The Risks of Selling Supplements on Shopify: A Comprehensive Guide

Table of Contents

1. Introduction
2. The Change in Shopify Payments Policy
3. Reasons behind the Policy Change
4. Impact on Merchants
5. The Role of Stripe in Shopify Payments
6. Pressure from Visa and MasterCard
7. Reviewing Supplement Products
8. The Problem with Direct Claims
9. Chargebacks and their Consequences
10. Maintaining a Low Chargeback Ratio
11. Challenges Faced by Credit Card Processors
12. The Role of Legit Script
13. Difficulties in Working with Supplement Companies
14. Solutions for Merchants
15. Assistance Offered by the Author
16. Reviewing Websites and Product Labels
17. Understanding Ingredient Flags
18. Dealing with Credit Card Processing Rates

Why Selling Supplements on Shopify may not be Ideal

Introduction

Running an online business involves numerous challenges and considerations. One particular issue that arose in early 2017 was a change in Shopify's policy regarding the sale of supplements. This change significantly impacted merchants using Shopify Payments and resulted in the discontinuation of supplement sales on the platform. In this article, we will delve into the reasons behind this policy change, explore the challenges faced by credit card processors, and discuss the implications for supplement merchants. We will also offer solutions and assistance for those navigating this complex landscape.

The Change in Shopify Payments Policy

In early 2017, Shopify Payments altered its policy, effectively banning the sale of supplements on its platform. This decision had a significant impact on merchants who relied on the convenience and popularity of Shopify to sell their supplements online. The suddenness of this change left many businesses scrambling to find alternative payment processing solutions within a limited timeframe.

Reasons behind the Policy Change

The policy change in Shopify Payments was a direct result of pressure from Visa and MasterCard. These credit card processing companies exerted influence on Stripe, the company that powers Shopify Payments. Stripe, in turn, decided to no longer process transactions for the supplement industry. The primary reason behind this decision was the need for credit card processing companies to review supplement products thoroughly. This review process is essential to ensure that supplements do not make direct claims about their effects that are not backed by the FDA or supported by rigorous scientific studies.

Impact on Merchants

One of the main concerns for credit card processing companies like Stripe is the high potential for chargebacks in the supplement industry. A chargeback occurs when a customer disputes a transaction and requests a refund from their bank or credit card company. This is particularly common when supplements make direct claims that are unrealistic or unsupported by evidence. For example, if a supplement guarantees substantial weight gain or muscle growth within a short period, customers may feel deceived and initiate a chargeback.

Maintaining a low chargeback ratio is essential for credit card processors to comply with the requirements set by Visa and MasterCard. These companies demand that credit card processors keep chargebacks below 2% per transaction. If a credit card processor has a significant number of merchants with products prone to chargebacks, the risk of violating this requirement increases. Consequently, credit card processing companies opt to sever ties with merchants selling supplements to mitigate the potential financial and reputational damage associated with chargebacks.

The Role of Stripe in Shopify Payments

Shopify Payments heavily relies on Stripe as its primary payment processing partner. Stripe is one of the largest players in the industry, handling a substantial portion of the transactions flowing through Shopify's websites. Given the dominant position of Shopify in the e-commerce market, Stripe's decision to discontinue processing transactions for supplement merchants had a profound impact on the availability of payment solutions for businesses in this sector.

Stripe's decision reflects the challenges and risks associated with processing payments for the supplement industry. It is understandable that credit card processing companies such as Stripe are hesitant to allocate significant resources to reviewing every product and ingredient marketed by supplement merchants on their platform.

Pressure from Visa and MasterCard

The pressure applied by Visa and MasterCard on credit card processors like Stripe plays a pivotal role in shaping the policies and decisions made by these processors. Visa and MasterCard seek to safeguard their reputation and financial interests by ensuring that credit card processors comply with their guidelines and regulations. For credit card processors, the consequences of violating these guidelines can be severe, ranging from penalties and fines to potential termination of their services.

Visa and MasterCard's requirements pertaining to chargeback ratios pose a significant challenge for credit card processors serving the supplement industry. To minimize chargebacks, credit card processors need to scrutinize supplement products and their claims thoroughly. This undertaking requires extensive resources and time, which credit card processors are often reluctant to invest, leading to the termination of services for supplement merchants.

