- How should the cannabis payments and banking industries be thinking about the future, where the space is heading, and what they should be doing to adapt and face the future head-on?
- How can legal cannabis operators accept alternative payment methods and not operate a cash-only business?
- Mistakes to avoid and other activities that businesses' cannabis financial services shouldn't be doing.
Daniel Wolfe (00:10):
All right, so I'll let them introduce themselves first. I am Content Director at American Banker, covering payments and credit unions. And Tyler, do you want to, since you're sitting right next to me?
Tyler Beuerlein (00:21):
Sure. Tyler Beuerlein, I'm the Chief Strategic Business Development Officer. I know it's a mouthful for Safe Harbor Financial. We're a publicly traded entity that banks and lends to the cannabis industry nationwide.
Dustin Eide (00:35):
I'm Dustin Eide. I'm the CEO of CanPay. We launched a payment network almost seven years ago now for the cannabis industry on the ACH network.
Cassandra Ingram (00:45):
I'm Cassandra Ingram, and I'm General Counsel CanPay Debit.
Maria Roscoe (00:50):
I'm Maria Roscoe. I am the Digital Payments Product Manager, Valley National Bank at Valley, and I focus primarily on our FinTech partnerships, embedded payments and banking as a service specifically in our cannabis industry. Valley Bank Banks, majority of the MSOs in the market, and we are definitely very into cannabis.
Daniel Wolfe (01:13):
All right. So why we just kick it off by asking this year, what do you see as one of the most relevant developments in cannabis banking and payments?
Tyler Beuerlein (01:23):
I guess I'll start with the cannabis banking side. I continue to see articles published about a banking crisis or this massive void or people operating in cash. It's just false. It's been false for years. Again, I mean, we bank the industry, nationwide Valley has a significant presence. There are hundreds of institutions banking this space. And on the payment side, I think until federal legalization, we're going to continue to see an amalgamation of products that are not sustainable, that have no chance of survival to put everybody at risk, that continue to be pervasive in the industry.
Dustin Eide (02:05):
I'm interested in how much things stay the same, even though it seems like things are moving really quickly, which is, what is it that is old, is new again, things keep coming back and resurfacing in our industry that we thought were long and dead years ago. So for me, it's just a matter of everything looking very similar to, it did nine years ago when Washington, Colorado legalized their markets.
Daniel Wolfe (02:34):
Sandra, Maria.
Maria Roscoe (02:37):
Yes. So just general trends.
Daniel Wolfe (02:38):
General whatever you want!
Maria Roscoe (02:40):
Yeah. So what I think is really exciting about the market right now is that we're getting to a point where a lot of FinTech players are coming in can pay, and they're bringing these awesome and robust solutions that are providing loyalty, that are providing wallets, that is streamlining payments to bring more merchants and dispensaries into this market and make it more accessible to people. So I would say the biggest change I'm seeing is the rise of these fintechs and people trying to grab some of this market and provide a really awesome product so that cannabis is more accessible and it's not a cash only type of service.
Daniel Wolfe (03:18):
So the context of course being that cannabis is not legal on a federal level, but it is legal state by state. It's interesting to contrast this against Canada where it is legal nationwide, and I remember seeing day one, visa, MasterCard, American Express, were totally on board with it, but because things are different in the US it creates these opportunities for other companies to come in and build a business and address the needs that they have. And so I just wanted to ask from either perspective, what do you see as the current needs and how do you create something that's lasting for the future, even as legally things are still very much dynamic?
Dustin Eide (04:04):
Yeah, I'll take that first. So for us, it's a really exciting industry. It's a greenfield in terms of what can we build from scratch for an industry that is state legal, but has challenges at the federal level, the card brands, major card brands are not willingly or openly engaged in the industry, even though we know there are a lot of solutions out there that allow you to swipe a, or dip a credit or debit card at a dispensary. For us, it's really interesting that kind of the oldest most boring payment network, the ACH network, is the place where we've been able to operate both legitimately and transparently in terms of these cannabis businesses and the activity that they are engaged in, as well as building a network that consumers find a lot of value in. That's really low cost to merchants. We actually see this as an opportunity as our beta, the cannabis industry, and we're going to be able to launch that into traditional retail and offer benefits there as well.
Daniel Wolfe (05:07):
Maria, from the bank's perspective, what should any bank getting involved in this type of business be aware of? What have you learned along the way?
