The alcohol industry in the U.S. is worth more than $220 billion which makes it a very lucrative industry. There are several types of businesses within the alcohol industry, including liquor stores that sell hard alcohol as well as online alcohol retailers. Getting merchant services may be difficult for these businesses because despite the amount of money the alcohol industry generates, these businesses are considered high-risk by major banks and financial institutions.
There are several reasons that the alcohol industry is considered a high-risk industry, including age restrictions, sales tax collection, heavy regulation, and chargebacks. This makes it nearly impossible for alcohol businesses to find merchant services from traditional providers like banks. However, businesses in this industry need to work with a trusted payment processor that can provide merchant services that meet their specific needs.
In this guide, we will discuss why alcohol is considered a high-risk industry and how businesses within this industry can find a trusted professional who specializes in providing merchant services for alcohol businesses. First MCS can provide merchant services for businesses in the alcohol industry and other hard to place industries in the Chicago, IL area.
Why is the Alcohol Industry High-Risk?
Even though alcohol is a $200 billion industry, certain things about the industry put it in the high-risk category. Age limits and regulations are among the reasons why it is difficult for these businesses to get traditional merchant accounts. Even though alcohol consumption is legal in the U.S. and a largely accepted part of our society, traditional banks and institutions would rather avoid businesses that have the restrictions and regulations that exist in the alcohol industry.
In addition to legal age limits and varying regulations, chargebacks and issues with sales tax put this industry in the high-risk category. Alcohol businesses must find a professional that has experience providing payment processing for hard to place merchant accounts.
The alcohol industry is considered high-risk for the following reasons:
- Age limits: The age limit for alcohol sales is 21 nationwide. The fact that some businesses such as liquor stores must consistently check IDs for legal alcohol sales already makes them high-risk. This becomes more complicated with online alcohol sales as it is more difficult to check and verify IDs for online purchases.
- Heavy regulation: There are many regulations that alcohol sellers must follow in addition to age checks including CNP transaction laws, time of sales, and liquor licenses. Laws regarding these regulations also differ by state. This is enough to be considered high-risk to traditional payment processors.
- Sales tax: Sales taxes on alcohol differ by state and it is very important for alcohol businesses to properly collect sales tax or payment processors can be affected.
- Reputation risks: Alcohol is federally legal in the U.S., but it still comes with a stigma. Alcoholism is a societal problem that leads to poor health, violence, broken homes, and car accidents that can take lives. Many traditional payment processors would rather not take the risk to their reputation.
- Chargebacks: Chargebacks are a big issue within the alcohol industry as there may be several reasons they occur. Customers may ask for a chargeback instead of a refund when they feel buyer’s remorse or if an online order is taking too long to ship or arrives damaged. There is also a high chargeback rate for people who sign up for buyer’s clubs and either get confused about billing or do not want products consistently sent to them.
- CNP transactions: Online transactions for alcohol are already considered risky by traditional payment processers due to age limits, but card not present (CNP) transactions are also considered high risk. CNP transactions are more vulnerable to fraud and the laws regarding CNP transactions for alcohol differ by state which makes payment processing more complicated.
How to Reduce the Risk of Chargebacks
It is very important for businesses in the alcohol industry to do what they can to reduce chargebacks. Chargebacks not only make your business look riskier to a merchant service provider, but they also cost your business money in fees and lost sales.
You can help reduce chargebacks by doing the following:
- Clear terms of sale: This is important for all businesses in the alcohol industry, but especially for online alcohol retailers. The terms of sale should be clear and concise so that customers understand them before completing their online orders. This should include how to obtain refunds and for buyer’s clubs, the terms of membership and how to terminate orders and membership should be included.
- ID verification: Verifying age online and collecting customer information will make your customers more likely to go through your business for a refund. The more anonymous a customer is to your business, the more likely they are to request a chargeback instead of a refund.
- Improve shipping and packing: Fast, safe shipping will drastically decrease chargebacks as customers may request a chargeback for delayed shipping or items that arrive damaged. You should also have a clear refund or exchange policy for customers that receive damaged products.
- Stay in compliance: Alcohol businesses should keep their liquor licenses current and be sure to follow all applicable regulations to stay in compliance with the law. This will legitimize your business which helps reduce chargebacks.
How to Get a Merchant Account for your Alcohol Business
While traditional merchant account providers are unlikely to work with businesses in the alcohol industry, there are payment processers such as First MCS that specialize in working with businesses with hard to place merchant accounts. You can greatly increase your chances of getting approved for a merchant account with one of these providers by doing the following:
- Register with the Alcohol and Tobacco Tax Bureau (TTB): All sale of spirits and alcohol is overseen by the Alcohol and Tobacco Tax Bureau (TTB) and both alcohol merchants and those who provide them with merchant services must follow their rules, regulations, and requirements. Make sure your business is registered and licensed with the TTB. All alcohol businesses, whether selling alcohol online or in person, must be registered and licensed by the TTB and keep strict sales records in accordance with TTB requirements. Businesses that are licensed are more likely to get approval for a merchant account.
- Contact appropriate state government agencies: Alcohol businesses need to talk to the appropriate state government agencies to check for special licenses or permits needed or if there are additional taxes for the online sale of alcohol that must be accounted for. Staying in compliance with every applicable rule and regulation will improve your chances of getting a merchant account.
- Establish history of stability: It is important to show merchant account providers that your business is a stable business and that you have had good relationships with past payment processers. Be prepared to provide any records necessary to establish a history of stability.
- Put forth effort to reduce chargebacks: Payment processers willing to take on high-risk accounts have a higher tolerance for chargebacks, but there is still a limit. Putting forth efforts to reduce chargebacks, fraud, and disputes will help you secure a merchant account.
Hard to Place Merchant Account Services from First MCS
The alcohol industry is worth more than $200 billion and businesses within the alcohol industry, including online retailers, need safe and efficient payment processing. Traditional banks and payment processers are unlikely to work with alcohol businesses because they are considered high risk, but there are payment processors such as First MCS that provide merchant account services for businesses in the alcohol industry.
Our professionals at First MCS have experience working with alcohol businesses with our hard to place merchant account services. We will set up a payment processing system that includes point of sale (POS) equipment and software so your business can safely accept multiple forms of payment. We also offer 24/7 customer support to address any issues you may have and limit the down time of your system.
Call First MCS at (866) 673-3099 for more about our hard to place merchant account services for businesses in the alcohol industry.