  • Fraud vulnerability

 

Legal Restrictions on the Sale of Tobacco or Vape Products

These restrictions don’t fluctuate only within the European Union—they vary globally. For example, countries like, Sweden, Estonia, and the US all have very different requirements for tobacco retailers.

However, the rules don’t vary depending on location alone. Specific products impact the regulations dynamically as well. For example, you can see a significant contrast between regulations imposed on classic tobacco products versus newer products like vapes in pretty much any market or region.

Take snus, for instance, a product that is well-known and legal in Sweden but banned in all other European Union countries. On the other hand, snus-like products, such as nicotine pouches that contain nicotine but not tobacco, are allowed for trade in most EU member states, with the exceptions of the Netherlands and Belgium.

"The biggest issue we see with our tobacco business clients is that every specific country and sub-category of the industry has different legal requirements and regulations. For example, cigar shops in one EU country like Germany aren't allowed to ship tobacco products to other EU member states. In short, it's very complex, and many businesses don't initially understand that."

The Impact of Non-Compliance with Tobacco Sale Regulations

Failing to comply with these regulations can result in severe consequences that can include financial penalties, account closures, or even a no-tobacco-sales order—all of which can shut down even the most organized and well-intended business.

The fines and penalties may differ between different regions, like US and EU-based countries, but the consequences are usually just as severe, which is what makes having a great tobacco merchant account and payment gateway solutions so important to succeeding as a business.

 

Best Practices for Ensuring Tobacco Merchant Compliance

It’s necessary for tobacco merchants to stay-up-to-date on regulatory changes in the industry. Providing regular training to your staff on compliance practices is essential to be prepared and able to navigate these unforeseeable changes.

Why? At the most basic level, ensuring your business is always operating within government-imposed legislations can eliminate the risk of fines and penalties.

Being confident in your businesses restrictive implementations can clear up doubts and questions on the basic gray-areas, leaving more time to better other aspects of your mission.

Choosing an inclusive tobacco merchant account provider, like PayFasto, that understands the nature of a high-risk business and recognizes the struggles, can help merchants in this sector avoid compliance matters.

Additionally, working with a tobacco merchant and payment gateway services provider that has the needed expertise and experience can ensure smooth transactions and the much-needed support. 

What’s Required for a Cigar & Tobacco Merchant Account?

To ensure the approval for a tobacco merchant account it’s important to, firstly, have a detailed overview of all the required documentation.

These requirements may differ depending on the industry, but it’s smart to gather as much information as possible to speed up the approval process. Here are a few of the documents we always recommend our clients submit when applying for a tobacco merchant account and payment gateway solutions.

Company requirements:

  • Certificate of incorporation

  • Articles of association

  • Copies of passports for all owners

  • Utility bill for all directors, owners, authorized signers

  • Proof of domain

  • Company bank statements for the last 3 months

  • Local representation (local member of the board)

Industry requirements:

  • Supplier agreement/invoices

  • Copy of operating licenses

  • Company’s rental agreement

  • Lab tests of CBD products

  • Processing statements (in case of chargebacks, a chargeback reduction plan; in case you’re a start-up, a business plan, or a cashflow forecast)

  • Copies of passports for sole proprietors

  • PCI self-assessment questionnaire (download it here)

  • PCI scans done on the website by a PCI-approved distributor

Website requirements:

  • Customer service number

  • Website policies (Terms & Conditions, Privacy, Refund & Shipping policies)

  • SSL secure payment page

  • Customer service email address

  • Login credentials (in case of a user back-end)

This long list of required documents might be a bit overwhelming, but you don’t have to gather the paperwork alone.

At PayFasto, we’re ready to assist you with any uncertainties or doubts you may have about your tobacco merchant account and payment gateway solutions.

Tip: Download the PCI Self Assessment Questionnaire here.

 

Other Common Challenges in Tobacco Payment Processing

Aside from staying compliant, other struggles tobacco merchants may face include higher transaction fees, high costs of shipping and taxes, and ethical, political, and corporate pressures.

Maintaining high cash flow and handling the system processes are also problems most tobacco industry business owners struggle with. Joining forces with a high-risk specialist and getting a tobacco merchant account and great payment solutions can expedite troubleshooting in such cases.