Maria Roscoe (05:15):
Yeah, so something we've learned, especially in seeing what's happening on the sponsor bank side and how the OCC is cracking down on these types of sponsorship programs is making sure that the due diligence model is extremely robust, making sure it's folded into your third party risk management program, and also that you have an extremely robust AMLBSA program to support cannabis across all of the different markets. So we've noticed a lot of change in this space and a lot of adapting to make sure that we are checking merchant licenses for all the fintechs that we work with. You need to make sure that not only the FinTech extremely well, but that you're understanding that they're serving specifically when it comes to the types of products they're selling. Especially once we get into synthetically derived products, it becomes a huge issue. The DEA recently cracked down on THC zero and it's now a controlled substance. So making sure that we know what our merchants are selling, who we're working with, and that there's not going to be any money laundering issues.
Daniel Wolfe (06:21):
How many states does Valley operate this business in?
Maria Roscoe (06:23):
29.
Daniel Wolfe (06:24):
And what can you tell us about the differences state by state? What are the challenges there?
Maria Roscoe (06:29):
So state by state, I would say the largest challenge is in reporting. So there's different reporting requirements at every single state level. So your transaction monitoring program has to be extremely thick, and it has to be very in depth to understand the reporting requirements in every state to make sure that for all the merchants that we're supporting, especially since we're dealing with a lot of multi-state operators, that we have the right processes in place and that we're acting on those reporting requirements on the required date. So there's a lot of great FinTech partners in this space, such as Green Check and other teams that we work with to make sure that we're following all of those requirements.
Daniel Wolfe (07:08):
And from campaign's perspective, what do you see as the different challenges state by state?
Dustin Eide (07:16):
For us, it's a matter of looking at those businesses and the unique individual laws of each state. Some states allow online ordering with prepayment, some expressly prohibited, some require certain elements of a transaction to be completed before the payment can take place. And so for us, it's just understanding because these are 40, how many different states now? 40 something, right in 2020. Some adult use markets and a whole lot more medical markets where each one of them is built on its own structure. Whatever the legislature passed or the bill or the referendum that was passed it, it's all very, very different. And you have to understand what that means in terms of the flow of funds, who can make purchases and how the business has to report that.
Daniel Wolfe (08:06):
Okay. Anything you wanted to add, Tyler?
Tyler Beuerlein (08:08):
No, just each state's its own planet, and I give the example of, you know, look at a market like Utah, very conservative. They've taken a pharmacy type approach. There are 15 licensed retail operators in the entire state and only eight cultivators. Then you go to a state like Oklahoma, which is issued a retail license, I believe, for every 93 patients in the state. It's a giant sprint to the bottom. Last time I was there, my Uber driver had five licenses. True story. So you just have to understand what you're dealing with in each market, where the opportunity is live, what the regulatory regime expects in those state legal markets.
Daniel Wolfe (08:48):
I can see it also benefiting Uber Eats as well. So we talk about, also, we're talking primarily about digital as a way to, it. It's kind of a setting where what if the major card brands simply didn't exist? Or at least didn't openly, as you said, participate, but cash still plays a major role. Can you talk about just how the use of cash influences a lot of what's going on in cannabis banking and payments?
Tyler Beuerlein (09:21):
Yeah, I'll kind of jump in on that. And I think this goes to a lot of people say, well, what happens if the car branded card rails come tomorrow? And what I've seen in the last 10 years is that there still is a stigma with this industry, and you still have the tourist component. You have the people that go to Vegas, they don't want to buy with a card because they don't want any proof they were there. They don't want anyone knowing, so they pay in cash. So I think this will remain a cash intensive business regardless of what happens from a legislative perspective for the foreseeable future. But from a cash standpoint, I mean, the states are doing a great job in most cases of monitoring transactional data. They have seed to sale tracking systems so they know what's happening with each retailer. For the most part, we as an institution typically have access to that information as well. So it gives us the ability to reconcile fairly easily and make sure that monies aren't being laundered through operators in different states.
Dustin Eide (10:19):
When we've engaged with businesses that we're operating a debit and or credit card solution, again, not either openly or at least transparently operating those systems, they were still 50% cash a lot of times. So even when there was a card option, there's significant consumer fees around those options and we see a real affinity to cash.
Daniel Wolfe (10:44):
Okay.
