Visa, one of the world’s largest card payment processing companies, issued a regulatory memo to customers alerting them that miscoding point-of-sale commerce via the use of so-called cash-free ATMs—a method used by various cannabis retailers as a workaround to receive credit or debit cards for acquisitions—could guide to damages or other unidentified compliance action.
The alert comes as congressional legislators grapple with how to regulate cannabis retail banking. The House of Representatives enacted a defense bill earlier this summer with verbiage that would have covered banks that operate with state-legal cannabis businesses, however, after discussions with the U.S. Senate, those conditions were not hooked to a new bicameral deal filed last week.
The December 2 memorandum from Visa that was acquired by a popular cannabis news outlet says the company is “aware of a scam” in which cannabis merchants are using the cash-free (not surcharge-free) ATMs to actually sidewind limitations on what types of sales that payment cards can be utilized for.
“Cashless ATMs are point-of-sale machines driven by payment applications that mirror the traditional ATMs. Despite this, no cash allocations are made to cardholders,” the memorandum elaborated. “Conversely, the machines are used for POS transactions, which are misrepresented as ATM cash withdrawals. Purchase payments are often rounded up to feign the look of cash disbursement.”
At a cannabis vendor, for instance, a $48 purchase might be rounded up to $60 and labeled as a cash disbursement. The cannabis retailer would then remove the purchase price and taxes from the ‘fake’ $60 withdrawal and repay the difference to the cannabis customer. To the payment processing company, i.e. Visa, it would look appear like a traditional $60 ATM withdrawal, but to the cannabis customer, it would seem as though they’d purchased cannabis with a debit card.
While Visa’s note doesn’t mention cannabis exclusively, it comments on cashless ATMs, which are sometimes referred to as reverse ATMs, “are typically marketed to merchant classes that are unable to obtain payment assistance from processors—whether due to the Visa compliances, the rules of additional networks, or legal or regulatory limitations,” a class that contains cannabis businesses.
With national cannabis prohibition barring most cannabis retailers from accepting credit or debit cards as an immediate payment, some have seen the use of cash-free (cashless) ATMs as a convenience for cannabis customers and therefore a smart business choice. Rather than keep an on-premises traditional ATM or ask cannabis customers to bring cash, they can merely swipe a Visa card like any other business retailer. Companies that market cash-free ATM machines, meanwhile, remind vendors that customers tend to pay more when they can pay with plastic like Visa cards..
Nathaniel Gurien, CEO of Fincann, who provides financial assistance and consulting specifically to cannabis companies, assessed that thousands of cannabis retailers in the U.S. currently use what he called “the cashless ATM answer” in order to take Visa cards, a format he described as “clever, alluring and kind of fraudulent.”
“What keeps me up at bedtime is that when not if one or more enthusiastic assistant U.S. lawyers with their eye on improvement sinks their teeth into this [issue], it has the catastrophic possibility to sideline our industry’s velocity and inflict significant damage,” he stated in an email to a popular cannabis news outlet.
Visa’s compliance note is brief when it comes to methods on cracking don. Misuse of cash-free ATMs “will be subject to non-adherence reviews and/or fines” or “subject to further regulatory enforcement,” it says, but doesn’t include components.
The company did not respond to messages and a handful of phone voicemails from a popular cannabis news outlet prior to this article.