The term nutraceutical covers a lot of ground. Any vitamin, mineral, or health-related supplement not running through a pharmaceutical company falls under this category. In today’s market, demand has grown to a point where nutraceutical sales have evolved into a booming industry. People are more aware of health issues and often look for ways to remedy illness with more natural remedies.

As the industry expands, there is more competition and smaller businesses and start-up businesses need to make sure they have the tools to be successful.

One of these tools is payment flexibility. Gone are the days of cash-only shops thriving. We have stepped into the 21st century and for a business to succeed, they need to have a credit card processing system in place to handle the payment demands of its industry.

Originally the term nutriceuticals referred to health foods. In the years since the coining of that term, the phrase has grown to cover all things health related that are not controlled by pharmaceutical companies.

There is a wide range of products covered by the nutraceutical umbrella. Walk into a nutrition store and you will find shelves packed with every type of vitamin, protein powder, herbal supplement, and dietary pill on the market. Due to the wide variety of products, FDA approvals are not required and the claims made for the products are not always validated. Generally, the supplements sold tend to be more natural and holistic in their origins than much of what can be found at the neighborhood pharmacy.

Nutraceutical merchants fall into the “high risk” category for several reasons: shifting FDA compliance, higher than average chargebacks, subscription models for online stores, and the potential for lawsuits.

While some of these issues are avoidable through cautious planning on the part of the merchant account provider, others are simply part of the process.

FDA COMPLIANCE

The regulations on the products sold by a nutraceutical business are limited. The FDA tries to stay on top of products, but they are constantly behind the game. The byproduct of the lack of regulation side of the business means that some of the products sold may not be as advertised. It also means there is a constant tug of war as the government tries to bring some sense of regulation to the products being sold. This creates a constantly shifting tide of approved products.

Unfortunately, many credit card processors try to avoid dealing with these issues. By lumping nutraceutical merchants in with other high risk businesses, they try to limit their exposure.

CHARGEBACKS

All businesses deal with chargebacks to a certain degree. However, within the nutraceutical business community, those numbers are higher than the industry average. Due to the uncertain nature of each product, there will likely be a steady level of customer dissatisfaction around certain portions of the industry. Whether the customer returns the product for a refund or leaves bad reviews to impact further sales, the business is left to deal with the fallout.

With many nutraceutical businesses operating online, the rates of chargeback are even higher. Statistically, online platforms see a much higher rate of chargebacks due to fraud. In fact, online fraud rates account for almost $4 billion in losses for online businesses.

SUBSCRIPTION MODEL

Many nutraceutical businesses use a subscription model. People like their vitamins or supplements regularly and want that supply to keep on coming…until they don’t.

Due to cancellation and returned products when the subscription is no longer wanted, the rates of legitimate chargeback are higher than other businesses. There is almost always a lag between actual cancellation and when the banks stop trying to collect payment. While the subscription model fits the needs of the business, the downside is the resulting chargebacks.

FALSE CLAIMS & POTENTIAL FOR LEGAL ACTION

Unfortunately, the whole nutraceutical business carries an age-old connotation of snake oil and elixirs. The industry has taken strides to rid itself of those images, including the name nutraceutical. And while the majority of products offered by supplement stores are either helpful or at least not harmful, there is always the possibility a product does not live up to expectations.

In the past few years, there have been many lawsuits against nutraceutical companies for products that fail to produce the promised results. There have been class action lawsuits over products promising weight loss, penile enhancement, and gluten-free options. The list is much more extensive, and the constant possibility of legal action gives weight to the high risk designation.