The nutraceutical and supplements industry is a fast growing industry in health and wellness. The global nutraceuticals market was worth an estimated $454.55 billion in 2022, $112.6 billion in the U.S., and it is expected to continue growing at a compound annual growth rate (CAGR) of 9.0 percent. At this rate, the global nutraceuticals market share is forecast to be $991.09 billion by 2030. Even though this industry has proven to be lucrative and continues to show considerable growth, businesses that produce and sell nutraceuticals, supplements, and functional foods may have a hard time finding merchant services because they are considered high risk.
There are several reasons the nutraceutical industry is considered high risk for payment processors, including little to no oversight from the federal government, a history of manufacturers making false claims, and a high risk of chargebacks. This is enough to prevent traditional banks and merchant service providers from working with businesses in this industry. However, businesses in the nutraceuticals industry can still get merchant account services from payment processers that have experience working with nutraceutical businesses and other high-risk industries.
In this guide, we will discuss why the nutraceuticals industry is considered a high-risk industry as well as how you can get a merchant account for your nutraceutical businesses. First MCS is a merchant services provider that works with businesses in hard-to-place industries in the Chicago, IL area, including the nutraceuticals industry.
Why is the Nutraceuticals Industry Considered High-Risk?
The nutraceuticals, supplements, and functional foods industry is a fast growing segment of health and wellness. This industry shifted from producing supplements to correct nutritional deficiencies to producing supplements and functional foods with added nutrients that promote health and wellness and help prevent disease. The growth and strength of this industry shows that many people put faith in these products for their own health, yet the regulatory uncertainty coupled with rapid growth puts this industry in the high-risk category.
The following are the main reasons the nutraceuticals and supplements industry is considered high-risk:
- Lack of regulation: Nutraceuticals and supplements have little oversight from the federal government and the FDA is not authorized to approve dietary supplements for safety and effectiveness. The lack of regulation is one of the biggest reasons traditional payment processors consider this industry high-risk.
- History of false claims: The lack of oversight and regulation makes it possible for producers of nutraceuticals to make false claims about their products, and there have been cases of this happening. False claims hurt customer trust.
- Legal action: The combination of the lack of regulation and possibility of being accused of making false claims puts nutraceuticals businesses at a high risk of legal action. Traditional payment processors would rather not work with businesses that risk legal action.
- Chargebacks: The nutraceuticals industry experiences higher than average chargebacks for the following reasons:
- Subscriber remorse: Producers of nutraceuticals commonly offer free trials and subscriptions with automated renewals. The recurring billing could cause some who have subscribed to feel remorse and dispute charges while trying to get out of their subscription.
- Exaggerated claims: Customers can initiate a chargeback from a nutraceutical company if they do not experience the results advertised for a certain product. They only have to show that a business hinted at a possible result, they do not have to prove that the business made an explicit exaggerated claim.
- Lack of infrastructure: Startup nutraceutical businesses may not have the infrastructure to handle customer support and complaints as they try to become more established. Consumers are more likely to request chargebacks from their credit card issuers if they are unsuccessful at getting a refund from the business.
How to Reduce Chargebacks
The most effective way for businesses in the nutraceutical industry to secure merchant account services from a trusted payment processor is to put a process in place to reduce chargebacks. Merchant service providers that work with businesses in high-risk industries have a higher tolerance for chargeback ratios than traditional payment processors, but they prefer to work with businesses that take active steps to lower their chargeback ratios.
Nutraceutical businesses can help reduce chargebacks with these steps:
- Secure your website: A lot of nutraceutical businesses sell their products directly to consumers online. Your website must be secure to protect customer data and verify online payments which reduces the risk of fraudulent payments.
- Make accurate claims about products: While the nutraceutical industry is largely unregulated, it still must comply with truth-in-advertising regarding health claims. The descriptions of your products and claims about their results must be as accurate as possible so customers do not think your claims are false or exaggerated.
- Transparent refund policies: Your refund policies should be clearly stated so that customers will come to you for a refund instead of requesting a chargeback from their credit card. You should also state clear directions for cancelling subscriptions involving recurring payments.
- Offer refund alternatives: Offering alternatives to a refund, including gift cards or store credit, can reduce your chargeback ratio and give customers a reason to return to your business.
- Provide follow up order information: After an order has been placed, immediately send a follow up email to the customer that includes order details, tracking information, and contact information for customer assistance or a refund.
- Provide excellent customer service: Creating an excellent experience for your customers will increase brand trust and loyalty which helps reduce chargebacks.
Merchant service providers are more likely to work with nutraceuticals businesses that can show the steps they are taking to reduce chargebacks. Your business will also receive additional assistance from the payment processor to reduce chargebacks.
How to Get a Merchant Account for Your Nutraceuticals Business
Nutraceuticals and supplements businesses may be considered high-risk, but professionals like First MCS who specialize in working with businesses with hard to place merchant accounts can provide payment processing services. Taking the following steps will make it easier to secure merchant services for your nutraceuticals business:
- Establish financial record: Nutraceuticals businesses must show a strong financial history that incudes steady revenue and good credit. Be prepared to provide records going back several months to establish a sound financial track record.
- Establish trust: The nutraceuticals industry has a history of false and exaggerated claims leading to legal action and a loss of trust among consumers. It helps to demonstrate a high level of trust and brand loyalty from your customers and have a clean record when it comes to accusations of false or exaggerated claims.
- Take action to reduce chargebacks: As discussed above, nutraceuticals businesses are at a higher-than-average risk of chargebacks. It is important for businesses in this industry to implement a multi-step process to reduce chargebacks and to demonstrate this process to merchant service providers. First MCS prefers to work with businesses that are active in reducing chargebacks and we can also implement additional steps to lower the risk.
Hard to Place Merchant Accounts from First MCS
The nutraceuticals and supplements industry is quite lucrative and expected to continue growing, making it important for businesses within this industry to work with a trusted payment processor. First MCS has experience providing merchant account services for nutraceuticals businesses.
First MCS provides hard-to-place merchant account services for nutraceuticals and supplements businesses as well as other businesses considered high-risk. We can set your business up for secure online and in-person payment processing and provide point of sale (POS) systems and the equipment and apps needed for safe and effective payment processing. We also provide 24/7 customer support so we can get any issues resolved as quickly as possible.
Call First MCS at (866) 673-3099 to learn more about how we can help businesses in the nutraceuticals industry in the Chicago, IL area.