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High-Risk Payment Processing: What Every Vape Shop Owner Should Know

Imagine losing your ability to process credit card payments for your business. 

Due to the high-risk nature of their business, this nightmare scenario can become a reality for vape shop owners. Payment processors often view the vape industry as a liability, leaving merchants needing help to find reliable solutions.

The vape industry has faced numerous challenges recently, from evolving regulations to public health concerns. These factors have led many payment processors to classify vape shops as high-risk, making it difficult for business owners to secure stable, affordable payment processing services. 

What can vape store owners do to keep their doors open and their credit card readers operational?

In this blog post, we'll dive into the world of high-risk payment processing and explore the options available to vape shop owners. We'll discuss the reasons behind the high-risk classification, the potential consequences of operating without a reliable payment processor, and key factors to consider when choosing a high-risk payment processing solution.

High-Risk Payment Processing vs. Regular Payment Processing: What Is the Difference?

Before we dive into what you need to know about high-risk payment processing as a vape shop owner, let’s discuss the difference between high-risk and regular payment processing. 

These two classes of payment processing differ in several key areas. High-risk payment processing results in the following:

  • Longer application process: High-risk merchants face a more rigorous application process, which includes detailed documentation requirements, extended background checks and underwriting procedures, and the potential for multiple rounds of approval.
  • Higher payment processing fees: Be prepared for increased costs associated with high-risk processing, including elevated transaction fees per sale and monthly account maintenance fees.
  • Cash reserve requirements: High-risk processors often implement cash reserves to protect against potential losses. A percentage of sales is held in reserve to cover potential chargebacks, and there is a longer reserve period before funds are released. 
  • Higher chargeback fees: Chargebacks are a significant concern for high-risk businesses. With high-risk payment processing, you’ll face increased fees for each chargeback occurrence.
  • Volume caps in credit card processing: High-risk merchants often face restrictions on processing volume, including limits and fees on monthly processing volume for exceeding volume caps.
  • Additional requirements: High-risk merchants typically need to meet extra ongoing requirements, including regular account reviews and risk assessments, mandatory fraud detection and prevention tools, and compliance with PCI DSS (Payment Card Industry Data Security Standard).

These additional measures help ensure ongoing security and compliance in high-risk industries.

Understanding these differences is crucial for high-risk businesses seeking payment processing solutions. While the requirements may seem demanding, they protect merchants and processors in industries that face higher levels of risk. 

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Why Are Vape Stores "High-Risk"?

Before we get into the details of high-risk payment processing, let’s explore the answer to a critical question: why are vape stores considered “high risk” in the first place? Vapes are fully legal — what makes them fall into this category?

Four main factors contribute to this classification include:

  • Vape regulations: Federal, state, and local regulations frequently change, meaning you should be prepared to adapt and track changes consistently to stay compliant. There are also severe penalties for age verification, marketing, and packaging regulations violations. Some best practices for managing this include:
    • Staying informed through industry associations and legal advisors
    • Implementing robust age verification systems both in-store and online
    • Regularly training staff on current regulations and compliance procedures
  • Chargeback susceptibility: Vape stores often face higher rates of chargebacks, which can be costly and jeopardize merchant accounts. You can mitigate chargeback risks in your store by:
    • Implementing clear return and refund policies
    • Using delivery confirmation for all shipments
    • Maintaining detailed transaction records
  • Product liability: Selling vapes is also high-risk because of the danger the products pose to your customers. Defective products can lead to health issues or injury, which could lead to legal action against your store. Also, experts are still studying the novelty of using vaping products long-term, potentially leading to future liability issues. To protect your business: 
    • Work only with reputable suppliers and manufacturers
    • Keep detailed records of product sourcing and quality control measures
    • Invest in comprehensive product liability insurance
    • Stay informed about product safety research and recalls
  • Public perception: Finally, the vape industry is considered “high-risk” because of the negative media coverage and public perception it often faces. Negative public perception can increase regulatory scrutiny and impact customer behavior, making the industry riskier than average. 

Related Read: Are Vape Shops Profitable? 3 Sales-Boosting Tips

Understanding these risk factors is crucial for vape store owners. Acknowledging and implementing strategies to address these challenges can help you navigate them better. Remember, being classified as "high-risk" doesn't mean your business can't thrive — it just means you need to be more proactive in managing and mitigating these risks.

With this in mind, let’s explore some tips and details every vape shop owner should know about high-risk payment processing. 

