The $7B Cashless ATM Workaround Is Closing Fast

Cashless payment method. Closeup shot of micro ATMs while customer paying with credit card in bar restaurant cafe. E-commerce e-banking concept.
Photo: Inside Creative House / Shutterstock

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.

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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 an 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.”

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