A multi-part, high-stakes race is underway in a fast-growing part of online and brick-and-mortar retail — a race to stay ahead of political backlash and regulation, a race that also pits fly-by-night operators against merchants seeking the longer-term success that can come only from legitimacy and best practices. The race involves the sale of eCigarettes and vaping products — and the never-ending work to keep those products out of the hands of underage consumers.
In a recent PYMNTS interview, Scott Hardy, vice president of BankCard USA, discussed the vital issues of providing the proper level of age verification — not only for eCigarettes and vaping products, but other age-restricted items sold both online and off. He also talked about how to turn the challenges of those particular retail niches into opportunities that merchants and their service providers can take advantage of now in pursuit of long-term success, no matter what happens on the regulatory front.
The main issue, of course, is risk — age-restricted products mean more risk for merchants of running afoul of not only local law enforcement and various regulators, but angry, determined parents who can spark a negative PR campaign via local newspapers, TV stations or online social media. That’s a level of risk not all merchants are familiar with — or seek — but the growth of eCommerce, along with the rise of a generation of digitally-focused younger consumers, means that more age-restricted products are being bought online, a trend that by all signs is certain to continue.
BankCard USA has deep experience with low-risk and moderate-risk merchant activities, Hardy told PYMNTS, but the company was increasingly dealing with the higher-risk transactions associated with eCigarettes and vaping products. Not only that, but company officials were crossing paths at trade shows with developers of AgeChecker.Net age-verification software.
“We were referring customers to age-verification software just as a best practice,” he said. Soon enough, though, the company was “driving so much business” to AgeChecker.Net that it made sense to simply buy the company, Hardy said — which it did in a deal announced in March. “We were drivers of the business, even though they developed the technology.”
The AgeChecker.Net deal comes at a significant time for the eCigarette and vaping industry. As the market enjoys a hot phase of growth — it will reach $47.1 billion by 2025, experiencing a compound annual growth rate (CAGR) of nearly 24 percent, according to one report — parents and regulators are paying more attention to this sector of retail, which usually happens when something becomes big enough to appear on political and governmental radars.
Now the industry — including not only merchants, but the payment services providers who support those retailers — are dealing with what can arguably be called a regulatory backlash (though one can also look at it as a regulatory construction project, given the newness around this industry).
In March, for instance, the U.S. Food and Drug Administration (FDA) issued what essentially amounts to a prohibition against the sale of flavored eCigarettes in brick-and-mortar stores, including gas stations and convenience stores. Meanwhile, San Francisco (which is moving toward a ban of governmental use of facial recognition technology) wants to ban the sale of those products — including via delivery — to consumers within the city limits, at least until there is more federal clarity about the health dangers of eCigarettes and vaping products.
Amid all that, the U.S. Food and Drug Administration is setting and tweaking rules that govern age verification for these products — indeed, the agency has issued at least 1,300 warning letters and fines to merchants for selling these products to underaged consumers, putting even more pressure on those retailers.
Challenges and Opportunities
Those are massive and complex challenges, potential hurdles that involve multiple participants.
But they are also opportunities for various companies — that is, those business that aspire toward long-term success instead of quick gains based on poor age verification — to get ahead of the regulatory wave and set themselves up for the future. At least that’s how Hardy sees it, according to comments made during the PYMNTS interview.
“You start separating good actors from bad actors,” he said. “Good actors tend to [follow] best practices and keep a longer-term outlook instead of striking today, making your money and being an opportunist.”
For starters, that means deploying robust and reliable age-verification tools that go well beyond oft-used online pop-up boxes that ask website visitors if they are of legal age to proceed — those boxes are about as strong a deterrent as a knee-high plastic fence.
It also means seeking better technology that can, for instance, combine age and address verification — something that could deal with the restrictions under consideration in San Francisco — and also work relatively seamlessly for all participants involved in the transaction, such as the delivery service and the local regulator. “We are exploring those opportunities,” Hardy said without offering more specifics. “We want to be on the forefront of that. We want to have new solutions for this problem.”
No matter what, the online verification part of any solution is key. Forget thoughts about whether eCigarettes and vaping products are unhealthy — no matter what, it seems that adults will continue to be able to buy them, though states may have imposed their own regulations as the industry grows, especially when it comes to taxes (state taxes on traditional cigarettes, Hardy pointed out, was the main reason they never really made the jump to online sales).
And those adults buying eCigarettes and vaping products are likely to be younger than those adults who still smoke traditional cigarettes, which matters greatly for the evolution of this industry, and the age-verification tools employed. “The generation that smoked cigarettes is the generation that went to the liquor store,” Hardy said. By contrast, the eCigarette generation “grew up with Amazon and eCommerce,” and that means online sales and online verification protections.
In other news, Senate Majority Leader Mitch McConnell (R., Ky.) — along with Sen. Tim Kaine (D., Va.) — has introduced legislation to raise the minimum age for buying tobacco-based products to 21.
Merchants and merchant services providers can only do so much — regulators have their own agenda, and right now, that agenda is not exactly as clear as it could be, as least from the point of view of someone like Hardy. But that clarity will come sooner or later, and those merchants and vendors that put best practices in place now will certainly have a better shot of winning long-term success than will other players in this growing industry.