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Point of Banking and PIN Debit: A failure

The problem with current cashless systems is that they’re expensive, slow, and non-compliant -- making for a poor customer experience. Merchants and customers alike quickly discovered that there are critical issues with Point of Banking/ PIN debit solutions, with the main problem being the long, confusing checkout process at the point of sale. 

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POB systems act as cashless ATMs, charging the customer’s debit card for their purchase in increments of $20, and requiring the budtender to return the change in cash. Checkouts often take 2-5 minutes (an eternity while checking out), and customer fees ranging from $2-$5 per transaction are the norm.

POB solutions are even less convenient and more costly for cannabis retailers. In addition to their customers, retailers are also saddled with flat, per transaction fees in the range of $2-$5. To make matters worse, retailers are required to keep a cash reserve representing 10-30% of all orders for up to 90 days. This severely impacts a retailer’s cash flow and necessitates additional cash management and logistics.

Adding to the inconvenience, POB and PIN debit solutions are not compliant with the STAR ATM and credit card processing networks (VISA, MasterCard, Discover) internal policies. Since cannabis is still illegal at the federal level, the networks do not permit any cannabis-related transactions. To get around this, the processors are disguising the nature of the business using fraudulent MCCs, shipping the transactions to offshore processors, and doing business under fake DBAs and shell companies.

With the widespread acceptance of these systems in the legal cannabis market, staying under the radar is becoming more difficult.  Each payment network has a risk management department that seeks out non-compliant processors and acquirers, terminating their accounts. They also revoke processing privileges, and levy six-figure retroactive fines for each infraction against banks who assist processors in skirting the networks’ regulations.  Additionally, the card networks have the authority to “claw-back” all fees from each transaction that violates their internal policies and rules.

While the consequences are daunting for non-compliant processors, retailers who employ POB systems should also expect to share in the misery. It’s not uncommon for retailers who use POB systems to tell horror stories about disrupted stores, late payments, seized bank accounts, ruined banking relationships, angry customers and even revoked cannabis operating privileges. At the end of the day, POB systems don’t even solve the cash problem; retailers and customers are still forced to use cash on every transaction, and the convenience of paying by card is lost on everyone.

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#Payments   #Digital Currency   #Cannabis