Maria Roscoe (10:46):
Yeah. One thing that we're seeing a lot is with the rise of e-commerce in the cannabis space, there's an opportunity for different ACH wallets to integrate with those products and solutions to streamline payments. So because things like debit and credit are not viable in this market, well, debit to an extent can be, but when it comes to e-commerce, an opportunity for ACH wallets to really dominate that market at this time. So there's a few different players out there, but there's an opportunity for us to get ahead of credit coming and get ahead of that federal regulation and dominate the market at this time with something as simple as ACH.
Daniel Wolfe (11:35):
So how have you seen that evolve over the years? The use of ACH or alternatives and just kind of the ebb and flow of different approaches, which again, vary technology by technology, but even also state by state, dispensary by dispensary.
Dustin Eide (11:49):
I mean, we've been in the market for seven years. I think right now we're probably oldest longest standing payment provider in terms of ACH. We've had a lot of competitors over the years, but now we're the largest with over a thousand dispensaries around the country. And they accept us for in-store integrated to their kiosks, curbside, mobile for delivery online payments. So we've seen definitely when the pandemic hit there was a huge shift because it was an essential business, but they couldn't operate in the stores. Everything went to curbside. And so states changed their laws to allow for this to happen outside the dispensary. Huge shift to e-commerce. And we actually just released a new updated model for our e-commerce where we actually have pending authorizations built on top of the ACH network so that it operates much more in line with what you would expect traditional payments from a restaurant or any kind of retailer.
Cassandra Ingram (12:46):
What you said also, Daniel, about how you're seeing the progression of ACH over time in the cannabis space. It's exciting being a part of campaign, and I'm not going to promote too much, but it's exciting. I've, I've watched it, and you see merchants maybe originally hesitant in getting into using an ACH based product like EG or Hyper or Tyler was before, because there's a fee associated, the merchants have to pay a fee, albeit a much lower fee than traditional credit card processing, but a fee nonetheless. And it isn't a fee that you would pass on to the consumer, which you know, see that was like the pandemic or the caius ATM solutions. And so there's some hesitancy with that. But as you know, can Dustin had mentioned campaign has been in the industry now for about seven years, and it's really, it's maintained this stronghold and this trust with consumers because it's the only fee free option for consumers. But also among the merchant base, there've never been any banking shutdowns. And while it's still the only merchant fee solution in cannabis, when we think about the future and the eventual passage of some sort of federal legislation that will still exist, and when you look at campaigns pricing compared to traditional credit card pricing, it's just exciting to see this old ACH, this Tradify ACH model could actually still exist and proliferate in the future.
Tyler Beuerlein (14:29):
It's interesting to me, and again, I've been watching this for 10 years now from the front lines, that the two methodologies that seem to have the biggest impact and have survived through all of this are physical ATMs, which we're going by the wayside and ACH, and the rest of them are, let's throw something against the wall and hope it sticks. And unfortunately, all of those solutions are putting everybody at risk and they keep just representing themselves. To Dustin's Point is something different?
Daniel Wolfe (14:58):
Can you talk a bit more about what you mean?
Cassandra Ingram (15:01):
I sure, no, I mean, yes. Yeah.
Tyler Beuerlein (15:04):
Well, okay, so let's, yeah, let's look at, so I've personally seen hundreds of payment companies come out of the woodworks, but we've got this thing solved. We're the only ones that can do this first time ever, first time ever. We're the only ones that are compliant and dead on arrival. And over the years we've seen those products get more creative because there's money to be made. So if you look at, there are what I call in and outs. So stored value type products that you load a credit card or you load into a crypto that's then converted back to a different form of payment. There have been a myriad of examples of products like that. They all fail in some cases spectacularly. Then you've got the cashless ATMs, which are a script machine on counter, A consumer walks in, they input their debit card, they input their pin, it's presented to the acquiring bank as a physical ATM withdrawal, but it's U being used at the point of purchase for a cannabis related transaction. Federally illegal, the networks came out with a statement on this, gosh, a year and a half ago, there was a massive shutdown of those products, but they're back and they will continue to try and I would say penetrate this market as long as there's money to be made.
Cassandra Ingram (16:30):
And for a couple of reasons, I mean, a lot of these operators have exclusive contracts with merchants. So merchants have to continue to use them if they want to process any payment solution, use a payment solution to process cannabis. And in terms of who's in the audience, I'm assuming banks, networks maybe, and processors. If you're an issuing institution and you have a consumer member use a cashless ATM for their cannabis purchase, the interchange is reversed. So as an issue, an institution provide certain benefits to your consumer members, one of which is I'll pay or waive the ATM way. As a benefit of banking with me, you could have access to your cash from anywhere. So not only are you paying the ATM fee that then goes to the Caius ATM operators, up to the networks and processors, et cetera, but you are missing revenue on that interchange because it is miscoded as an ATM withdrawal versus being submitted properly as a point of sale debit transaction, where then you would actually receive revenue on the interchange.
