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Online Pharma Competition is Heating Up in the eCommerce Space
11October

Online Pharma Competition is Heating Up in the eCommerce Space

Written by John Hughes, in Category Latest Articles

By 2021, Americans will spend up to $610 billion dollars each year on prescription drugs, according to a report released by QuintilesIMS Holding in 2017. While the bulk of medicines are collected in person from the pharmacies, the sheer numbers make it worth introducing ways to facilitate purchases online. And that’s exactly what big pharma is doing, with several major players looking to acquire established online pharma storefronts.

The Online Pharma Option

An online pharmacy, also called an Internet pharmacy or mail-order pharmacy, is a pharmacy that operates over the Internet and sends the orders to customers using mail or shipping companies. The idea originated back in the 19th century with mail-order medicines, but took off in the 1990s with the rise of the Internet just as Amazon was expanding from a focus on books to a broader commercial retailer. The launch of Drugstore.com in 1999 gave consumers their first safe, secure online pharmacy, and induced more pharmacies to consider registering as online suppliers. In spite of multiple shady operators competing with the legitimate online stores, the model survived and managed to gain a modicum of respectability over the years.

The Global Interest

With the ever-increasing price of prescription medication, few countries exist that aren’t looking for ways to offer more affordable drugs to their citizens. In India, the number of online pharmacies has increased significantly, due mainly to the spread of e-commerce and minimal drug industry regulation. Consumers from all over the globe purchase medication from these online stores, even though many of them provide outdated and bogus medicines. As a result of the success in the Indian market, big pharma companies globally are looking to invest in the online arena.

Amazon At the Front of the Pack

Amazon is leading the charge with its recent purchase of PillPack, a small online pharmaceutical company licensed to sell prescription drugs in 50 states. While the purchase sent Amazon’s shares soaring, Walgreens Boots Alliance, Rite Aid and CVS Health all lost $11bn in value, based on the threat of lower profit margins becoming imminent.

Meanwhile, India’s biggest online store, Flipkart, as well as BigBasket and food delivery platform Swiggy, are all currently in discussion with various big pharma companies, including:

  • MedPlus,
  • 1mg,
  • Medlife,
  • PharmEasy, and
  • Myra.

Whatever the outcome of this trend, online pharma is slated to experience intense competition in the e-commerce space for the foreseeable future.

Good News for Payment Processors

With payment processing services a vital aspect of e-commerce, this is all very good news for card aggregators and acquiring banks. Likewise, independent sales organizations, independent software vendors, and merchant services resellers view the events as a promising opportunity. With many of the established big pharma players already in existing relationships with payment providers, however, it could be a difficult market to crack.

A High-Risk Industry

Many e-commerce retailers are considered high-risk merchants, and for payment providers offering services to this market segment it’s going to be an exciting time. While the exact criteria for labeling a merchant high risk varies between providers, common factors are:

  • A high rate of chargebacks or card fraud. The online pharma business has a history of legal issues, so for many providers the entire industry is considered high-risk even if an individual merchant has a faultless record.
  • Offshore businesses that operate in the U.S. Many online pharmacies are located offshore, particularly countries like India and Thailand. Even if a company sells primarily to U.S. clients, looser banking regulations in the home country can cause the merchant to be categorized as high risk.  
  • Legality of products and services. In addition to prescription medication, the online pharma industry has traditionally embraced productd which have questionable legality in some countries. Inclusion of these types of products could cause an online pharma store to be considered high risk by U.S.-based payment processors.
  • Unethical sales and marketing activities. One of the risks for consumers purchasing from online pharma stores is the chance they could be scammed. This obviously doesn’t apply to big pharma companies like Walgreens, etc, but anything less well known could have a hard time proving legitimacy. The principle of guilt-by-association is alive and well, and most payment processors consider online pharma to be high risk.
  • High ticket sales. With the high cost of prescription medication and secure shipping, sales tickets are likely to be sizeable. Especially when these take place with a smaller company, this can affect the way a merchant is viewed by a payments processor.