For cannabis retailers and dispensaries, cashless payments provide a convenient and secure payment experience and the ability to track customer transactions easily. But as the cannabis industry evolves, choosing the right cannabis payment processing solution is crucial for your business operations. To ensure that your dispensary is compliant with payment processing regulations, partnering with a payment processing company that specializes in the cannabis industry is more important than ever.
Other than ensuring that you select a legal digital dispensary payment solution that complies with all regulations, various other considerations must be taken into account. In this blog post, we’ll talk about one of the most significant aspects related to processing cashless payments at cannabis dispensaries that needs careful consideration: the processing fees associated with accepting cannabis digital payments.
Pricing Models and Transaction Fees for Cannabis Payments
In the cannabis industry, digital card processing fees could be slightly higher than traditional payment processing fees due to the risks and payment regulatory requirements associated with our industry. Additionally, some payment processing companies may charge monthly setup fees or hardware and installation fees. The transaction processing fee associated with all merchant services transactions is known as interchange, which represents a significant fee in a pricing structure. Interchange fees can range from under 1% to slightly over 3%, depending on what kind of card the customer is paying with at your dispensary. There are two pricing models to consider for digital cannabis payment processing:
1. Interchange Plus Pricing Model
Interchange plus pricing is commonly used by higher-volume merchants processing substantial annual revenue. With this pricing model, the interchange fee is passed on to the merchant and an additional negotiated fee is added by the payment processing company. It offers more flexibility in determining the pricing structure based on the specific needs of your dispensary.
2. Flat Rate Pricing Model
A flat-rate pricing model that offers a standard rate per transaction could prove to be more beneficial for cannabis dispensaries, as cannabis retail is still predominantly a cash-based industry. This blended or flat rate pricing is ideal for cannabis merchants with lower processing volumes for digital payments. It simplifies the fee structure by offering a fixed percentage for all transactions, regardless of the card type being presented by the customer at your dispensary.
Considerations for Choosing a Pricing Model for Cannabis Payments
When choosing a cannabis payment processing solution, cannabis retailers and dispensaries must consider the following factors:
- Transaction Volume: Dispensaries should assess their average transaction volume and determine if they fall into the higher-volume category or lower-volume category for digital payments. This will help you decide what works better between interchange plus pricing and flat-rate models for your dispensary.
- Budget and Affordability: Understanding the cost structure is vital for any business. Dispensaries must evaluate their financial capabilities and determine the pricing model that aligns with their budget while considering the overall benefits and value offered.
- Customer Preferences: While high-end cards may not be frequently used by the majority of customers in the cannabis industry, it's important to provide a convenient payment experience. Offering multiple payment options, including accepting high-end cards, can enhance the customer experience and attract a broader range of clientele.
Hidden Fees and Compliance Challenges with Cannabis Payment Processing Solutions
Accepting digital card payments has been a challenge for cannabis businesses in the United States due to legal and regulatory complexities. Major credit cards brands like Visa and MasterCard are hesitant to associate with the cannabis industry, creating significant obstacles for dispensaries. With the recent crackdown on cashless ATMs for dispensaries, these challenges got exacerbated further. However, there are alternative solutions to cashless ATMs, such as PIN debit that allow cannabis merchants to accept digital payments and process dispensary debit card transactions.
PIN Debit Compliance and Fees
PIN debit offers a unique solution for cannabis merchants, enabling them to accept card payments directly into their bank accounts. However, it is important to understand that PIN debit is different from traditional credit card acceptance and your chosen solution must be compliant with all regulations. While dispensary PIN debit transactions provide a way to receive payments, not every cannabis payment processing provider on the market may offer the same convenience or wide acceptance, and may even charge you a higher transaction fee or monthly fee to use their solution. Ensure that you choose a PIN debit solution like Cova Pay which charges a standard transaction fee and processes most debit cards at dispensaries in the US.
Federal Legalization Uncertainty in the US
Despite the gradual legalization of cannabis at the state level, federal legalization remains uncertain. The absence of federal legalization further complicates financial aspects for cannabis businesses, including credit card acceptance. Until federal laws change and the safe banking act is implemented, dispensaries may continue to face difficulties in accessing traditional bank payment solutions and may have to pay higher transaction fees in some states for accepting digital payments to circumvent federal laws.
Hidden Costs and Merchant Services
Hidden costs and potential pitfalls are common concerns in the merchant services industry, and even more so, in the cannabis industry. One such cost is the PCI certification and associated fees. Some payment processors charge additional fees to merchants who are not PCI compliant, which is sometimes seen as unfair and exploitative. It remains crucial for dispensary owners to stay vigilant, review monthly statements, and be aware of potential repricing activities that could result in substantial cost increases.
The Importance of PCI Compliance
PCI DCC compliance (Payment Card Industry Data Security Standard) is essential for safeguarding cardholder data and maintaining secure payment processing. Dispensaries must handle card information securely and avoid unsafe practices like writing down card details. Ensuring the visibility of the payment terminal when a card is being used for making the payment is another critical aspect of compliance. By adhering to PCI standards, whether you are in the US or Canada, dispensaries can protect customer privacy and minimize the risk of data breaches. With proper PCI certification, dispensaries can avoid higher transaction fees on digital payments.
Choosing the Right Dispensary Payment Solution
When selecting a cannabis payment processing solution, dispensaries should carefully consider factors such as hardware requirements, transaction fees, hidden costs, and compliance with regulations. It is crucial to read the fine print, understand the fee structure of payment processors, and choose a solution that aligns with the specific needs of your dispensary. By doing so, you can provide your customers with convenient and secure payment options while minimizing financial burdens and ensuring compliance.
Understanding these fees associated with cannabis payment processing solutions is essential for dispensaries to navigate the financial landscape and make informed decisions when choosing a cannabis payment processing solution. By prioritizing compliance, transparency, and customer convenience, dispensaries can optimize payment processing and provide an elevated customer experience. Click below to learn more about the best digital payment processing solution for cannabis retail.