Tyler Beuerlein (17:49):
And so the cashless ATMs, I would say in the last two years, have accounted for north of 10 billion worth of transactions to put in perspective. Now, there was a massive shutdown, but the networks have known who's involved for years & years, they know what institutions are involved, they know who the players are, and very little has happened. And now we're seeing the rise of Penn based debit. And there was a bank in the southeast that launched a Penn based debit programs specifically for cannabis. They're trying to route through the regional networks. There's another in Michigan that just launched a similar program I do, I think that has the ability to survive. No, I don't. And it's just a matter of time in my mind before that becomes the next black eye in the industry. And it goes further than just the payment side. So if you look at the technology infrastructure in the industry, you have point of sale companies.
(18:47)
You have the operating systems that these entities use, pre-order delivery point of purchase. They've raised money based on valuations that are heavily weighted on transaction revenue from products that are not sustainable. And so from my perspective, sitting back watching all of this, you've got the risk of the institutions that are participating. You've got the risks of the merchants involved, you've got the parties that are misrepresenting these transactions, and then you've got the investor risk on the other side and the potential litigation as a result. So it's just a really fascinating thing to watch unfold. But I think we're going to see more carnage, unfortunately.
Cassandra Ingram (19:32):
One more item to note, which is of particular concern for financial institutions is that you know, folks have a lot of responsibility in terms of complying with BSA and AML related regulations. And when you are seeing a transaction come through the network to your bank, you're seeing it as an ATM withdrawal or in some cases an ATM E withdrawal, which is the cannabis purchase. Using a cashless ATM, you can't comply with your base a obligations because it's being represented to you fraudulently, right? It's being represented to you as something it's not, so you're not able to comply and that deprivation is an issue.
Daniel Wolfe (20:23):
So what are some the company, if FinTech or a bank wanted to get involved at this point in cannabis bank and cannabis payments, what are some of the pitfalls to avoid? What are some of the best practices you could recommend?
Dustin Eide (20:39):
We always took the approach of we were going to get affirmative approval from any party that was going to be involved or entity that was involved. Seems that the general approach is to do it and then hope that you can ask for forgiveness later. If you're going to do this legitimately and stably, then it needs to be with all parties, all entities, as part of the transaction process involved, get permission from the networks, get permission, involve your regulators in the process. We personally have presented to our financial institution's regulators multiple times so that they could be comfortable and understand even how to review our institution relative to the risk that a cannabis payments specific network poses to that financial institution.
Daniel Wolfe (21:26):
And Maria, from the bank's perspective, if a bank wanted to get into this line of business, what are your insights based on your experiences?
Maria Roscoe (21:34):
Yeah, so I guess my greatest insight, and someone actually raised this question, I think it was yesterday, the days are blending together, but someone raised this question on how can I, as a FinTech have an easier experience onboarding to a sponsor bank? It's very challenging to understand the requirements that are going to come as a FinTech, whether it's a wallet, whether it's a B2B platform, whether it's in figuring out how to get this off the ground in terms of cannabis. So you want to work with a bank that has very robust requirements in terms of KYC in knowing the end merchants. And working with a company such as CanPay is so amazing because it enables you as a bank and you as a FinTech to work with multi-state operators. And also to work with some of those smaller dispensaries, some of those mom and pop shops, to get more value across the board and to kind of limit the risk that you're taking in a lot of smaller dispensaries by working with some of those larger folks like GTI and Columbia Care, who are more in the medical space.
(22:37)
And then another piece would be on that KYC, making sure that your end-to-end solution is robust in terms of being able to turn off originators if something were to happen. So if there's a merchant or a dispensary where you are filing a ton of suspicious activity reports on, you might want to shut them off for a bit. You might want to put them on pause because there might be some money laundering happening. So you need to have a very quick way to integrate with your core or whatever processor you're using to turn off that originator, and you want to make sure your financial institution can support that. So I guess that would be my biggest piece of advice when it comes to the tax.
