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The Rapid Growth of Nutraceuticals and Why They Are Labeled High-Risk

Nutraceuticals are beverages and food that contain a functional medicinal element. The industry is already huge, and growing rapidly; products like Powerbar, with annual sales of $130 million, and Balance nutrition bars, with annual sales of $100 million, have mainstream footholds in the United States. These are just scratching the surface of the potential for an industry expected to achieve a CAGR of 11.95% from 2018 to 2023.

With this potential, payment processing companies should be fighting for position to build nutraceutical experience and build in clients. A sticking point, though, is that the industry faces enough risk and uncertainty to fall within high-risk merchant processing parameters. Processing companies must therefore be both strong and creative to sign and serve companies selling nutraceutical products to the public.

The Nutraceuticals Payment Processing Opportunity

The opportunity that nutraceuticals present is huge. Consumers looking to gain medicinal benefits from drinks, food, snacks, and supplements have more options than ever. Grand View Research estimates that by 2025, the market for these products will reach $578.23 billion. As consumers become more health-conscious, demand for nutraceuticals will continue to surge. And enterprising companies will rise up to meet this demand, whether through new organizations or joint ventures between companies that focus on product development and those that focus on the medicinal components.

Further, the potential for future growth lies in both the industry focus on developing products and the vast array of problems nutraceuticals could address. KPMG reports that development areas for nutraceutical companies include products intended to address key concerns that include the following:

  • Brain health and aging;
  • Gastrointestinal health;
  • Cardio and heart health; and
  • Endocrine health and diabetes.

Within these broad categories lies potential to develop hundreds or even thousands of unique products. For payment processing companies, this should lead to a plethora of new potential clients who need payments processed, whether for direct sales or distribution of nutraceutical products. As the industry grows, sales of merchant payment services in this space should grow with it.

Why Nutraceuticals Require High-Risk Merchant Processing

Even so, there are risks that come with these kinds of products. Any time a company makes health-based claims, it faces regulatory scrutiny from the United States government. If a nutraceutical is found to be making fraudulent or unfounded claims about what it does, it risks being pulled from the market. Further, because many of these products are sold directly online, they face higher risks of returns and identity theft, which put in danger the payments they receive and the fees they generate for the processing.

Because payment processors categorize customers at times based on market space as much as individual credit concerns, the nutraceuticals industry falls for most companies into the high-risk merchant processing category. This broad brush prevents some processing providers from serving the industry at all. For others, it means requiring higher fees or establishing other protections against lost fees.

The nutraceuticals industry provides a key example of where opportunity and risk tolerance collide. Payment processing companies and sales professionals who find flexible and creative approaches can generate high revenue by serving these and other clients in the high-risk merchant processing category.

Contributor:

John Hughes

John is currently the Senior Vice President & Head of GlobalOnePay leading business development and partner teams. John has over over 20 years experience in the electronic payments industry, with roles including co-founding a successful businesses in the financial services and merchant acquiring space. John has held senior management positions with multiple top tier acquirers and was CEO/Co-founder of Base Commerce.