It has become easier than ever to start an online business today. There is a wide array of tools and resources available in the market that make it simple for everyone from beginners to experts to launch and maintain an online store. But for companies in regulated industries, or that are considered ‘high-risk’ by credit card companies and processors, such as wineries, cannabidiol (CBD) dispensaries, or federal firearms license (FFL) dealers, setting up an online store is still a convoluted and tricky process, but a necessary step for continued growth.
Over the past few decades, the consumer mindset has significantly shifted, pushing the buying journey into online stores and stemming the extensive growth of eCommerce we’re seeing today. According to the Internet Retailer’s analysis, ecommerce made up 14.3% of all retail sales in 2018, which is up from 12.9% in 2017 and 11.6% in 2016. To put it simply, today’s consumer often prefers to buy online versus making a trip to their local retail store, even for regulated goods.
Convenience and instant gratification have become core drivers behind how people shop, and with the explosion of IoT connected consumer products, from mobile phones and smart watches to TVs and virtual reality, the need for easy and accessible purchasing pathways is greater than ever. To stay competitive, companies will need to look to ecommerce to expand their reach and grow their business, and business owners in regulated industries are no exception. Companies like Drizly and PillPack exemplify how traditionally strict commerce industries, such as alcohol and pharmaceuticals, have evolved to meet this growing consumer demand.
The online sale of wine, liquor, and beer grew 32.7% in 2017, with wine being the most popular alcoholic beverage purchased via eCommerce channels. While the online sales of CBD are still in their infancy, the global CBD market was valued at 4.6 billion in 2018, with the US having accounted for 42.5% of the global share. It is expected to grow at a compound annual growth rate of 22.2% from 2019 to 2025. Despite the current political climate surrounding firearms, the guns and ammunitions industry reached a value of about $11 billion in 2018, having had an average annual growth of 3.9% since 2013.
ECommerce of regulated goods is growing and there are plenty of untapped opportunities. For anyone looking to break into the realm of online sales and launch a site, or for those already well-established, there are a number of obstacles and regulations that have to be overcome and adhered to, beyond the typical challenges other eCommerce businesses face.
Challenges with eCommerce in regulated industries
Most eCommerce sites depend on a handful of 3rd party applications for business-critical processes, such as processing credit card numbers, storing product and customer data, connecting to shipping companies, and more. Unfortunately, anyone in the alcohol, CBD, firearms, or other regulated industries, know all too well that there are additional hurdles and frustrations.
For example, not all payment gateways, payment processors, or ecommerce platform providers support the sale of regulated goods. Stripe for example, refuses to process payments for anything that’s even remotely taboo. ECommerce solutions like Shopify and Salesforce Commerce Cloud have taken a stance against the online sales of firearms and have updated their acceptable use policies to prohibit FFL dealers from using their products. More importantly, there are a vast number of laws that determine what can be shipped where, and these differ not only by industry, but also by state and zip code.
Navigating and managing these complexities with a traditional commerce platform like Salesforce Commerce Cloud, BigCommerce, Magento, or even Shopify is difficult, but can easily be alleviated by leveraging a services- based approach specifically designed to support the sale of regulated goods and services online.
Before we dive into the top 3 reasons high-risk or regulated ecommerce businesses should adopt a services-based, headless approach to ecommerce, it’s important you understand what services-based and headless actually mean.
How a services-based, headless approach will enhance your shopping experience
To understand what a “services-based, headless” approach means, let’s break down each of these terms.
First, “services-based”. This means that your commerce architecture takes advantage of microservices and APIs (application programming interface, for the less tech-savvy), so each component of the commerce experience is decomposed into its own independent service (e.g. cart, checkout, orders, products, customers, etc), which can be assembled together with other microservices to build a commerce experience with the functionality that meets the exact requirements of your business.
The APIs are used to connect and transfer data to other business-critical applications or services, such as your payment gateway, order management system, product catalogue etc.). A services-based approach provides the flexibility to pick-and-choose the functionality that will meet the needs of online businesses in regulated industries, versus with traditional “all-in-one” eCommerce Platforms where all the components come “out of the box” from that vendor, which is inherently going to introduce unnecessary complexity and rigidity.
