Can you imagine a world where money, not credit, is king? In this alternate universe, all of the amenities we take for granted in the golden age of e-commerce – including higher spending limits, payment plans, and safe, frictionless retail experiences – would cease. to exist.
This is the reality in the cannabis industry. Due to federal regulations that prevent cannabis companies from accessing many banking services, cash and debit (also known as “cashless dispensers”) are the only payment options for cannabis consumers and traders – and recently even cashless ATMs in dispensaries have been called into question. As a result, dispensaries and consumers alike face archaic issues such as hidden transaction fees, slower service, and the security risks associated with carrying cash.
Cannabis is becoming a sophisticated and modern consumer product, but today’s retail experiences do not reflect the direction the industry is taking. Let’s take a look at three main ways non-cash payment options could not only benefit cannabis merchants and consumers, but also maximize efficiency across the industry.
1. Frictionless transactions
The lack of non-cash payment options, also known as credit payments, in cannabis creates a less than ideal shopping experience for consumers. If customers choose to pay in cash, they must first make sure they have enough cash on hand to complete the purchase. If they don’t plan ahead, their first stop is likely the on-site ATM that charges high withdrawal fees, often accompanied by fees from the consumer’s bank. Starting a clinic visit with unnecessary fees will definitely put a damper on anyone’s shopping experience.
There may also be hidden charges associated with debit payment. Although referred to as “debit”, they are actually cashless transactions at ATMs. Real banking transactions, such as when using a debit card at a gas station or grocery store, are prohibited due to the federal ban. And since the transaction is a simulated ATM withdrawal, dispensaries are required to round the total to the nearest $ 10 and give change in cash and coins. This can be a confusing process for new customers. For regulars, this is simply a problem they have to put up with every time they shop in a store.
Lack of credit also complicates the process of collecting payments for merchants, especially for online orders. Since customers cannot pay online with a credit card, stores must collect cash on delivery or pickup in store. The system is upsetting for retailers, who wonder if the customer will ever come to pick up their pre-order or if they will have enough cash on hand to cover a delivery order.
Introducing credit payments would streamline the process for people on both sides of the transaction, giving customers a simplified shopping experience and merchants a sense of certainty.
2. Bigger baskets
But what if the customer does not have enough funds in their bank account to cover the desired purchase? Credit allows customers to buy more than they can currently afford, which is especially important for patients in need of medication.
Credit-based “buy now, pay later” systems also encourage consumers to buy more products in a given transaction. Klarna and Affirm, two traditional “buy now, pay later” platforms, found that retailers using their services experienced a 58% and 87% increase in the average number of units per transaction, respectively. Retailers enjoy greater revenue, while customers have the freedom to add more products they want to their cart. This is a clear victory for both sides.
Credit also creates a much more secure retail ecosystem. People are not always comfortable with cash, whether it is $ 60 or $ 200 in their back pocket, especially in high crime areas. Additionally, cash payments for pickup orders or drive-thru deliveries put customers and employees at risk of theft or damage. Payments on credit eliminate this risk by minimizing the need for cash to change hands in an open, unsecured setting.
3. Increased security
Meanwhile, withdrawing money from an ATM carries a risk of fraud: Skimmers installed illegally on ATMs can capture card numbers and PINs, creating a myriad of possibilities for identity theft. .
Worse yet, traders who operate cash-only businesses are attractive burglary targets, both externally and internally. In fact, employee theft accounts for about 90 percent of all financial and product losses in the industry. As a result, some retailers are forced to carry hundreds of thousands of dollars in weekly or monthly income to the nearest bank to keep them safe, which presents another major security risk.
Cannabis companies in all legal states already have to pay exorbitant taxes to keep operating. The last thing they need is an increased risk of losing their already below average profit margins.
The industry is growing, as is the shift of consumers to online shopping. Online is the only place where customers don’t have to think ahead when deciding which dispensary to visit or which products to purchase. As more states legalize and the industry expands, consumers will expect the same shopping experiences as in other industries, including the ability to purchase cannabis on credit.
Mainstream companies like Amazon and PayPal already offer “buy now, pay later” services to consumers and non-cannabis businesses. Third-party vendors need to step up to the plate and offer the cannabis industry comparable services that traditional financial companies refuse to provide, enabling true e-commerce and access to digital payments and banking services.
Such offerings will keep ancillary financial services in step with traditional providers while meeting the unique needs of cannabis businesses and preparing to evolve into a future where cannabis is federally legal. Some vendors are already launching these services in test markets, with the goal of rolling them out nationwide in the coming months.
The world works on credit. As such, the cannabis industry will always lag behind other industries in terms of maturity and efficiency until digital credit payments are allowed.
Co-Founder and Payments Director of KindTap Technologies Cathy Corby IannuzzelliThree decades of experience in financial services sheds light on its expertise in card issuance and emerging payments. Previously, she worked with major payment processors, financial institutions and consulting firms including Booz, Allen & Hamilton. She holds an MBA from Columbia Business School.