Daniel Wolfe (23:18):
Yeah. So the recent run on bank crisis that we've all aware of has motivated a number of businesses to consider diversifying their banking relationships, so they're not keeping more than the FDIC insured deposit limit in banks. How has this affected banking relationships or any other relationships in cannabis banking?
Tyler Beuerlein (23:40):
Yeah, so I think first off, the FDIC insurance for cannabis related business remains untested. So that's one thing to just throw out there that people don't necessarily think about. And I talk to operators about this all the time. They say, well, we want to diversify because we want that insurance. And my comment to them is, look, there's no guarantee that insurance is there at the end of the day for a cannabis related business. What we saw is, and people may or may not realize the Silicon Valley Bank was active in the ancillary side of the cannabis space, and one of the verticals they went after was payroll. And so I received a number of, I'm going to say frantic phone calls from operators around the country who lost their ability to process payroll in the manner they were accustomed to. And so when you see things like that happen, it does affect the industry because if there's a regional, let's, I won't mention names, but let's say a regional size institution was banking the cannabis space and they had issues outside of the industry, there's a strong chance that another institution's going to come in to take those deposits.
(24:50)
There's an even stronger chance that institution wants no part of the risk associated with cannabis. And so all of a sudden you've got this massive account base suddenly in need of a new home. And so we saw a bit of that. I continue to get phone calls for obvious reason, but my hope is that it stops sooner than later, even though that benefits us.
Daniel Wolfe (25:13):
Okay. Any other thoughts on that?
Maria Roscoe (25:16):
Yeah, so I think that weekend was a little bit crazy for all of us, many of us in this room. It was really interesting seeing a ton of different players in the space wanting to move some of their deposits, kind of lower their concentration risk at a bank, and also wanting to disperse their payment solution so that in any sort of scenario, they're not off, they have someone in the background. So this introduces a lot of complexity when it comes to a sponsor bank because the FDIC has required with a lot of partner programs, a level of exclusivity when it comes to payments. So we notice that a lot more of our clients were looking to kind of file that FDIC exemption so that they could work with multiple bank partners and kind of disperse this risk that they were seeing in the industry. And then in turn, with that, we're noticing that we need to have a good strategy around how we're pricing our solution to make sure that we have a fair amount of deposits, but also aren't kind of making it so that FinTech can't work with other partners. So it's a very interesting space for banks right now because we're kind of working against each other sometimes, but more so now trying to work together, which is really a beautiful thing.
Daniel Wolfe (26:34):
Okay. Earlier on, we had mentioned Canada, where the major card networks are already active in this space. And I'm wondering what can we from Canada or from other countries as we look ahead at this particular category.
Tyler Beuerlein (26:50):
I guess, I'll hop in from a banking standpoint. I still get calls from operators in Canada that are having issues finding a transparent bank account. So again, the notion that this is going to change drastically from a banking perspective, I think it's a little misguided on the payment side. Yes, there is infrastructure, yes, the networks are there, and I'll just say this anecdotally, I've heard a lot of folks in the industry, and I'll give you an example. I'm on the board of MJ Biz, which is the largest event company in the space, and they did a poll to the member base and they said, what are you most excited about if safe passes? And probably 80% of the responses were, we can't wait to use credit cards. Well, if you talk to the networks, if you talk to the biz dev side, they'll say, yeah, if safe passes were going in, if you talk to the legal and compliance side, very different conversation. And so again, I think people need to keep in perspective from a legislative point of view, the things that are really going to have an impact. And I don't think that, again, I'm glad that Canada has access to that, but I don't see it happening in the US for the foreseeable future.
Cassandra Ingram (28:02):
Well, let's talk about that for a second, because Safe was just reintroduced again, I think for the seventh time and when the eighth, the eighth time. So when you look at the text of the bill, and you exactly what Tyler said, there are some people in the networks and processes her who were saying, yeah, we're going to get in. And then the legal and compliance probably for liability reasons are saying, no comment, or I'm not doing it. And when you look at what's happened in the United States in the last couple of years, you see the federal government overreaching or trying to extend its authority into using its enforcement authority under certain provisions to monitor, require payment processors to monitor their merchant client's consumer transactions.
