How to Prevent Chargebacks for Nutraceutical Companies
By Chris Alarie on Nov 20, 2020
Nutraceuticals are a growing industry, particularly within the online retail sector. An estimated 75% of Americans take some sort of dietary supplement and the global nutraceutical has an estimated global value of nearly $400 billion. In the US alone, the nutraceutical market is expected to grow from $60 billion in revenue this year to $100 billion by 2024. But with growth brings complications. And nutraceutical businesses are necessarily prone to one particular kind of complication: chargebacks.
What Are Nutraceuticals?
Also known as “bioceuticals” or by the shortened name “nutra,” “nutraceuticals” is a blanket term for a wide variety of pharmaceutical alternatives, including dietary supplements, vitamins, fortified foods, and others. The term itself is a portmanteau, combining “nutrition” with “pharmaceutical.”
Nutraceuticals are regulated significantly more loosely than traditional pharmaceuticals or over the counter medications. As a result, they are sold by a wide variety of means, including a large volume of online sales. Also, because of the lack of regulation, they are often advertised with health claims that are not supported by clinical evidence. As a result, nutraceutical sales can result in a large volume of chargebacks and online nutraceutical merchants accounts are often labeled “high risk.”
What Puts Nutraceutical Businesses in High Risk Category of Merchant Accounts?
E-commerce is generally treated as higher risk than brick and mortar commerce by merchant account providers. But online nutraceutical merchants are especially prone to this designation and the consequent restrictions. Three particular aspects of the nutraceutical industry are the primary causes of its high risk designation.
Inconsistent Regulatory Status
While nutraceuticals are not regulated anywhere near as stringently or consistently as pharmaceuticals, it would be a mistake to say that they are entirely unregulated. In the United States, nutraceuticals are generally subject to the Food and Drug Administration’s (FDA) regulations on dietary supplements. Acquirers can sometimes be held liable for giving merchant accounts to businesses that fail to meet the FDA’s regulations.
High Rate of Fraud
Like many other sorts of e-commerce-based businesses, nutraceuticals are unfortunately frequent targets of a wide variety of fraud. Additionally, many nutraceutical merchants sell their products on a subscription basis, subjecting the business to the fraud risks associated with that business model. And while it is impossible to say for certain, it’s possible that the murky regulatory nature of nutraceuticals marks them as targets for fraud, as well.
High Volume of Chargebacks
There are a number of reasons why nutraceutical businesses are prone to chargebacks, besides instances of fraud. Sometimes customers are unsatisfied with a lack of results (possibly due to unsubstantiated claims of health benefits) and opt to file a chargeback rather than request a refund. Also, similar to the aforementioned issues with fraud, subscription billing models can lead to higher instances of chargebacks.
While nutraceutical merchants have no control over the regulatory environment in which they operate, they do have the ability to tailor their business practices so as to limit their risk of fraud and chargebacks.
How to Reduce Fraud and Chargebacks
A solid plan for preventing frequent chargebacks necessitates being able to anticipate everything from innocent mistakes to intentional fraud. While no merchant can prevent every confused customer or stop every bad actor, there are a number of best practices that will put you in a better position to reduce the number of chargeback requests you receive for your nutraceutical business.
One of the most important practices is to regularly be communicative with your consumers. Make sure that you set clear expectations at the outset of the consumer enrolling in your service. Make sure they know what to expect, both in terms of services/goods provided and billing procedures.
If you make any changes or adjustments to your service deliveries or billing procedures, be sure that your consumers are aware of it. This includes clearly communicating the terms and length of a free trial, if you offer one. It is in your best interest to disclose all fees, including termination fees.
It is also a good idea to make it easy for consumers to contact you if you have any questions. Make your customer service contact information available in as many places as possible.
If you operate your nutraceutical business on a subscription model, be clear about the procedures for opting out. A cancellation processed through your normal procedures is always better than a chargeback. Always process any cancellation requests as promptly as you can.
It is also important to protect yourself. Make sure that you make sure consumers read and agree to all of your terms and conditions before you bill them or send the first installment of your service.
If you market your nutraceutical products through affiliates, make sure you follow the best practices for affiliate monitoring. Affiliate marketing can be a valuable tool for increasing sales but it is fraught with potential for chargebacks if you don’t properly monitor those affiliates.
Be sure to make use of whatever sorts of anti-fraud tools may be available to you, such as address verification and geolocation tools. Account updating tools can also help preclude situations that may lead to chargebacks, such as customers moving or cancelling their credit card or bank account without telling you.