Originally published Dec. 10, 2021, by Marijuana Moment
Visa recently issued a compliance memo to customers warning them that miscoding point-of-sale transactions through the use of so-called cashless ATMs — a practice used by some cannabis retailers as a workaround to accept credit or debit cards for purchases — could lead to penalties.
The warning comes as congressional lawmakers grapple with how to handle marijuana business banking. The House passed a defense bill in September with language that would have protected banks that work with state-legal cannabis companies, but after talks with the Senate, those provisions were not attached to a new bicameral deal filed Tuesday.
The December 2 memo from Visa that was obtained by Marijuana Moment says the company is “aware of a scheme” in which merchants are using the cashless ATMs to effectively sidestep restrictions on what types of sales that payment cards can be used for.
“What keeps me up at night is that when, not if, one or more eager assistant U.S. attorneys with their eye on advancement sinks their teeth into this, it has the catastrophic potential to derail our industry’s momentum and inflict great damage,” he said in an email to Marijuana Moment.
Nathaniel Gurien, CEO of Fincann
“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the memo explains. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement.”
At a cannabis retailer, for example, a $45 purchase might be rounded up to $60 and coded as a cash disbursement. The retailer would then subtract the purchase price plus taxes from the apparent $60 withdrawal and return the change to the customer. To the payment processor it would look like a $60 ATM withdrawal, but to the customer it would seem as though they’d bought cannabis with a card.
While Visa’s memo doesn’t mention cannabis specifically, it notes that cashless ATMs, which are sometimes called reverse ATMs, “are primarily marketed to merchant types that are unable to obtain payment services — whether due to the Visa Rules, the rules of other networks, or legal or regulatory prohibitions,” a category that includes cannabis businesses.
With federal prohibition preventing most marijuana retailers from accepting credit or debit cards as direct payment, some have seen the use of cashless ATMs as a convenience for customers and thus a smart business decision. Rather than maintain an on-premises ATM or ask customers to show up with cash, they can simply swipe a card like any other retailer. Companies that market cashless ATM devices, meanwhile, remind retailers that customers tend to spend more when they can pay with plastic.
Nathaniel Gurien, CEO of Fincann, which provides financial services specifically to cannabis businesses, estimated that thousands of cannabis retailers in the U.S. currently use what he called “the cashless ATM solution” in order to accept cards, a setup he described as “clever, attractive and likewise fraudulent.”
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