Second, is understanding “headless”. When leveraging a headless approach, instead of using the front end (the UI that your consumers interact with) provided by a traditional eCommerce Platform, you can leverage a modern front-end that is decoupled from the back-end commerce logic. Separating the back-end business logic from the front-end gives you a much more flexible site architecture that can be molded or formed to fit any user interface (i.e., meaning you can create any style of consumer experience with custom workflows for your regulated business).
So now that we know what a services-based, headless approach is, let’s talk about how this type of approach would impact a high-risk or regulated eCommerce business.
Top 3 reasons to adopt a services-based, headless ecommerce architecture
The short answer is this - you have better control over your complex business logic. The longer answer is, services-based, headless commerce makes it seamless to handle the volume, complexity, and even security of essential custom data. A services-based, headless approach gives your eCommerce site and your business more flexibility and can reduce friction for the consumer by improving site speed.
1. More control over ecommerce architecture
Ensuring a compliant cart and checkout process is essential. Simply put, it’s how you will ensure you’re legally selling goods to the right people, in the right places.
Most regulated goods require age verification in-person and just because you sell online, doesn’t mean you’re exempt from doing your due diligence. In the United States, Smoking products like cigars, e-cigs, or vape pens require the user be a minimum age of 18. Alcohol products require a minimum age of 21, also for the US market.
Wine, spirits, and beer distributors also face a multitude of shipping regulations that differ by state, some of which even have ‘dry zones’ or areas that won’t allow alcohol delivers at the township or zip code level. Some states only allow wine to be shipped, while others will allow beer and spirits, and all states have limits on the quantity of liquor that can be delivered. All of these regulations, each a data point in the back-end of your eCommerce site, need to be applied during your cart and checkout process.
Correctly applying this type of complex logic is what makes building your cart and checkout so challenging. Online firearms businesses for example, have to not only correctly handle the serial numbers of any firearms or ammunition products purchased, but also connect to the National Instant Criminal Background System (NICS), and provide customers the ability to choose which FFL dealer they would like to pick up their online order from, all while ensuring certain parts that can be delivered direct to consumer follow state-specific regulations.
Gun parts or accessories that are compliant in New Hampshire or Texas may not be legal in Massachusetts. You need to be 100% certain that during your customer’s eCommerce journey, they will not be able to complete the purchase if the product they’re buying is illegal in the state they’re in, and ideally notify the consumer that the transaction they are trying to make is not permitted and suggest alternative options.
Unlike with traditional eCommerce Platforms which provide standard, “out of the box” functionality that is very difficult to customize, a services-based, headless approach provides the ability to easily customize the data structures and workflows of the cart and checkout process so that the logic and site architecture that drives your business is customized to the specific and unique requirements of your business.
Flexibility can mean many different things and apply to a wide array of ecommerce capabilities. A services-based, headless ecommerce approach excels at providing flexibility in how your site, both the front and back-end, can integrate with other 3rd-party tools and gives business a higher-degree of customization.
- Easy, better customization: An API-first approach to your site means you can use any content management system (CMS) or digital experience platform (DXP) to create and deliver a unique, highly-customized ecommerce website that connects to a separate backend that manages the commerce functionality. Whenever you need to make changes to the front-end, or the UI of your site, you don’t have to spend time weeding through the code in your back-end.
You’re not selling conventional retail goods, so why settle for a conventional site? You don’t have to limit your customers’ shopping experience to the cookie-cutter, and frankly less aesthetic, designs provided by some of the ‘big-box’ solutions.
- Unlimited, seamless integrations: Everything from payment gateways or payment processors, to order tracking, fulfillment processing, and shipping carrier providers are just a few of the 3rd-party platforms eCommerce sites typically need to integrate with to operate.
Having a services-based, headless backend means you can more seamlessly integrate with the platform of your choice and pick the one that best works with your broader tech stack and support the unique requirements of your regulated business. You won’t get stuck or locked into the integrations provided by larger ecommerce solutions.