Reviewing Supplement Products

The scrutiny faced by supplement merchants stems from the need to avoid direct claims that are not supported by the FDA or scientific evidence. Credit card processing companies must ensure that supplement products adhere to regulations and guidelines, preventing misleading or deceptive claims. To streamline this process, a database called Legit Script is used, containing flagged ingredients according to the FDA's determinations.

Every ingredient in a supplement must be meticulously reviewed, with any flagged ingredients recorded and accounted for. For credit card processors, this review process involves examining the marketing materials, product labels, and other relevant information to ascertain whether direct claims are being made. Merchants with red-flagged ingredients face an even greater challenge in finding credit card processors willing to underwrite their accounts.

The Problem with Direct Claims

Direct claims made by supplement companies can be problematic for multiple reasons. Firstly, unrealistic claims often lead to disgruntled customers who seek refunds through chargebacks. This not only results in financial losses for the merchant but also negatively impacts the chargeback ratio of the credit card processor. Additionally, direct claims may attract scrutiny from regulatory bodies, potentially leading to legal consequences and reputational damage for both the merchant and the credit card processor supporting them.

Chargebacks and their Consequences

Chargebacks are a significant concern for credit card processing companies, especially when facilitating transactions online. Visa and MasterCard demand that credit card processors maintain a chargeback ratio of 2% or below across their entire portfolio of merchants. This requirement aims to ensure the overall integrity of the payment processing system and protect consumers from fraudulent or unscrupulous merchants.

Supplement merchants, particularly those making direct claims, are highly susceptible to chargebacks. Merchants must navigate the fine line between marketing their products effectively and avoiding claims that can be disputed. Failure to maintain a low chargeback ratio can result in penalties, fines, and even termination of credit card processing services. Therefore, credit card processors are cautious when dealing with merchants in the supplement industry.

Maintaining a Low Chargeback Ratio

Given the harsh consequences of a high chargeback ratio, credit card processing companies often opt to discontinue services for supplement merchants rather than risk violating Visa and MasterCard's requirements. This decision stems from the challenges associated with mitigating the risks of chargebacks effectively. The constant influx of new supplements in the market, coupled with shifting FDA regulations and growing consumer demand for transparency, makes maintaining a low chargeback ratio an arduous task for credit card processors.

Challenges Faced by Credit Card Processors

Working with supplement companies presents unique challenges for credit card processors. The industry is rife with unscrupulous companies marketing products in a misleading or dishonest manner. Some supplements even contain banned substances, steroids, or pseudo-pharmaceutical ingredients masquerading under alternative names. With regulatory bodies frequently identifying new substances and updating the Legit Script database, credit card processors must allocate substantial resources to stay vigilant and mitigate risks effectively.

Additionally, credit card processors must thoroughly review the marketing materials, product labels, and claims made by supplement merchants to ensure compliance with regulations and guidelines. This process is time-consuming, requiring expertise and extensive resources. Consequently, credit card processing companies often perceive working with supplement companies as a high-risk endeavor and choose to avoid it altogether.

The Role of Legit Script

Legit Script is a vital resource used by credit card processors to assess the legitimacy and compliance of supplement products. This comprehensive database compiles the FDA's determinations regarding consumable products, such as supplements, topical products, and prescription online pharmacies. When reviewing supplements, credit card processors reference Legit Script to cross-reference flagged ingredients and determine their implications for merchants.

By leveraging Legit Script, credit card processors can ensure that the ingredients present in a supplement adhere to regulations and pose no undue risk to consumers. Merchants with flagged ingredients face additional scrutiny, making it increasingly challenging to secure credit card processing services. Therefore, familiarity with Legit Script and its implications is crucial for supplement merchants seeking to navigate the payment processing landscape successfully.

Difficulties in Working with Supplement Companies

The challenges faced by credit card processing companies in catering to the supplement industry are numerous. From chargeback risks to regulatory compliance, each aspect requires meticulous attention and allocation of resources. Shady marketing practices, the presence of banned substances, and the constant evolution of FDA regulations further compound these challenges. As a result, credit card processing companies find it easier to exclude supplement companies altogether rather than invest in evaluating each merchant individually.

