Understanding Kratom, Credit Card and Paypal Processing Issues

September 06, 2018 Articles, Kratom Research, Op-Ed

Maybe you’ve noticed a growing trend among kratom vendors towards accepting eChecks and Bitcoin. If you have no experience with such payment methods, you may be wondering why a lot of them aren’t accepting credit cards. Read below for a full explanation of why kratom vendors have a hard time accepting credit cards and Paypal.

WHY WON’T MY KRATOM VENDOR TAKE CREDIT CARDS?

First lets understand how credit card processing works. There is the customers’ card holder bank, known as the issuing bank. Then there is the merchants bank, known as the acquiring bank. During a transaction, the customers issuing bank exchanges the credit of funds to the merchants’ acquiring bank. It is a little more complex than this, and the acquiring merchant bank doesn’t get paid the funds immediately. For this reason, the cardholder bank doesn’t usually have any issues however, the merchant bank is open to fraud and is essentially giving their merchants a line of credit when underwriting a merchant account.

But this isn’t even the major issue for kratom since the industry generally has very low charge-back rate and satisfied customers getting what they paid for. This issue lies with their bosses, known as card schemes. Otherwise known as Visa, Mastercard, American Express etc. These card schemes lend out their brand name to these acquiring banks for a cost which they collect per transaction (known as interchange fees). Card schemes do not take any risk on transactions but instead act like a fascist government. They make the rules and enforce those rules upon acquiring banks to obey without any feedback from their customers. These schemes have governed merchants into three categories: low-risk, high-risk and prohibited.

Acquiring merchant banks can underwrite low-risk and high-risk industry types on the card schemes list with no issue (high-risk just takes an extra fee on processing). Prohibited on the other hand has some issues, and you guessed it, kratom falls into this prohibited category. If an acquiring bank gets caught processing prohibited transactions, the card schemes can fine them hundreds of thousands of dollars plus take away their ability to accept or offer credit cards at all to any merchants. With all this, and the additional risk in merchant processing already, it makes it pretty clear for the banks to want to shut down and search for merchants accepting credit cards in prohibited industries. And acquiring banks have done this, they make use of several strategies using software to search and destroy merchants processing prohibited transactions.

WHY CAN SOME KRATOM VENDORS ACCEPT CREDIT CARDS

This brings us to our next part. It is not impossible for kratom vendors to accept credit cards. It can happen but there is a huge risk to the kratom merchant. We will  discuss the 3 ways kratom vendors accept credit cards below:

Paypal/Square/Stripe

Merchant accounts like Paypal, Square and Stripe are not like regular merchant accounts issued by a bank. These are known as payment aggregators and basically it is one big merchant account where the company does their own underwriting on merchants. Companies like Paypal and Stripe usually don’t do the same fraud and merchant analysis as banks do when issuing a merchant account. The downside is, they have their own internal algorithms that flag transactions and account activity. As soon as a flag hits a merchant account, a real human underwriter will take a deeper look. If that account is determined to be processing V/MC prohibited transactions, it is an instant permanent termination and the merchants funds will be held for a minimum of 6 months. Not very cool for the kratom merchant but in Paypal’s defense, they take the same risks as any acquiring bank.

Offshore Aggregate Accounts

Anything offshore can’t sound like quality – that’s because its not. Offshore aggregate accounts are a hybrid between a regular domestic merchant account and Paypal – except you get the worst of both worlds. They put the merchant through a lot of scrutiny (because they have to) and the account itself isn’t a dedicated account to the merchant, its like a cesspool between other high-risk, prohibited and terminated merchants. International is the only way to go because card schemes are less aggressive on banks in international communities. This doesn’t mean they can’t be fined or shut down – oh because they can and still do. No aggregate account we have ever seen has lasted over 6 months before being shut down. The major downside is these accounts are usually 9% fees and up plus 10% rolling reserve over 6 months. So the merchant takes 19%+ off the top immediately plus they have to wait for 2-3 weeks before seeing the first days processing payout. Its a bad deal all around and a massive risk for losing money. In addition, when these accounts get shut down, there is usually no payout to the merchants.

Lying to the Bank For A Merchant Account

Out of the three options, this one can be most lucrative and worthwhile for a kratom merchant, except for the fact it could be illegal. In this strategy, a kratom merchant will apply with a fake website selling goods that are not prohibited. The bank thinks the products are low-risk, and approve the account. Then the kratom merchant, processes the transactions off his/her site. If the merchant uses proper software to “fool” the acquiring banks automation detection tools, they can actually get away with it for a while. The downside is that this is known as “transaction laundering” and it falls into the “money laundering” category of felony which can carry up to 30 years in prison. Some have argued that it is not illegal if the products are legal. This is a fine line and scary thing to gamble with as all that needs to be proven is that the products are marketed and sold illegally. People have been thrown in jail for 30 years with this same principal. So as you guessed it, this option isn’t attractive to many merchants.

WHY USE ECHECK TO BUY KRATOM

If you’re wondering why many vendors are making the move to eChecks, it’s really quite simple, there is no card schemes to govern the banks and tell them what they can and cannot accept. Although most banks are not kratom friendly, there are some banks that will allow it. Echecks are easy to use and generally clear in 24 to 48 hours. This includes processing and verification.

To learn more about how electronic checks work, you can click here.

WHY USE BITCOIN TO BUY KRATOM

Bitcoin is becoming the go-to payment method for many in the kratom community because it allows for a good degree of discretion. Payments made in the blockchain are able to be verified with relative ease and are not subject to the same scrutiny as other payment options.

Is Bitcoin safe and secure?

This is a tougher question to answer because such cryptocurrencies have been hijacked in the past. Additionally, users may lose their bitcoin if they aren’t properly secured in cold storage. Luckily, there are many options available to those who are thinking about converting cash to bitcoin, such as paper wallets or the deep cold storage offered by elliptic vault.

OTHER OPTIONS TO CONSIDER

One of the simplest solutions for those who don’t invest in cryptocurrencies or opt for traditional banking is COD (Cash On Delivery). Many vendors now accept this as a means of payment. An order of kratom powder is shipped to your doorstep and you pay cash upon receipt of your package.

The only downside to COD is that it costs $11 + the regular shipping fee. Other than that, this process is a breeze for both vendor and customer alike.

Personally, I’m looking forward to the world of tomorrow, a world that will hopefully enable customers and companies to retain their Fourth Amendment right to privacy and our protection against unreasonable searches and seizures.

In a perfect world, the future will see the adaptation of privacy coins among the top kratom vendors online. Anonymous cryptocurrencies like Monero and Zcash will make it possible for the kratom community to shop for their favorite strains without fear of judgment or delivery concerns.

Until then the above options are a few ways we can go. But they’re not your only options.

Some kratom vendors will accept PayPal for wholesale kratom, although this is rare given the difficulties they’ve had with PayPal. Some kratom users have had their PayPal accounts terminated after placing an order for kratom.

Other low risk solutions include Stripe and Square, although these have posed problems for vendors as well.

The inherent problem with these low risk solutions, solutions that also include Google Wallet, Venmo and Amazon payment, is that they have a tendency to blacklist users for breaking their terms and conditions.

For this reason and others, eChecks and Bitcoin are your two safest options at this time. Here’s hoping this will change, but you never know what tomorrow will bring.

BOTTOM LINE

It is of the utmost importance that consumers familiarize themselves with the payment methods available to them from any given kratom vendor. Do your due diligence and you should be able to order safely and securely online.

Bob Freville
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