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Why PIN Debit is Not Compliant for Cannabis Payments

Compliance
Cannabis
August 21, 2023
Jordan Brown

In a near mirror instance to the cashless ATM crackdown in late 2022, Mastercard has now banned debit card purchases for cannabis.

This means any payment processors still using the “PIN debit” workaround to process debit cards are acting in direct defiance of one of the largest card networks in the world. 

What does this mean for the cannabis industry? Dispensaries need to either go back to cash OR use an acceptable form of cashless payment.

This post breaks down the risks of PIN debit solutions, why they aren’t compliant for cannabis, and why digital ACH payments are the best alternative. 

Why PIN debit payments are not fit for cannabis

While PIN debit seemed like the answer to the cannabis industry’s continuous payments problem, recent crackdowns by national banking services are showing it’s not actually a viable option.

The biggest reason PIN debit is not compliant stems from the plant’s federal illegality and classification as a Schedule I substance. 

Major card processors like Visa and Mastercard have strict policies against cannabis payments because of this classification. 

To bypass these policies, PIN debit payment processors are coding cannabis transactions. Here’s how:

MCCs, or merchant category codes, are used to identify which industry the payment receiver is a part of. For example, a taxicab or limousine business would use the code 4121 to signal their industry type.

Cannabis PIN debit providers are using MCC code 5912, a classification for traditional drug stores and pharmacies, to hide cannabis transactions.

Merchants say this workaround is perfectly legal because it’s acceptable in Canada (where cannabis is federally legal), but that’s not the case in the United States.
 

 

The risks of PIN debit payments for dispensaries 

Anyone currently using or considering PIN debit at their dispensary should understand the risks associated with the cannabis payment processing solution. 

Because they earn processors so much money, PIN debit risks are often clouded by enticing marketing strategies and strong sales pitches, but don’t be fooled!

Here are some of the biggest risks associated with PIN debit cannabis payments:

Lack of reliability

As we just saw with the Mastercard crackdown, PIN debit solutions can go from operational to shut down in a single day, meaning you can suddenly lose that payment method without warning.

Customers who plan to pay with a card must be told to go get cash. The experience for both retailer and shopper is far from ideal – and can lose your business money. 

Non-compliance

As stated previously, PIN debit is not compliant for cannabis debit transactions. So your shop is taking a risk just offering the solution. 

Plus, it’s a generally shady business practice to use a merchant category code that’s not intended for U.S. cannabis card transactions – you’ll have to decide if you want your dispensary associated with that. 

Expensive 

Perhaps a lesser-known risk of PIN debit is its associated cost. Because dispensaries have few alternatives, PIN debit processors tend to charge exorbitantly high convenience fees, many reaching 3.5% and $0.50 per swipe.

That may not seem like a lot of money, but if you add up the amount spent in a single year, it’s unreasonably high. Larger operators can spend anywhere from $150,000 to millions of dollars per year on PIN debit! 

The best (and only) alternative to PIN debit

While PIN debit has felt like a saving grace for cashless cannabis transactions, many retailers feel its risks outweigh its rewards.

As long as cannabis is federally illegal, major card companies will not be okay with dispensaries running transactions through their rails.

This leaves only one viable alternative to cash for dispensaries, ACH. 

Digital ACH cannabis payments 

Automated clearing house (ACH) payments, like Aeropay, are the only compliant digital payment option for dispensaries . 

With ACH, cannabis shoppers easily link their bank account to a dispensary, then they can send payment for their cannabis products instantly (and to the exact penny) either in-store or online.

ACH is transparent, reliable, and safe for cannabis retailers.

Ditch PIN debit and get started with ACH today

Instead of taking your chances on a non-compliant payment solution like PIN debit, check out Aeropay.

We offer cannabis businesses the most compliant bank-to-bank digital payments available. 

76% of customers using Aeropay for online payments use it again the next time for a reason – because it’s convenient, safe, and doesn’t charge them a fee to pay. 

Schedule a demo today to get started with Aeropay’s secure payments for dispensaries.

Author

Jordan Brown

Client Onboarding & Compliance Ops Manager
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