7 Payment Processing Red Flags Dispensaries Must Avoid

Want to avoid costly mistakes in cannabis payment processing? Here are the 7 biggest red flags dispensaries must watch out for:

• Compliance Issues: Misrepresenting transactions or using non-compliant systems risks legal trouble and blacklisting. Always integrate with state-required tracking and maintain thorough records.
• High Fees: Hidden charges like monthly PCI fees or unclear statements can eat into profits. Regularly review fees and negotiate better rates.
• Single Processor Dependency: Relying on one processor risks downtime and revenue loss. Use multiple processors with backup systems.
• Weak Security: Without strong measures like encryption and fraud detection, your business is vulnerable to breaches. Stay PCI DSS compliant and conduct regular audits.
• Poor Integration: Non-integrated systems cause errors and slow operations. Use processors compatible with your POS and inventory systems.
• Inadequate Support: Limited support hours or untrained agents can disrupt operations. Choose providers with 24/7 support and fast response times.
• Lack of Cannabis Expertise: Processors unfamiliar with cannabis regulations can misclassify transactions, leading to shutdowns. Opt for cannabis-specific providers with proven compliance knowledge.

Quick Comparison:

Bottom line: Secure, compliant, and cost-effective payment processing is critical for dispensaries. Avoid these pitfalls to protect your business and improve customer experience.

Cannabis dispensary owners guide to Cashless ATMs and ...

1. Payment Compliance Issues

Dispensaries face challenges with payment processing due to the tension between state laws allowing cannabis and federal laws prohibiting it. Falling out of compliance can lead to hefty fines or even losing your license.

Spotting Problematic Systems

Be cautious of shady practices like misrepresenting transactions or relying on offshore processing. These can lead to serious consequences, including being blacklisted on TMF or MATCH, which prevents you from opening future accounts.

Staying Within the Rules

To keep your business compliant:

• Integrate your payment system with state-required seed-to-sale tracking to ensure transparency.
• Keep thorough payment records and documentation to avoid discrepancies.

Here’s a quick look at common risks and how to prevent them:

"Even though cannabis is legal in many states, credit card companies still won't work with cannabis businesses or other industries they consider 'high-risk.'" - Flowhub

"Once the cannabis industry as a whole begins complying with the rules, I predict we will see tremendous growth and success. Everyone from consumers and retailers to financial institutions and regulators will experience consistency and reliability." - Tyler Beuerlein, chief revenue officer at Hypur

2. High Processing Costs

High processing fees can take a big bite out of your profits. Knowing how fees are structured and spotting unnecessary charges can help you keep costs in check.

Hidden Fee Warning Signs

Cannabis dispensaries often face higher processing fees due to regulatory requirements and perceived risks. Be on the lookout for hidden fees that could hurt your bottom line:

• Confusing Monthly Statements: Review your monthly statements carefully. Check for clear details on base rates, interchange fees, assessment fees, and per-transaction charges. Unclear breakdowns might signal hidden costs.
• PCI Compliance Fees: These fees should be charged annually, not monthly. Double-check to ensure you're not overpaying.

Once you've identified potential issues, it's time to explore ways to secure better processing rates.

Getting Better Processing Rates

Here are some practical steps to reduce your processing costs and avoid overpaying:

• Assess Your Transaction Volume: If your dispensary processes less than $5,000 per month, flat-rate pricing may be a better fit. For higher volumes, an interchange-plus pricing model could save you more.
• Cut Cash Handling Costs: Handling cash can cost anywhere from 4–15% of your revenue. Switching to digital payments not only reduces these costs but can also increase cart sizes by up to 30%.
• Negotiate Fees: Regularly review your statements and push for the removal of unnecessary fees, such as account maintenance, batch processing, gateway access, or monthly minimums.

3. Single-Point Processing Risk

Relying on just one payment processor can put your dispensary at risk. If that processor experiences downtime, it can halt operations, leading to lost revenue and unhappy customers. To avoid this, it's crucial to have a backup plan in place.

Setting Up Backup Systems

Creating effective backup systems takes preparation. Here’s how you can approach it:

• Understand Your Processing Chain
  Map out the entire payment process. Identify who handles transaction authorizations, settlements, deposits, timeframes, and customer support.
• Use Multiple Processors
  Diversify your risk by using more than one payment processor. Opt for providers with different gateways and banking partners.

• Key System Requirements
  • Choose processors with distinct front-end systems.
  • Ensure they partner with different banks.
  • Regularly test your backup systems.
  • Keep detailed switching documentation.
  • Train your staff on alternative processes.
  • Review banking relationships of each processor.
  • Document transaction authorization steps.
  • Define clear activation procedures for backups.

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4. Weak Security Standards

Strong security measures are critical to keeping your dispensary's operations safe. In 2021, the average cost of a data breach in the U.S. reached $9.44 million. Without proper safeguards, your business could face severe financial and reputational damage.

Key Security Features

To protect your dispensary, start with these essential security tools:

These features form the backbone of a secure system.

Ongoing Security Practices

Once the basics are in place, maintaining security is an ongoing process. Here’s how to stay ahead:

• Regular Security Audits: Conduct monthly scans with an Approved Scanning Vendor (ASV) to identify vulnerabilities.
• Employee Training: Train staff thoroughly on secure data handling practices.
• System Updates: Keep systems up-to-date with a solid patch management schedule:
  • Apply security patches and updates daily or weekly.
  • Perform monthly system-wide security checks.
  • Conduct quarterly compliance audits.
• Access Controls: Use tiered access levels and review permissions regularly. Revoke access immediately when employees leave.

