Written by: Gini Rubega, Leo Moulis
Last week, MasterCard sent a cease-and-desist letter to financial institutions and payment processors all over the country that processed cannabis product purchases via debit card on the MasterCard network. This means consumers cannot use their debit/PIN based cards to purchase cannabis. MasterCard has instructed banks and payment processors not to accept the transactions on their debit cards. The cannabis industry, while legal in 38 states, is still federally illegal, and struggles to access banking services. This move by MasterCard will have consequences throughout the industry. How will various sectors be affected?
Cannabis Retailers
These operators will be hit hard as the prohibition on “cashless ATMs” from VISA, MasterCard, and other major card brands is compounded by loss of debit card acceptance. Prior to that, a ban on credit card usage by the card companies had already left its mark. There will be increases in cash purchases, leading to higher costs for security/armored car transport, risks of robbery, increased risks to cash-handling employees, and so on.
There will likely be a hit to revenue and front-end operations for cash handling, as ease of purchases and transacting will be hampered by cash sales. The use of so-called “ACH” transactions involves customers giving out their account number and bank routing number, and there may be delays in processing – not exactly a streamlined process.
Payment Processors
As these folks rely on all sorts of transaction fees (interchange fees and payment processing fees, for example) to make money, this revenue stream will now dry up. Some start-up payment processors who relied on this steady income to build a base from which to innovate alternative payment options could be especially hurt.
Consumers
Debit purchases were by far the easiest payment method available, as even cash still needs to be withdrawn from an ATM or bank, and 21st century living is fast becoming a cashless society. Consumers will now be forced to use cash, increasing theft risk. In addition, ACH transactions are unwieldy and slow, further inconveniencing consumers, and increasing privacy risk due to having to provide bank account numbers to complete a transaction.
Financial Institutions
The endpoint for the transaction is typically a bank or credit union (referred to collectively as “banks”), where the funds are debited from. Ending debit purchases will now increase the cash transactions to and from the bank. While the burden on the outgoing cash may not really be significant, banks that do business with cannabis retailers will see an increase in cash deposits from their cannabis customers, raising their exposure to security and operational risks. Even the banks that never see the cash because armored carriers take the money to their vaults prior to shipping to the Federal Reserve (FED) may see increase costs associated with their cash services at the FED.
These are just some of the ramifications of consumers not being able to use their debit cards to purchase cannabis products. The SAFE Banking Act, if enacted into law, is something that could ease the banking burden in the cannabis space.
