Payment processing fees can eat into dispensary profits, especially in the cannabis industry where financial challenges are unique. Here's how you can lower these costs:
- Negotiate Better Rates: Review your processing fees, calculate your effective rate, and negotiate with processors for cannabis-specific terms like volume discounts and reduced reserve requirements.
- Choose Low-Fee Payment Methods: Opt for ACH transfers or PIN debit over higher-cost options like credit cards. Educate customers to use these methods.
- Integrate Payment Systems with POS: Automation reduces errors, saves time, and ensures compliance with cannabis regulations.
- Prevent Chargebacks and Fraud: Strengthen fraud protection with ID verification, real-time monitoring, and staff training to avoid costly chargebacks.
- Explore New Payment Solutions: Consider modern methods like PIN debit or ACH transfers, and evaluate blockchain options carefully.
Quick Overview of Payment Methods
| Method | Cost | Key Benefit |
|---|---|---|
| ACH Transfers | $0.20–$0.75/transfer | Fast, reliable, low fees |
| PIN Debit | 0.5–1.5%/transaction | Secure, boosts average sales |
| Cashless ATM | $10/month + fees | Low cost, reduced chargeback risk |
What To Do When Your Cannabis Payment Processing Goes ...
1. Get Better Rates From Your Payment Processor
To secure better rates, start by understanding your current fees. Many dispensaries overlook opportunities to reduce costs by failing to review their processing statements or negotiate terms. Taking a closer look at your expenses can make a big difference.
Review Your Processing Costs
First, calculate your effective rate:
Total processing fees ÷ Total processed amount = Actual processing rate
For example, if you paid $3,500 in fees on $100,000 in transactions, your effective rate is 3.5%. This calculation gives you a clear picture of what you're really paying.
| Fee Type | What to Look For |
|---|---|
| Processing Fees | Base rates for credit/debit transactions |
| Assessment Fees | Network charges from card brands |
| Monthly Fees | Account maintenance and statement fees |
| Hidden Charges | PCI compliance, batch fees, early termination costs |
Leverage Your Sales Volume
Take note of your monthly processing volume and payment trends over the last 6 to 12 months. Processors prefer accounts with stable, high-volume transactions because they bring in steady revenue.
"If you are facing direct deposit times longer than one business day, providing high cash reserves to your processor, and paying anything more than regular processing fees, it's time to make a change."
- Stuart Lutterman, Brother Processing Solutions (BPS)
Negotiate Industry-Specific Rates
Cannabis businesses often face higher processing rates due to additional compliance requirements. However, processors that specialize in cannabis understand the risks and may offer better terms.
When negotiating, focus on areas like faster transaction settlements, reduced reserve requirements, volume discounts, and clear fee structures. Make it a habit to review your processing costs every quarter to ensure you're staying competitive. If your current processor isn't meeting your needs, it may be time to explore other options.
2. Choose Payment Methods with Lower Fees
Choosing payment methods with lower transaction fees can make a big difference for your business. For example, over 83% of Americans aged 30 to 50 rely on debit or credit cards for everyday transactions. Below is a breakdown of costs and benefits for popular payment options.
Compare Payment Method Costs
Each payment method comes with its own set of fees and perks. Here's a quick comparison to help you decide what works best for your business:
| Payment Method | Processing Costs | Key Benefits |
|---|---|---|
| ACH Transfers | $0.20-0.75 per transfer | Reliable and efficient with fast settlements. Over 33 billion ACH payments processed in 2024. |
| Cashless ATM | $10/month plus transaction fees | Fees are passed to customers, lower chargeback risk due to PIN requirements. |
| Pin Debit | 0.5-1.5% per transaction | Offers added security thanks to PIN authentication. |
ACH transfers stand out as one of the most cost-efficient options, offering speed and reliability with widespread use.
Guide Customers to Low-Fee Options
Encouraging customers to use payment methods with lower fees can help reduce costs. Here are a couple of strategies:
- Run targeted campaigns via email, SMS, or social media to highlight the convenience and security of low-fee options.
- Educate your staff - train budtenders to explain the advantages of these payment methods during customer interactions.
"Cannabis being currently classified as a controlled substance at the federal level has consequences for cannabis businesses all over the country. Arguably, the biggest challenge is the inability to use traditional payment networks like Visa and Mastercard to process payments." - Cova Software
Set Up Cashless ATM Payments
Cashless ATM systems offer a practical solution by processing transactions as ATM withdrawals. Here's why they could work for your business:
- A low monthly fee of $10.
- Transaction fees are typically passed on to the customer.
- Reduced risk of chargebacks, thanks to PIN authentication.
- Lower expenses associated with handling cash.
For example, Greatest Hits dispensary saved over $35,000 annually by using integrated cashless ATM payments.
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3. Connect Payment Systems to Your POS
Linking your payment system to your POS can help reduce processing fees, simplify daily operations, and improve compliance. Integrated systems save money by automating processes and enhancing security measures.
Save Money with Automation
When payment data flows directly between your payment system and POS, you eliminate the need for manual entry and reduce the chance of costly mistakes. Here’s how integration helps:
- Automated transaction recording reduces errors.
- Real-time inventory updates prevent overselling.
- Integrated sales analytics help fine-tune pricing strategies.
- Faster checkouts improve efficiency and customer satisfaction.
This automation not only cuts operational costs but also helps meet industry standards and regulations.