"Multi-factor authentication (MFA) requires multiple forms of identification to access accounts or approve payments, significantly enhancing security by creating additional barriers for fraudsters." – First Card Payments

"PCI DSS compliance demonstrates robust consumer data protection"

With 71% of businesses reporting payment fraud attempts in 2021, keeping these measures in place is essential. Security isn’t just about tools; it also demands consistent oversight to safeguard your dispensary’s operations and reputation.

5. Poor System Integration

When your payment system isn't properly integrated, it can disrupt your dispensary's operations and make financial tracking a headache. Without integration, staff are left manually entering transaction data, which increases the chance of mistakes and slows things down.

How to Evaluate Integration Options

When choosing a payment processor, focus on these key integration features:

• System Compatibility: Make sure the processor integrates seamlessly with your POS, e-commerce platform, inventory, and accounting systems.
• Automation Features: Look for capabilities like real-time inventory updates, automatic accounting entries, digital receipts, tip management, and sales reporting.

For example, Greatest Hits, a dispensary in Massachusetts, saw a 31% increase in average cart size after switching to an integrated payment system. Research shows that integrated systems can boost average spending by 30% and increase transaction rates by over 20% per hour.

To prevent integration issues, choose a payment processor that supports multiple payment channels, including mobile and delivery transactions. Also, prioritize providers with clear fee structures and fast deposit times. This level of integration not only simplifies your daily operations but also strengthens payment security across the board.

6. Inadequate Support Services

Reliable support services are a must for keeping payment processing running smoothly. When support falls short, it can lead to operational disruptions, lost sales, and unhappy customers.

Spotting Support Weaknesses

Here are some common signs of poor technical support and how they can hurt your business:

According to recent data, top-tier payment processors resolve 80% or more of issues on the first contact. Falling below this standard could be a red flag for inadequate support.

How to Evaluate Support Quality

Before choosing a payment processor, take these steps to assess their support services:

1. Check Support Availability

Payment problems don’t follow a schedule. Look for providers that offer 24/7 support and guarantee response times under 15 minutes for critical issues.

2. Assess Contact Options

Good support means having multiple ways to reach out, such as:

• Phone support with direct access to experts
• Live chat for quick troubleshooting
• Email support for less urgent matters
• A self-service knowledge base for common questions

3. Test Their Response

Try contacting support during off-hours to see how they handle emergencies, system integration issues, and escalation processes.

"As a business owner, you want your credit card processing to run smoothly so you can focus on serving customers. However, technical issues can cause disruptions that impact sales and customer satisfaction. That's why evaluating your processor's technical support is so important when choosing a provider." - PAYCLY Merchant Services

Look for providers that maintain 99.999% uptime through redundant data centers. This level of reliability shows they take service seriously. Also, check their issue resolution rates - anything below 90% should make you question their support quality.

For a more in-depth evaluation, consider:

• Results from customer satisfaction surveys
• Activity and responsiveness in support forums
• System uptime reports
• Agent training programs and certifications
• The clarity and accessibility of their documentation

7. Limited Cannabis Knowledge

Beyond compliance, cost, and security, understanding the cannabis industry is critical for dispensaries. Working with payment processors unfamiliar with cannabis operations can lead to serious risks. Just as strong compliance and security measures are essential, having processors who truly understand cannabis ensures payment solutions meet the industry's unique needs. For instance, dispensaries using cannabis-focused processors have seen cart sizes increase by 30%.

General Processor Limitations

Payment processors without cannabis expertise can create serious challenges for your business. Here’s how knowledge gaps can translate into risks:

Even Mastercard has stated that cannabis purchases are prohibited due to federal laws. To avoid these risks, it’s essential to choose processors with proven expertise in the cannabis industry.

Finding Cannabis-Focused Processors

When selecting a payment processor, focus on these areas to ensure they understand the cannabis landscape:

1. Compliance Expertise
   • Proper MCC code usage
   • Relationships with payment networks
   • Fast settlement timelines
   • Integration capabilities with POS systems
2. Transparent Transactions
   • Clear, upfront pricing
   • No hidden fees
   • Flexible agreements without penalties for early cancellation
   • Settlement times of under 3 days

   "Every potential vendor is going to tell you that their solution is the best (trust me!) so you need to understand the basic landscape of cannabis payment solutions in order to know what questions to ask." - Brooke Gilbert

3. Reliable Solutions Be cautious of processors claiming to offer fully cashless solutions. These often indicate non-compliance and can lead to sudden shutdowns.

Choosing the right processor can make a big difference. Dispensaries offering at least one compliant non-cash payment option report customers spending 30% more per transaction on average.

When evaluating processors, check for:

• Experience with state-specific cannabis regulations
• Successful integrations with dispensaries similar to yours
• Procedures for monitoring and updating compliance
• Risk management strategies tailored to cannabis businesses

Currently, ACH solutions are one of the most dependable options for cannabis payment processing. They offer faster settlement times and lower NSF rates, making them a solid choice for dispensaries.

Conclusion: Choosing Safe Payment Processing

Handling cannabis payment processing requires careful attention to potential risks. With cash handling costs ranging from 4% to 15% of revenue, selecting the right payment solution is essential for keeping your dispensary efficient and secure.

To steer clear of payment processing pitfalls, focus on these key areas:

Traditional payment systems often fall short for dispensaries. Federal restrictions make outdated methods risky. Instead, ACH payment solutions stand out by offering compliance, stability, and integration with your existing systems. Look for processors who provide transparent processes, detailed compliance documentation, and seamless integration.

Consumer behavior also highlights the shift away from cash - 41% of Americans now avoid it. On top of that, internal theft remains a major concern, accounting for about 90% of losses in the cannabis sector. Choosing a processor with deep experience in cannabis operations and strong security measures is critical.

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