For cannabis business owners, finding the right payment processor or Merchant Service Provider (MSP) is crucial but often overlooked due to the busy nature of their roles. Selecting the right payment solution is vital for the long-term reliability of your business, but navigating the complex landscape of cannabis payment processing can be challenging.
Due to federal regulations and card brand rules, cannabis business owners face unique limitations in accepting card payments. The absence of conventional payment options and the reliance on cash have led to unstable and illicit payment frameworks, posing risks of fraud, money laundering, and increased theft and robberies.
Here are the most common mistakes to avoid when looking for a cannabis payment solution:
1. Accepting Credit Cards
Despite claims from some processors, accepting credit cards for cannabis is not compliant and violates card brand rules. These transactions are considered bank fraud and money laundering, exposing your business to significant legal risks.
2. Choosing Solutions Based on Paperwork or Approval Speed
Opting for solutions with minimal paperwork or fast approvals can lead to compliance issues and program shutdowns. Compliance with federal KYCC (Know Your Customer’s Customer) and USA Patriot Act standards is essential.
3. Opting for the Cheapest Solution
Selecting a payment solution based solely on rates can be misleading. Cannabis merchants are considered high-risk, and compliance with FinCEN guidelines and risk mitigation justifies higher rates. Beware of teaser rates that may increase significantly after an initial period.
4. Focusing on Cannabis-Specific Processors
While cannabis-focused payment processors may seem attractive, it’s essential to partner with providers experienced in the broader banking and payments ecosystem, including compliance with BSA, AML, and other regulations.
5. Not Thoroughly Vetting Providers
Conduct thorough research on potential service providers. Look for their experience with high-risk and regulated businesses, and verify their legitimacy and understanding of cannabis payment regulations.
6. Believing Unsubstantiated Claims
Be skeptical of claims about cannabis payment processing. Verify the source and understand that certain promises, such as “FinCEN approved” or “legal credit card acceptance,” are not possible under current regulations.
7. Not Knowing Your Processor and Bank
Ensure transparency with your payment processor and bank. Confirm that they are aware of and compliant with facilitating cannabis transactions, and that they run a FinCEN-compliant BSA/AML program.
8. Buying Locked Terminals
Avoid purchasing processor-branded (locked) terminals, which can limit your flexibility in switching processors. Instead, opt for terminals that can be reprogrammed for different processing solutions.
9. Not Confirming Bank Acceptance of Electronic Deposits
Verify that your business bank account can accept electronic deposits from your chosen payment provider to ensure smooth transaction processing and compliance.
10. Signing Long Contracts with Hefty Early Termination Clauses
Read contracts carefully and be wary of long-term agreements with unrealistic exclusivity clauses or excessive early termination fees. Look for providers offering reasonable contract terms and flexibility.
In conclusion, navigating cannabis payment processing requires careful consideration and due diligence. Partnering with an experienced and knowledgeable merchant account provider like Bankcard International Group can help you effectively navigate the challenges associated with high-risk businesses and ensure the success of your cannabis business.