Fraud messages alerting man to insecure transactions

Fraud & Chargebacks

The tobacco industry falls at risk of fraud and chargeback thanks (mostly) to the delicate nature of its products. The high-value nature of the goods makes them a target for fraudulent activities.

Age restrictions, on the other hand, can lead to unsupervised purchases by minors using stolen credit card information. If a purchase is found to be forged or unauthorized, it will require a dispute resolution, which for a business, will be marked as a chargeback.

You can’t always entirely prevent these problems due to the inconsistent patterns of sales unless a business operates strictly as a wholesale distributor. However, it’s always great to have mechanisms in place to at least try to prevent as many chargebacks as possible.

The Institute for Global Tobacco Control also has a part in detecting fraud in the tobacco industry. The institute stands against the normalization of tobacco products, unrestricted sales of tobacco, and tax avoidance, among many other causes. With the help of such organizations, it’s somewhat easier to prevent fraud.

However, as they also assist in creating new regulations, they add another layer of restrictions to comply with.

 

Finding a Willing Processor

Finding a sustainable solution provider willing to work with merchants in the tobacco industry can be a challenge—to say the least. You likely know that if you’re here looking for a high-risk solution.

Why is it so difficult, though? Acquiring banks tend to avoid working with businesses in high-risk industries overall, especially with tobacco merchants, as their sector is far more unpredictable than others.

This makes managing a tobacco business much more difficult than it should be. It not only complicates the operational side of the business but also affects customer satisfaction. Issues with payments can cause delayed orders, pending funds, and a less convenient shopping experience in general.

 

Solutions for Tobacco Merchant Accounts

Fortunately, there are providers that offer solutions for merchants facing these obstacles. The right solution will, of course, depend on your business’s specific needs and the products you sell, whether it be traditional tobacco goods or more niche items.

Choosing a solution provider also comes down to the volumes you’re processing, your target audience, your location, and the payment methods you’re looking for, among other factors. Figuring out what your individual needs include and what categories you fall into will help you find the perfect fit. 

a phone that says: approved and a merchant on top of it doing the approval

Alternative Payment Methods

Card-not-present sales often create more difficulties in transaction processing. The risk of fraud is higher than ever with CNP sales today. Fraud associated with commerce banking covers over 70% of all card fraud.

Therefore, having a support team to deal with issues and take care of the extra security measures would benefit any eCommerce business. So, it’s also important to explore as many alternative payment methods as possible to ensure security along with customer satisfaction.

For example, accepting cryptocurrency payments could be convenient for international customers seeking decentralized means of making cross-border transactions. Likewise, e-wallets offer a quick and easy way to conduct transactions, which might be more suitable for B2C retailers with a local clientele.

 

Specialized High-Risk Merchant Account Providers

Having an experienced high-risk merchant account provider who specializes in industry-specific solutions is honestly one of the most important things we can suggest to any tobacco business looking for a merchant account.

While you could survive without one, you won’t go as far as you would with an expert solution provider, to be quite frank. This especially applies here due to the endless boxes to tick in order to succeed in the competitive tobacco industry. 

 

PayFasto: Your Tobacco Merchant Account Solution

PayFasto is backed by a reliable team of industry experts who offer payment solutions tailored to high-risk industries, including the tobacco trade.

We make it a point to really understand the unique needs of tobacco businesses all around the world, which is why we’ve found that offering all-around services along with a dedicated merchant account is in your business’s best interest. 

 

PayFasto Tobacco Merchant Account Features

A PayFasto merchant account will equip you with a range of features and benefits to aid in processing your payments along with operational tasks. We offer several features all in one platform, including:

  • 24/7 support

  • Development

  • API integration

  • Acquiring and banking

  • Fraud prevention tools

  • Different payment methods

Our comprehensive approach ensures not only smooth and secure payments but also compliance with industry and region-specific regulations.

On top of everything, we’ve gathered a fair share of connections in high-risk industries, so we can also help you find a wholesaler or help distribute your products B2B, if needed, to elevate your business to the next level.

 

Explore Merchant Services for Tobacco Businesses

All in all, setting up an online tobacco merchant account and payment gateway solutions is a complex process that directly impacts how you operate and grow your business, which is why picking the right partner is so important.

For tobacco-specific payment gateway solutions from a provider who understands your industry, get a free, no-obligation quote for a tobacco merchant account here. We’ll review your business information and get back to you ASAP.

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