An API-based approach to your commerce logic also make switching the platforms you integrate with extremely easy. Regulated online business have a limited selection of 3rd-party providers they can work with and this becomes more or less difficult depending on the industry you’re in. For example, USPS doesn’t handle pills or alcohol, limiting which carriers any online pharmacy or alcohol business can use.
- Reduced risk: One of the biggest challenges ecommerce businesses face in regulated industries is navigating the current political climate surrounding their goods. This is especially true for CBD and FFL dealers. Ecommerce platform providers can, and have, changed their acceptable use policies ad-hoc, and without warning.
The most notable examples of this are the decisions by Shopify and Salesforce Commerce Cloud to stop allowing firearms dealers to sell their goods online. CBD is still a grey area and some providers, like Square, are running betas to determine whether or not they’ll support the industry. Dharma Merchant services, a notable merchant account provider, also decided to stop accepting high-risk merchants.
Business owners are at risk and subject to the whims of these companies. If your top platform providers update without warning, you won’t want to be locked in. With a services-based, headless commerce service, you’ll have the flexibility and ability to switch solutions in minutes and your shopping cart and checkout experience won’t be stopped.
3. Reduced friction for the consumer:
Purchasing regulated goods online isn’t easy, but in today’s atmosphere, consumers want products delivered directly to their door. Without the functionality that a headless ecommerce architecture provides, connecting to key data centers and leveraging their info, such as the NICS, your doctors’ medical records, or the state statues for alcohol shipments, it wouldn’t even be possible.
- Seamless, convenient consumer shopping experience: For example, without the functionality that APIs provide, firearms dealers would have to scan copies of their licenses and email, or mail, them to online firearm vendors to be recognized as authorized. Customers would have to then separately search for a FFL business on their own and ensure the dealer’s FFL is on file with the vendor they are buying from. APIs make the data processing behind this use case possible and in the long run, saves both customers and FFL vendors time and effort. Having the ability to choose which dealer customers can pick up from entails a significant amount of custom logic and data, but is a better, more seamless experience for everyone.
- Expanded sales touchpoints. A headless commerce stack also means you can deliver your store on any platform, without having to overhaul your backend to match. Some of the our favorite examples of regulated businesses doing this today are Vivino or Drizly. Both companies provide a mobile app that make purchasing alcohol extremely easy. Vivino’s app is groundbreaking in that it enables customers to take a picture of a bottle of wine they see in person, and will match it to a database, which then provides pricing and the option to buy (if capable).
An API-based Headless eCommerce platform opens the door to any number of cart and checkout possibilities. The more pathways you can give your customers to access and purchase your products, the more competitive you’ll make your business.
Services-based, headless eCommerce with Elastic Path
Many traditional eCommerce platforms, such as BigCommerce, Shopify, Magento, or Salesforce Commerce Cloud claim to offer a headless solution on the front-end, but will struggle to handle the complex logic on the back-end that is necessary in order to run an online shop that sells regulated goods or services. This is because those vendors are not services-based, their back-end architecture is still a monolithic architecture.
Traditional eCommerce Platforms like these aim to provide an “all-in-one platform” that you can use to drive your online business, but their out-of-the-box features and functionality are too rigid to be customized for specialized requirements needed to sell regulated goods and services online. These platforms are great though if you are running your standard run-of-the-mill ecommerce business.
Elastic Path is an API-first, headless commerce service, providing the core commerce functionality behind a cart and checkout process and a seamless integration layer for the other components of your commerce experience. A “commerce service” stack, as opposed to a traditional platform, is designed to drive a particular set of functions with only the features you need.
For ecommerce businesses in regulated industries, this means you can deliver an eCommerce experience that meets your unique requirements with ease, such as storing and integrating custom data and SKUs, like state shipping regulations, medical records, or firearms license numbers. Also, leveraging an API-first architecture is easier and cheaper to scale and can improve your website performance (they do tend to load and run faster).
You can learn more about how a services-based, headless approach to your eCommerce website differs from traditional commerce platforms with our comprehensive ecommerce buyer’s guide. If you are starting or running an ecommerce business and sell regulated goods or services, such as CBD products, wine, firearms, or pharmaceuticals, and are interested in seeing how Elastic Path can help, please give us a shout - we’d love to chat.