(29:00)
And I made all these notes because who can remember all the different laws? But the CFPB specifically in the last several years has filed complaints against three companies. Bright speed was in 2021, and then I believe it's Universal Debt, something in 2015. And that was the phantom debt scandal. And what's interesting about this, these cases is that the CFPB and the Safe Banking Act uses the definition of a financial service product or service and adopts it. The definition from the CFPA section, I think 1002, and when you look at what the CFPP can do, what the CFPA says, it's primarily service providers or covered entities when providing a financial service to commercial entities, oh, sorry, not commercial institutes, but consumers. Okay, so the last couple of years you see the CFPV trying to extend its authority to payment processors, networks for providing financial services or products to me, to consult merchants to merchants.
(30:25)
And the merchants or the payment process are saying, no, you're exceeding your scope. And unfortunately because all of these cases were settled on other grounds, we don't know what the trial courts would say about that. But we don't have to wonder, because when you look at the Safe Banking Act, it not only adopts the definition from the CFPA, it's section 1002 to say, service providers providing a financial service to consumers, to no, yes to consumers. But it also says to commercial entities as well. So that's a problem, right? Because in the Bright speed case, they settled and paid, the CFPB finds up to I think 54 million. And so when you're looking at just the cannabis space right now in payments, and we all know that there are these illegitimate solutions that a lot of merchants are using, and your payment processor, while the Safe Banking Act provides you certain protections for against penalties for X, Y, and Z, for solely providing services to a cannabis dispensary or cannabis company, it says nothing about, you know, should have known that what they were doing, what's facilitating bank fraud, you know, should have known, right?
(32:03)
And you're seeing payment processors being pulled in and then also penalized. So when you look at the Safe Making Act and whole and you're seeing what's happening just within the last couple of years with the CFPB, you have to wonder or at least pause and consider what this might mean for your company if you were to enter the cannabis industry. If safe passes. And I'm not saying I do believe at the same time while we say this, I do believe we do as an industry need to move forward and we need to push the industry into the light, but we need to remember that the cannabis industry is not traditional retail. It's very different apples and oranges, and that's okay, but we need to remember that because when we push the industry into light with whatever federal legislation is passed, we need to be able to, well, what we don't want to do is legitimize the illegitimate solutions just because we pushed everything in.
Tyler Beuerlein (33:16):
I want to tell this story real quick just because I think it's relevant to what was just said. I was at a conference a few years ago, very successful at the time, payment provider in the space was using a private label card that would store with a credit card, and it had been adopted by hundreds of retailers, large ones. And I got asked to go to a meeting with a bank that was a client of mine at the time, go to dinner with them. The CEO comes in with his partner and they sit down at the table and he said, Tyler, why won't your banks bank our company? And I said, well, I said, people are concerned with the model you can't store. You can't use a credit card to fund a wallet that's then used for a federally illegal purchase. And he looked at me and he goes, Tyler, he said, my attorney started Fintech.
(34:06)
He said, your banks need to take our accounts. And I just raised my hands and I said, look, with all due respect, your attorney should probably know better. And it wasn't 45 days after that conversation, their account was seized. I was getting calls from operators literally saying, Tyler, these guys have seven figures worth of my money and I can't get it. The company went into receivership, was very public, it left a black eye in the industry. And I tell that story because two weeks ago I go to a conference on the east coast, I get pulled into a room by the CEO of a very large operator in the space, and he says, Tyler, look, I wanted to run this by you before I signed the contract. We're moving forward to this payment company so excited, we can accept credit cards to restored value. And these things keep being represented as something else or something different. And the industry never seems to learn again after 10 years. And so the more we can avoid situations that put everybody in hot water and leave a black eye on us as an industry, the better off we're going to be. And unfortunately, right now I would argue ACH is the only sustainable form of payment in this space. Whether or not people want to acknowledge that it's the truth.
Daniel Wolfe (35:21):
So let's open it up to questions. Do we have anybody from the audience who wants to ask a question of any of our panelists? Hey, I see a hand, I see a microphone walking towards hand.
Audience 1 (35:39):
Thank you. This is very interesting, obviously from Australia where we are not as mature in our approach to legalizing cannabis in our states. Do knowing that ACH is the most legitimate method for you and the only legitimate method at the moment, do you have any hope that banks will open up request to pay on realtime payment networks to enable a more immediate confirmation of payment at checkout?