Stay Compliant with Cannabis Regulations
Integration isn’t just about saving money - it’s also key to staying compliant with cannabis industry rules. Here’s what to focus on:
- Track-and-Trace Integration: Ensure your system connects with state-mandated tracking systems through automatic two-way integration.
- Secure Transactions: Choose a payment processor familiar with cannabis regulations to avoid compliance issues and processing delays.
- Detailed Records: An integrated system automatically keeps thorough transaction records, saving time on documentation and helping you avoid fines.
Look for a payment solution that includes compliance tools, automatic reporting, real-time monitoring, and strong security features to make managing your business easier and safer.
4. Stop Chargebacks and Prevent Fraud
Chargebacks and fraud can drive up processing fees and hurt your profits. Taking steps to address these issues can save money and protect your business.
Calculate Chargeback Costs
Chargebacks come with more than just a refund. They bring extra processing fees, lost merchandise, wasted staff time, higher rates, and even the risk of losing your merchant account.
"Chargebacks are a costly and unfortunate fact of life for many merchants that take credit cards." - Epic Merchant Services
Knowing these costs highlights why fraud prevention is so important.
Strengthen Fraud Protection
Identity Verification
- Use AVS (Address Verification System) to match billing addresses with cardholder details.
- Employ ID scanners to detect fake IDs.
- Enable real-time facial recognition for added security.
- Implement multi-factor authentication (MFA) to verify users.
Transaction Monitoring
- Track purchases in real time to spot unusual activity.
- Set up alerts for transactions that seem out of the ordinary.
- Use secure payment gateways with built-in fraud detection tools.
- Enable 3D secure technology for an extra layer of verification.
A study found that 90% of dispensary theft stems from employees. This makes strong internal controls just as important as external defenses.
Pair these technical measures with proper staff training to cover all bases.
Train Staff to Prevent Fraud
| Training Area | Key Actions | Benefits |
|---|---|---|
| ID Verification | Check IDs carefully for authenticity | Avoid underage sales and chargebacks |
| Transaction Monitoring | Stay alert to suspicious behavior | Catch fraud attempts early |
| Cash Handling | Follow dual-control procedures | Minimize internal theft risks |
| Customer Service | Keep accurate transaction records | Reduce disputed charges |
"When everyone knows exactly what to do, it's easy to dot all the i's and cross all the t's."
Extra Safeguards:
- Always schedule at least two employees per shift, including a manager.
- Perform random audits on transactions and inventory.
- Set strict POS system permissions based on employee roles.
5. Look Into New Payment Methods
With the cannabis market generating over $33 billion in 2023 and projected to hit $45 billion by 2025, businesses need payment solutions that reduce costs and comply with industry regulations. Modern payment methods can help achieve both goals while complementing existing strategies.
Explore Blockchain Solutions
Blockchain-based payment systems offer a digital approach to transactions that may lower fees. However, these systems come with challenges like price volatility, technical hurdles, and regulatory concerns. Carefully weigh the potential savings against these risks when considering blockchain.
Consider Modern Payment Platforms
New payment platforms can enhance your revenue and streamline transactions. Here are two key options:
-
PIN Debit Processing
This method eliminates convenience fees and out-of-network charges, providing secure and efficient transactions.Benefit Impact Profit Increase Average 15% boost in take-home earnings Increased Security Safer transactions via PIN verification Sales Growth Up to 25% higher average basket size -
ACH Transfers
ACH payments, often processed via text message, remove the need for additional hardware while staying compliant with regulations.
"Dispensaries who offer cash-only payment options lose sales, period."
– Stuart Lutterman, Owner/Founder, Brother Processing Solutions (BPS)
Plan Payment System Changes Thoughtfully
When adopting new payment systems, keep these factors in mind:
- Evaluate Sales Volume
Choose between interchange-plus pricing for high-volume transactions or flat-rate pricing for lower volumes. - Stay Compliant
Adhere to PCI DSS standards, state cannabis laws, and federal banking requirements. - Build Redundancy
Offer multiple payment methods to safeguard revenue during system outages.
Processing fees can range from less than 1% to over 3%, depending on the solution you choose. Regularly reviewing and updating your payment systems ensures you stay efficient and ready to adapt to the industry's ongoing changes.
Steps to Lower Your Processing Fees
Dispensaries can reduce processing fees by taking a closer look at their current costs, selecting payment methods with lower fees, staying compliant with regulations, and considering newer payment solutions.
1. Review and Negotiate Processing Costs
Start by examining your current transaction fees, which typically range from 1.5% to 3% per transaction. Pay close attention to interchange fees, assessments, and markups. Use this data to negotiate better terms with your payment processor.
2. Choose Payment Methods with Lower Fees
Different payment methods come with varying costs. Here's a breakdown:
| Payment Method | Transaction Fee | Percentage Fee |
|---|---|---|
| Debit Cards | $0.05–$0.15 | Minimal |
| Credit Cards | $0.05–$0.30 | 1.85%–3.00% |
| Interchange Plus | $0.05–$0.30 | 0.10%–0.60% markup |
Switching to options like debit cards or interchange-plus pricing can help you save.
3. Strengthen Security and Stay Compliant
Maintaining PCI DSS compliance is critical. It not only keeps transactions secure but also helps you avoid costly fines.
4. Explore Modern Payment Solutions
Consider integrating newer payment options like PIN debit processing or cash discount programs. These solutions can further reduce your overall fees.
