Finding reliable banking and payment processing in the cannabis industry is extremely challenging. On the one hand, cannabis has been legalized in several states and therefore is a legitimate business. On the other hand, access to financial services is locked up with banks that are disinterested in supporting the cannabis space, forcing these legitimate businesses to find any way possible to access the financial system or be forced to operate entirely in cash. The latter creates outsized physical risks to businesses, their employees and patients, and the communities in which they operate.
Many financial “solutions” have been thrown against the wall to see what will stick. What access is available has been expensive and many times illegal in ways that people have no idea even exist, because the teams developing the products are looking only at the technology. Any system for handling payments is highly regulated by government and subject to heavy delays due to vetting by traditional banks and card networks.
So, what can your business do to make sure you have reliable, affordable financial services that can scale with your business and will not land you in prison for something you didn’t even realize you weren’t supposed to do?
Vet service providers
Vetting the background of the team that provides the service is crucial. Financial products of all types are different from other services because they are heavily regulated, and access to financial systems takes time to develop. Traditional providers must approve products before they will provide access to the U.S. financial system. You want a team that knows how to navigate these waters, because they will be able to provide sustainable access.
Financial institution operations are dictated by law and regulation, which means highly specialized lawyers are the people actually running the operations at financial institutions. Look for teams with experts in financial institution operations, ideally with members who have worked in regulation or the back office at financial institutions. You want developers who have designed systems for banks and payment providers and not “fail fast” tech entrepreneurs who frequently don’t have the patience to see long-term projects through. You want strategy based on partnering with traditional financial providers.
Expect product teams to have spent years of strategic discussions and partner vetting before bringing their product to market. The only way to guarantee those back-office partner discussions happened is by having a team that knows its way around the financial industry’s operating side and understands the timelines for creating relationships. Relationship teams are valuable, of course, but they don’t know how the sausage is made and are very quick to tell you they can do things they cannot because they haven’t asked the people actually operating their financial institution.
In the end, what you need is a team that isn’t about sales hype or workarounds but instead is devoted to delivering what they say they can do and has the financial industry operations experience to actually get the project done the right way. When correctly implemented, services will be sustainable and reliable. Otherwise, the “solution” may not be around in a year.
Demo the product
Make sure any provider you consider has an actual product, not a project “under development.” Legitimate service providers will offer to let you test their potential solutions. Don’t allow yourself to be sold a slick interface for a product that hasn’t been built.
You want a product that gets the job done and makes your life easier, not harder. Unless you have expertise in the area, supervising developers to create a product is difficult.
Ensure ease of use
Take a few minutes to think about how you and your customers will use the product. On the business owner’s side, the system should integrate easily into whatever you already use. It shouldn’t require additional equipment or setup. If it does, the team providing the product should handle that for you or work in conjunction with your team. The system should be intuitive, not require a lot of training, and do what you need it to do.
You also want to understand what limits the system has for supporting your business. For example, are there maximum and minimum transaction sizes? If so, does that range fit the average transaction size for the products you offer? Does a minimum number of transactions exist, and if so, what happens if you don’t meet that minimum? If you have a store and sell online or through an app, does a single product support all those payment points? If you sell at festivals, markets, trade shows, or at pop-up shops, can the product support those payment points too? Can the product scale with your business?
For your customers, the product should be intuitive, not require a lot of training, and refrain from forcing them to jump through a ridiculous number of hoops. Customers will feel most comfortable if the system resembles something else with which they are reasonably familiar. They should be able to sign up to use the product easily and in a minimal amount of time (one minute or less), and they should be able to start using the product as soon as sign-up is completed and confirmed. Waiting causes frustration, and frustration leads to lost sales.
Many financial product providers list prices with an asterisk (*) or footnote (¹). Read the fine print about pricing, because typically asterisks and footnotes alert you to hidden fee schedules that could add substantial costs that make the final price 2 percent to 6 percent higher than the list price. Additional charges may include account fees, interchange fees, minimum volume fees, and chargeback penalties.
Read contracts and understand all the terms before signing. Contracts represent obligations, no matter what other discussions may have taken place beforehand. The amount of time it takes to wade through legal verbiage is minor when weighed against how the terms can dictate your operations.
Contracts can sneak in additional fees as discussed above and assign to you risks that shouldn’t be yours. They can restrict with whom you do business. They can penalize you for ending the business relationship regardless the reason and auto-renew without giving you the opportunity to re-agree. Not reading the document doesn’t absolve you of responsibility for adhering to its terms. Contracts are legally binding.
If you are not comfortable reading contracts yourself, hire a corporate lawyer. The up-front retainer costs are exponentially less than having to go back and change your business operations to comply with the contract or pay penalties for not complying.
Ashley Elsner, an attorney and MBA, is chief executive officer for Artery Pay, a secure, legal mobile payment service for businesses and consumers in underserved, cash-heavy industries. She has provided Securities and Exchange Commission and state regulatory compliance for hedge funds, public offerings, and acquisitions for companies including LinkedIn and Amazon.