FDA Rules for Vape Stores

One of the key parts of operating a vape store is navigating FDA regulations. Understanding and complying with these rules helps avoid penalties and keep your customers safe. But what FDA rules do you need to follow as a vape shop owner?

Related Read: Do You Need a License To Sell Tobacco? 8 Regulations To Follow

  1. Product registration:
    The FDA requires all vape products to be registered before you sell them legally. This process involves submitting detailed product information, including ingredients and manufacturing processes, providing scientific data on the product's impact on public health, and meeting strict deadlines for registration and compliance.
  2. Labeling and packaging requirements:
    FDA regulations on labeling and packaging inform consumers and protect children. Some of the requirements to keep in mind are including mandatory health warnings on all packaging and using child-resistant packaging for anything containing nicotine.
  3. Sales and marketing restrictions:
    The FDA imposes strict rules on how vape products can be sold and marketed. Firstly, age verification is mandatory for both in-store and online sales. Free samples and certain promotions are prohibited, and you must be careful about your advertising and marketing approaches, as many platforms and claims are not permitted or strictly regulated.
  4. Manufacturing standards:
    Even if you don't manufacture products yourself, understanding these standards is crucial to help you follow Good Manufacturing Practices (GMP) when making all vape products. Quality control and testing requirements ensure product consistency and safety. As a retailer, you should work only with manufacturers who can demonstrate compliance with FDA manufacturing standards and keep detailed records of product sourcing and quality issues. 

Staying compliant with FDA regulations requires ongoing effort and attention to detail. Remember to regularly check for updates to FDA regulations, as rules and restrictions on vaping products often change. 

Essential Features in High-Risk POS Solutions

Having the right point of sale (POS) system is crucial when operating a high-risk business like a vape shop. A robust POS solution tailored for high-risk industries can help you navigate complex regulations, enhance security, and streamline operations. 

Let's explore the essential features you should look for in a high-risk POS solution.

First, remember that compliance and regulatory support are non-negotiable in the heavily regulated vape industry. Look for a POS system that offers built-in age verification systems, automated tax calculations for different jurisdictions, and integration with compliance management software.

Advanced security features are also crucial. Your POS should include end-to-end encryption for all transaction data, tokenization to protect customer information, and robust fraud detection and prevention tools. These security measures protect your business and customers and help maintain the trust of payment processors and banks, which is especially important in high-risk payment processing. 

Flexible payment options are essential to maximizing sales and customer convenience. Your POS should support multiple payment methods, including credit/debit cards and mobile payments, integrate with high-risk payment processors familiar with industry challenges, and handle high transaction volumes without slowdowns.

Another key feature is effective inventory management. Look for point of sale systems that offer real-time tracking of stock levels, automated reorder alerts for popular items, and detailed reporting on sales trends and inventory turnover. 

Customer relationship management (CRM) capabilities can help you build customer loyalty in competitive markets. Your POS should offer integrated loyalty programs, the ability to run personalized marketing campaigns based on purchase history, and tools to track customer preferences and buying patterns.

Finally, remember that robust reporting and analytics features are crucial for data-driven decision-making. Find a POS with comprehensive sales and financial reports, data visualization tools for easy trend analysis, and customizable dashboards to track key performance indicators (KPIs).

Cigars POS offers all these essential features and more, making it an ideal choice for vape shops and other high-risk businesses. Schedule a demo of Cigars POS today to see how we can help you easily manage high-risk payments. 

Managing High-Risk Payment Processing the Easy Way

We've covered a lot of ground on the complexities of high-risk payment processing for vape shops. Armed with this knowledge, you're better prepared to navigate these challenges and keep your store running smoothly. However, understanding the landscape is just the first step. To thrive in this high-risk industry, you need the right tools at your fingertips.

This is where your choice of a point of sale system becomes crucial. 

You need more than just a payment processing solution. You need a comprehensive solution that addresses the unique challenges of high-risk payment processing and vape shop operations. You need a system with built-in compliance features, robust security measures, and flexible payment processing. 

Enter Cigars POS. Our system is specifically designed for businesses like yours, offering all the features you need to easily manage high-risk payments and vape shop operations. From integrated age verification to streamlined inventory management, detailed reporting, and payment processing, Cigars POS has you covered.

Get your Tobacco Point of Sale System Buyers' Guide to find out which system is best for your shop.

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