Alternatives for cannabis retailers

Zenco Payments Team

 with the cashless ATM payment shut down

Cannabis cashless ATM payment processing shut down

By now you may have heard about the much-reported shutdown of cashless ATMs (“point of banking” systems) that allowed customers to use their bank card instead of cash to make their cannabis purchase. The processing companies were using this method to disguise the nature of the transaction since many banks and credit card companies opting to not be involved in cannabis related transactions.

As processing networks are now cutting off cashless ATM programs, many cannabis retailers have been left in the lurch wondering what to do next, as reported in Bloomberg, dated December 5, 2022 (“Weed Shops Switch to Cash after ATM crackdown”).

Industry participants anticipate that a quarter of the $28 billion in U.S. dispensary annual sales were being disguised by cashless ATMs.  So, the problem with cashless ATMs is that disguising cannabis sale transactions from banks and credit card companies violates disclosure rules and is considered fraudulent activity.

As a cannabis retailer, what are your options besides using cash only for your business?

• ACH Payment Apps – such as Zenco Mobile
• Integrated Pin Debit Card

Both payment programs provide a way to conduct cashless transactions. But you are probably asking, how is it possible that these programs work when the other ones were shut down?  Good question.

To be implemented properly, both programs require that you have a bank account with a cannabis-friendly bank with understanding of the cannabis business as well as a program in place to properly monitor and manage such accounts. Once you open a bank account, the implementation of either or both payment programs is relatively easy.

But there comes the rub. Opening a bank account with a cannabis-friendly bank can be time consuming and expensive. Therefore, you may have to shop around.  If you do not know where to begin in this regard, a Zenco payment specialist can help you start the process of opening a bank account.

More businesses are now opening up a cannabis-friendly bank account and the hope is that more banks will become cannabis friendly, which may result in increased competition and hopefully lower bank fees.

Zenco Mobile
Zenco Mobile provides a closed-end payment platform that uses the Federal payment system referred to as NACHA or ACH. The use of Zenco Mobile bypasses the use of cards completely to process the purchase.  It works similar, in some regards, to other smartphone-based payment applications that many consumers are already familiar with, such as Venmo, Cash App or PayPal. One main difference is that those commonly used payment applications will not process a cannabis purchase whereas Zenco was developed especially for the cannabis industry. Also, Zenco Mobile does not hold your consumers’ funds as they are deposited directly from the consumer to your bank account.

It's important to note that the PIN Debit card payment solution also uses the same payment network to process the transaction.  However, there is a fundamental difference here as well.

For PIN Debit, your customer still uses a plastic card, which, in most cases, has the logo of MasterCard, Visa or Discover, etc. These credit card companies have made it clear that they do not want their cards being used to process a cannabis transaction. Will this cause an issue?  Most likely not as these companies are busy fighting off other matters. But Visa has stated that they will shut down customers that violate their card user agreement and process transactions that are prohibited. So, if you want to ensure total compliance, you may not want to use the PIN Debit card option.

The Zenco Mobile process
Zenco Mobile is designed to facilitate a direct payment from your customer’s account to yours using cutting edge smartphone technology – We don’t use a wallet system, which can further delay the transmission of funds.

• Consumers enroll in 3 minutes right from your store. They enter their name, address, and driver’s license, and log in to their bank account to verify ownership.  This is a one-time enrollment only.
• Once approved, consumers log in to receive a QR code (can use immediately upon enrollment)
• You scan the QR code from your mini-iPad (Zenco’s payment processing terminal). This can be used for in-store, online, delivery or pick-up.
• The receipt is e-mailed to your customer.
• Funds are pulled from your customer’s account via an ACH transaction and deposited directly into your account. This process usually takes 24-48 hours depending upon how fast your bank processes the transaction.
• There is a transaction fee which is very competitive.
  
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Benefits of Zenco Mobile

• In many cases, we see a significant increase in the average purchase amount per customer that uses Zenco Mobile versus cash. That increase can be up to 30%.
• You will also notice an increase in customer satisfaction, as consumers more and more prefer the use of a smartphone-based payment application rather than using a plastic card.
• A cashless payment system improves security and reduces the likelihood of employee theft.
• A cashless payment solution can also help reduce your bank fee in certain cases where the bank charge is based on cash shipments.
  
• PIN Debit card processing fees are much higher and require the purchase of an expensive hardware terminal.
• Zenco’s transaction fees are much lower than a typical PIN Debit card program.

So now comes the bigger question – should you charge your customers a fee for using a cashless payment solution? Many retailers using the cashless ATM program were charging customers a transaction fee that was split with the processing company.

At Zenco, we believe that a customer should not pay a fee for using a cashless payment solution. If you think about it, you can walk into a convenience store or your dry cleaners and use a cashless payment application and there is no fee even when you spend only a $1.00. On the other hand, cannabis consumers have been used to paying such a fee. Some retailers state that charging a fee is justified especially considering the paid bank charges compared to a non-cannabis business. There is some merit to that logic. If you get a cannabis-friendly bank account and pay additional fees, is charging your customer a transaction fee then justified? 

You may be the only one able to answer this question. Whatever you decide, it is your customer relationship. However, we can tell you that many more retailers are now offering such payment solutions for free to consumers and passing on the cost within their inventory pricing model.

We hope this clarifies in some way where the cannabis industry stands when it comes to payment processing of a cashless transaction. If you have any questions, please do not hesitate to reach out to us to help navigate the murky waters of the cannabis industry together.

Zenco Payment Specialists are here to help .  

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