If you’re running a business that sells a medication, product, or supplement that makes a health claim or treats an illness, you’re in ‘pharmaceuticals.’ In this explanation of high risk merchant accounts for pharmaceuticals, we’ll explain the various categories involved and help you determine the right credit card processing solution for your business.
Why are pharmaceuticals and nutraceuticals high risk?
When it comes to high-risk credit card processing classifications, several factors could be responsible. In the case of pharmaceuticals and nutraceuticals, age restrictions and government regulations are the primary factors. Improperly used medication can have negative repercussions and cause bodily harm. Additionally, the country’s ongoing drug crisis means that the government and medical businesses are invested in preventing unauthorized access to prescription drugs. Let’s take a look at the definitions of different types of products within this industry.Defining Pharmaceuticals
Pharmaceuticals refer to drugs intended as medication for health purposes. It can refer to both prescription drugs and over-the-counter drugs. Prescription drugs require doctor’s orders and are intended for a specific individual. On the other hand, over-the-counter drugs can be purchased by anyone of legal age and are for general use. For the purposes of credit card processing, prescription and over-the-counter medications are both considered high-risk businesses, except in certain situations, such as convenience stores. Some processors don't consider a limited amount of OTC medicine sold in-person to be a high risk processing situation.Pseudo-Pharmaceuticals
In some cases, products may be referred to as “pseudo-pharmaceutical.” The exact definition with regards to payment processing is a little murky, but roughly, pseudo-pharmaceuticals refer to products that make some type of health claim, but aren’t a prescription or regulated over-the-counter medication. Pseudo-pharmaceuticals could include herbal supplements, skin creams and skin care products that claim anti-aging, brightening, or firming benefits, facial peels with ingredients like retinol, teeth whitening kits, and other items.Defining Nutraceuticals
Nutraceuticals refer to food-based products that claim to offer health benefits, including treating or preventing illness and disease. They’re usually regulated by the FDA as dietary supplements or food additives, but aren’t held to the same standards as pharmaceuticals.Pharmacies
For the purposes of credit card processing, there are accredited pharmacies and drug stores, and non-accredited. Accredited pharmacies are still considered high risk, but accreditation means that you won’t need to register as a high-risk business with Visa. For the registration exemption, you’ll need to be accredited by the National Association of Boards of Pharmacy or another Visa-recognized regulatory body. Non-accredited pharmacies will need to register with Visa through a credit card processor, and pay associated high-risk registration fees.Non-Pharmacy Businesses
Not all businesses that sell products that fall under high risk pharmaceutical categories are pharmacies or drug stores. In fact, many small businesses selling skin care products, vitamins and supplements, or other common health and beauty items may find themselves considered a “pseudo-pharmaceutical” and therefore subject to the high risk pharmaceutical restrictions. The classification for your products is not at your discretion. Even if you’re not a doctor or pharmacist, if you sell a pharmaceutical or pseudo-pharmaceutical item, your business will fall under the pharmaceuticals category.Characterization of Pseudo-Pharmaceuticals
If you spend any time researching credit card processing for pharmaceuticals and related products, you’ll quickly find that many businesses feel they’ve been wrongly characterized as pseudo-pharmaceuticals. The primary company concerned is Stripe, a popular flat rate credit card processing solution, but any processor may class you as a pseudo-pharmaceutical. Unfortunately, Stripe’s prohibited business list contains the broad category of pseudo pharmaceuticals. As such, any business Stripe determines to fall into that category will not be able to process with Stripe. In some cases, the business was already accepting cards when the processor caught up and closed the business’ processing account. The problem is that many businesses that didn’t think they were selling anything prohibited were affected. For example, some of the businesses sold certain skincare products, beauty products, acne treatments, and other products. However, these are considered products that make “health claims” without verification by a regulatory body. Additionally, processors have wide latitude to determine whether or not to serve a business. It may be that you’ve been wrongly mischaracterized. If so, you’ll likely be able to find another processor to offer you a merchant account without much hassle. However, if your products are correctly considered pseudo-pharmaceutical (or if they’re in a grey area) you may need to do a little more research. You’ll need to seek out a high-risk processor specifically and it would be good to look for one with experience in pharmaceuticals. Note that “flat rate” style companies – such as Square, PayPal, and Stripe – do not support pharmaceuticals at all, whether medications or pseudo-pharmaceuticals. Their quick, no-underwriting application process means that you may initially be approved for an account, but the review process will eventually catch up and they will close your account. This is also the case for certain ecommerce platforms, such as Shopify. It's better to skip those options and find a processor comfortable with pharmaceutical sales.Finding a Processor
Pharmaceuticals and related items are one of the industries considered higher risk even within the high risk space. It’s vital that you’re upfront with your processor about the products you sell. FDA approval is helpful, but not strictly required. Some processors may use websites (such as legitscript.com) to check for banned ingredients. However, even if your product doesn't utilize banned ingredients, you can still be declined. Even if you don’t think your product is truly pharmaceutical or pseudo-pharmaceutical, it’s a good idea to seek out high-risk processors. Unfortunately, the final decision on the classification of your product isn’t up to you. If enough processors think you’re selling pseudo-pharmaceuticals, your claims to the contrary won’t get you far. The good news is that even if you are selling such items, there are processors willing to support it. Any business selling legal products can find a credit card processor. You can get quotes with no obligation through CardFellow's high risk credit card processing marketplace.A Note on Free Trials
It seems like a no-brainer to offer a free trial of a product to overcome client skepticism. But in high-risk businesses, including pseudo-pharmaceuticals, be careful about how you structure free trials. Some businesses have been accused of deceiving customers by offering free trials that turned into paid accounts automatically. This can lead to chargebacks, Federal Trade Commission investigations, and other problems. In some cases, processors won’t give you a merchant account if you engage in such practices, or will close your account. If you’re going to offer a free trial, don’t tie it into an automatic upgrade to a paid subscription.Registration with Visa and Mastercard
Visa and Mastercard require some high risk businesses to be registered with them prior to accepting cards. Currently, Visa requires registration for pharmaceutical-related merchant category codes 5912 (drug stores and pharmacies) and 5122 (Drugs, Drug Proprietaries, Druggist Sundries.) However, registration is not required if your business is accredited by the National Association of Boards of Pharmacy or another Visa-recognized legal regulatory body. As of 2023, registration costs $500 per year and must be renewed annually. Your credit card processor will register you with the card brands and pass along the fee. While finding a processor for your pharmacy or neutraceutical company may take a little more work, it's possible to get a great solution. Be upfront with processors about what you sell and be prepared to provide additional information.
Ben Dwyer
Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.
