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Direct ACH: A Poor Cash Replacement

Direct ACH transfers are a popular workaround for cannabis merchants stuck in a cash-only world, but like most workarounds, it comes with its share of pitfalls. ACH providers partner with sponsoring banks in order to enable merchants to accept digital payments via the Automated Clearing House (ACH), which includes clearing transactions with the Federal Reserve.
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This creates a slow and cumbersome process for consumers, requiring them to download apps and share their bank routing and account numbers. Their personal and banking information is then stored within the ACH system, further exposing consumers to the risk of cybercrime. 

It is a bad deal for merchants too. Sponsoring banks require all merchants who accept ACH payments to be account holders at that bank. And in order to offset the cost of compliance associated with banking cannabis merchants, banks typically saddle cannabis merchants with crippling fees and reserve requirements.

ACH service providers who serve cannabis merchants are already few and far between. And the ones who do so, are in direct violation of the Federal Reserve’s guidelines and regulations, exposing both the ACH originator and sponsor bank to compliance risk. Some entities have been known to manipulate data files to avoid attention of the Federal Reserve or ACH processors, but that’s also a big violation and not worth it if you get caught.

“Any bank that provides services to a legal marijuana business faces possible criminal prosecution for “aiding and abetting” a federal crime and money laundering.” Forbes

Merchants can expect to pay upwards of 3% per transaction, in addition to a flat, per transaction fee. And most ACH originator-sponsor banks require merchants to maintain a rolling reserve of 30% for up to 90 days, tying up working capital and imposing more cash flow challenges.

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#Payments   #Cannabis