Businesses that sell CBD often run into higher payment processing costs compared to other industries. This happens in part because payment companies view CBD sales as riskier, especially with changing laws and strict regulations.
CBD merchants need to know what affects their processing fees to better manage their payments. Many look for ways to reduce costs through special CBD merchant services, which help handle the unique challenges faced by CBD sellers.
Regulatory Complexity Increases Compliance Costs
High-risk CBD merchants deal with many complicated regulations at both the federal and state levels. Laws often change, and new rules can appear with little warning. Companies must pay close attention to these changes to keep their payment processing accounts in good standing.
Extra steps are often needed to check and verify customer details, products, and marketing practices. These steps take more time and resources. Businesses may also have to hire legal help or compliance experts to review their practices.
This increased attention to rules leads to higher costs. Payment processors pass these costs along through higher fees for CBD merchants. Following all of the legal and regulatory rules is not only necessary—it’s also expensive for businesses in this space. Compliance challenges are a major reason why processing fees are so much higher for these merchants.
High Chargeback and Fraud Risk Raise Processor Liability
High-risk CBD merchants often deal with more chargebacks and cases of fraud. A chargeback happens when a customer disputes a payment, and the money is returned to them. This puts extra pressure on payment processors.
Processors see more risk with industries where customers may change their minds or feel unsure about their purchases. CBD falls in this category, leading to more frequent reversals and disputes.
Fraud can also be a problem, as some buyers might use stolen credit cards or try to trick the system. Higher numbers of chargebacks and fraud cases cost payment processors both time and money.
Because these problems happen more often with high-risk merchants, payment processors handle more financial risk. This leads them to charge higher processing fees to cover possible losses and extra handling. As a result, CBD businesses usually pay more for payment services.
Frequent Account Instability Forces Processors to Apply Higher Fees
High-risk CBD merchants often see changes to their merchant accounts without much warning. Accounts may be frozen, put on hold, or even shut down if processors suspect unusual activity or possible fraud.
Because of these risks, processors have to spend more time reviewing and managing these accounts. When accounts get flagged or closed, it can result in a sudden loss of funds and extra work for the payment companies.
Processors raise fees to cover the greater chance of problems. This helps protect them from losses due to chargebacks, disputes, and other account issues. For CBD merchants, these higher charges are a direct result of the unpredictable nature of their transactions and industry-related risks.
Social Stigma and Reputational Concerns Lead to Risk Premiums
Social stigma is one reason financial service providers view high-risk CBD merchants with caution. Some people still link CBD to negative headlines or illegal drugs. Even when legal, these perceptions can cause hesitation among banks and payment processors.
Reputational concerns play a big part as well. Service providers worry that working with CBD merchants might affect how customers see them. A potential loss of trust or negative public opinion influences their decisions.
Because of the stigma and reputational risks, providers may charge higher processing fees. They believe higher fees help balance the extra risk and costs linked to possible public backlash or controversy. This leads to a risk premium that CBD merchants often pay compared to merchants in other industries.
Limited Banking Options Concentrate Demand on Specialized High-Risk Processors
Many banks avoid working with CBD businesses due to legal risks and strict rules. This leads to fewer banking choices for these merchants.
With fewer banks willing to take them on, traders who sell CBD products often have to use payment processors that focus on high-risk industries. These payment processors are more familiar with the unique issues CBD merchants face.
Because there are only a handful of processors serving these merchants, the demand for their services grows. Fewer choices mean there is less competition among processors, which often results in higher processing fees for merchants.
The extra fees reflect the increased risks the processors take on and the limited number of service providers willing to support high-risk merchants. This makes it difficult for CBD merchants to find affordable processing options.
Conclusion
High-risk CBD merchants tend to pay higher processing fees because of factors like regulatory uncertainty and higher chargeback rates. Payment processors view these businesses as riskier, which leads to stricter rules and increased costs.
Understanding these reasons helps merchants plan better and manage expectations. With careful planning and the right strategies, costs can be controlled while staying within industry guidelines.