Solutions for Merchants

For merchants seeking to sell supplements online, the abrupt policy change in Shopify Payments and the reluctance of many credit card processing companies can be discouraging. However, several solutions are available to navigate these challenges successfully. By adhering to FDA regulations, avoiding direct claims, and conducting thorough ingredient and product reviews, merchants can improve their chances of securing credit card processing services. Additionally, seeking assistance from industry professionals can provide valuable guidance and support.

Assistance Offered by the Author

The author of this article, David Lopez, offers comprehensive assistance for supplement merchants facing payment processing challenges. With expertise in the credit card processing industry, he can review websites, product labels, and marketing materials to identify potential issues that may hinder approval from credit card processors. By understanding the intricacies of ingredient flags, merchants can assess their compliance and strategize ways to proceed effectively. Moreover, David can provide insights into credit card processing rates and offer an estimation of associated costs, taking into account the unique requirements of the supplement industry.

Reviewing Websites and Product Labels

One of the services David offers is a detailed review of merchant websites and product labels. By examining these elements, he can identify direct claims, misleading marketing techniques, and potential red-flagged ingredients. This review serves as a crucial step in ensuring compliance with FDA regulations and enhancing the chances of securing credit card processing services. David's expertise allows him to pinpoint areas where improvements can be made and guide merchants towards a more compliant and transparent approach.

Understanding Ingredient Flags

Ingredient flags play a significant role in determining the viability of a supplement merchant's account with credit card processors. By accurately understanding the implications of green, yellow, and red flags, merchants can adapt their product offerings and marketing strategies accordingly. David can assist in interpreting these flags and provide guidance on how to navigate supplement sales within the framework set by credit card processing companies. This knowledge empowers supplement merchants to make informed decisions and increase their chances of securing credit card processing services.

Dealing with Credit Card Processing Rates

Credit card processing rates can vary depending on various factors, including the level of risk associated with a merchant's business type. For supplement merchants, the unique challenges and potential for chargebacks often result in higher processing rates. David can provide valuable insights and estimates regarding these rates, allowing merchants to assess the financial implications of credit card processing and plan accordingly. By having a clear understanding of costs, supplement merchants can make informed decisions and develop effective pricing strategies.

Highlights:

• Shopify Payments changed its policy, banning supplement sales on their platform due to pressure from credit card processing companies.
• Visa and MasterCard require credit card processors to review and minimize direct claims made by supplement products.
• Chargebacks, especially from unrealistic claims, contribute to an increased chargeback ratio, leading to penalties and possible service termination.
• Maintaining a low chargeback ratio is challenging for credit card processing companies, resulting in a reluctance to work with supplement merchants.
• Legit Script is a database used to determine the compliance of supplement ingredients, flagging potential risks.
• Shady marketing practices and the presence of banned substances make working with supplement companies a high-risk endeavor.

FAQs:

Q: Why did Shopify Payments ban supplement sales on their platform?

A: Shopify Payments made this decision due to pressure from credit card processing companies, such as Visa and MasterCard. These companies require processors to minimize direct claims made by supplement products and maintain a low chargeback ratio.

Q: What are chargebacks, and why are they detrimental to credit card processors?

A: Chargebacks occur when customers dispute transactions and request refunds. They negatively impact a credit card processor's chargeback ratio, potentially resulting in penalties, fines, and service termination, as required by Visa and MasterCard.

Q: What is Legit Script, and how does it affect supplement merchants?

A: Legit Script is a comprehensive database used by credit card processors to assess the compliance of supplement ingredients. Merchants with flagged ingredients face additional scrutiny, making it more challenging to secure credit card processing services.

Q: What assistance can David Lopez provide for supplement merchants?

A: David Lopez offers his expertise in reviewing websites, product labels, and marketing materials to identify potential issues. He can guide merchants in understanding ingredient flags and provide insights on credit card processing rates specific to the supplement industry.

Q: Why do credit card processing companies find working with supplement companies challenging?

A: The supplement industry presents various challenges, including misleading marketing practices, the presence of banned substances, and the need to comply with evolving FDA regulations. This complexity makes many credit card processing companies hesitant to work with supplement merchants.