The $7B Cashless ATM Workaround is Closing Fast
December 7, 2022
MG Cannabis News
By: Sue Dehnam
LOS ANGELES – Dispensaries and delivery services across the country are
scrambling for alternatives to replace the popular so-called cashless ATM
payment option that has allowed retail customers to purchase products using a
debit card, representing a reported $7 billion in transactions or roughly 25
percent of all U.S. cannabis sales, according to Bloomberg.
During the last week in November, some of the largest ATM transaction
processing service providers in the country — including NCR Corp.’s Columbus
Data Services, which operates 80,000 ATMs — ended the workaround by halting
service to retailers using the “point-of-banking” system to circumvent federal
banking restrictions.
The move to pull support for the payment type did not come as a total surprise
after Visa, the world’s second-largest card payment organization, issued a
memo one year earlier warning against the misuse of cashless ATMs by
“miscoding” ATM cash transactions. In many cases, businesses have been
skirting money-laundering controls by using nearby addresses and/or rounding
up purchase totals to even dollar amounts in an effort to make transactions
appear as standard cash withdrawals, not purchases.
“While Cashless ATMs were never considered completely legal or a process that
was going to be endorsed by Visa or Mastercard, it was definitely a convenience
for both the customer and the business owner,” said Scott Solomon, CEO
at Operational Security Solutions.
“The Visa memo warning companies about cashless ATMs literally went out a
year ago. From our perspective, Visa was giving companies ample time to
migrate to other compliant services to avoid a large interruption,” said Ryan
Hamlin, chief executive officer at point-of-sale (POS) and payments
platform POSaBIT. “I also think this puts some pressure on the federal
government to push [the SAFE Banking Act] and adds to the urgency around
getting it passed during the lame-duck session.”
The Secure and Fair Enforcement [SAFE Banking] Act would provide “safe
harbor” protections for regulated financial institutions that provide services to
legal cannabis businesses in states that have legalized the plant. The bill has
passed the House seven times, and Senate Majority Leader Chuck Schumer (D-
NY) has called it a priority on his lame-duck agenda.
On Tuesday, Senate Republican Leader Mitch McConnell (Ky.) pushed back
against Democratic efforts to include cannabis banking reform as part of the
National Defense Authorization Act. “We’re talking about a grab bag of
miscellaneous pet priorities, like making our financial system more sympathetic
to illegal drugs or permitting reform in name only that’s already failed to pass
the Senate earlier this year,” said McConnell.
According to an email reviewed by Axios, the Justice Department said it will be
able to implement legislation allowing cannabis-related companies access to
federal banking institutions. A majority of Americans support cannabis banking
reform, regardless of political party affiliation.
“Most businesses knew this was eventually going to happen, and many have
already moved on or were prepared to move past cashless ATMs when it
happened,” said Hamlin. “For those that still had cashless ATMs, I imagine most
will move to a compliant PIN or automated clearing house (ACH) solution.
Leading up to the shutdown, we saw a huge increase in requests to learn more
about POSaBIT’s fully compliant PIN solution.”
A compliant PIN is one of the technologies available for dispensary customers
who want to pay for cannabis with a debit card. Many of the dispensary-focused
POS systems support the technology natively or through third-party
integrations.
But for many businesses, the path of least resistance will be cash available
through and on-site ATM often associated with steep withdrawal fees.
“The easiest step is to fall back on what everyone knows is legal: cash,” said
Solomon. “Nevertheless, cash logistics tools and services have evolved and
expanded. So, in a cash-based market, there are quality Cash-In Transit (CIT)
providers that have a compliance orientation. By choosing a quality CIT provider
that can interact and work with your financial institution, retailers can accept
cash and get it into their account quickly.”
A stronger reliance on cash likely will not be welcome news to dispensary
employees and delivery drivers who’ve become targets for armed robberies.
Many companies, including weed delivery service Eaze, accept cashless ACH
payments online through a linked checking account, one of the remaining non-
cash payment solutions.
“It is becoming clear, industry-wide, that cashless ATM services may not be
sustainable and do not live up to our high standards for service,” said a Dutchie
spokesperson. “We urge merchants to use caution when selecting a payments
provider, as it is critical to the health and success of their business.”