Dustin Eide (36:08):
Well, that's interesting because we're about to have Fed now, which is instant ACH, and I find it really funny. So my background is payments long time in the payments industry, credit card processing and all that. And you know, heard about ACH and it was like, oh, that old system that takes forever. There's no authorization, but it's used for trillions, but and not at the consumer level. And of course that changed a little bit with Venmo and Cash app and all that, but when we look at Fed now will be available, but the benefit of an instant payment from the merchant side is questionable relative to the cost of an instant ACH versus a one or two day delay. Most businesses are not in dire straits in terms of cash flow that they need that from our perspective, we actually guarantee the transaction. If we approve the transaction, we guarantee it. So our merchants don't care about the instant nature of it, but we have to be really, really good. And it's one of our, the key things that we work on constantly, but we're really, really good at fraud and mitigating risk, and that allows us to guarantee the payment for our merchants.
Audience 1 (37:23):
Quick follow up. Sorry, no one. Oh, you're still there for the microphone. Is there any benefit then in the ISO 22022, the ISO standard with the more information available for the reporting obligations that your merchants might have with transactions as opposed to the limited data available on a NAA file?
Dustin Eide (37:46):
Yeah, I know we haven't approached it with our financial institution yet, so I probably need to wait for some guidance from them in terms of that. Where we're at right now, as far as the biggest new compliance element was the web debit requirements, and of course we're able to comply with that and risk assessments. And risk assessments, of course. Thank you. Compliance. But yeah, so I can't speak to that.
Daniel Wolfe (38:15):
Other questions, see another hand.
Audience 2 (38:24):
I just wondering if you're able to highlight some of the nuances of the risk related aspects when you do the risk and compliance checks for different third parties, if you're able to highlight some of the nuances that you see that are red flags!
Dustin Eide (38:43):
Are you guys able to hear? I can't really hear.
Daniel Wolfe (38:45):
Could you repeat the question please? I'm sorry.
Audience 2 (38:47):
No, I was just curious to know, I mean, in typical cards processing there is a set of rules and regulations that you go through for risk and compliance when it comes to cannabis payments and authorizing people who are doing the payments, are there any different nuances? I'm sure there are just curious if, what are those red flags that are very apparent?
Tyler Beuerlein (39:09):
I think what are the compliance nuances?
Dustin Eide (39:10):
You guys? Yeah, are you talking in terms of consumer or merchant?
Audience 2 (39:14):
Both, actually.
Tyler Beuerlein (39:16):
They're different, you can say.
Dustin Eide (39:17):
Yeah, so it's obviously a very different risk profile. The financial or we will only work in order to comply with fins and guidance, which is what provides financial institutions the ability to actually bank the cannabis industry. We will only work with merchants that are banking inside of a compliance program, like at the institutions represented here. So that provides a level of clarity around how they're operating as a business because those financial institutions are conducting enhanced due diligence. We work closely with them. And so on that end, there's also a lot of visibility at the state level in terms of their licenses. We can get sales data from some of the states, so there's a lot of information about them. On the consumer side, I think that the cannabis consumer in this is something that we think is really interesting too from a population standpoint, but we think the cannabis consumer is pretty specific, but we're able to use very traditional onboarding tools that are out there. There's a lot of great ones in terms of identity validation, banking validation, and other elements that we have to bake into that.
Tyler Beuerlein (40:24):
On the banking side, we have a requirement to file SARS every 90 days per fence end guidance. And then I believe we've been through me to this, but I think we've been through 18 full-blown regulatory examinations over the years since 2014, 2015, that safe harbor.
Maria Roscoe (40:45):
Yeah, and just to speak on two additional pieces, there is that merchant onboarding piece that I've been discussing, and a huge piece in the compliance review that a bank goes through is kind of making sure that partners aren't working with that seven 11 down the road who's selling random CBD products, they need to be a licensed merchant, and we're tracking that tax ID and that licensee and those fintechs have to work with some provider to guarantee that license. And then on the consumer side, it's very dependent on the type of solution that you have, but the same requirements would follow suit if you're holding funds in that kind of Starbucks type of model. So there's kind of that requirement on additional KYC collecting things such as social security number if you're actually trying to get into that gift card type of model. Whereas traditional ACH is a much more viable route because not a lot of people want to provide that kind of identifiable information from a compliance perspective.
Daniel Wolfe (41:49):
Other I saw Michael scratching his ear. Okay. No. All right. So we did one more thing. I know that we did get an audience question about faster payments, but I did want to raise that again in terms of, we are talking about Fed now a lot at this event and the impact of faster payments. Is there anything else that anyone here wanted to raise on just how that affects any aspect of the relationship, consumer, merchant bank, what have you, as we look ahead?
Dustin Eide (42:25):
I'd just say the obvious answer is B2B payments, that's a huge risk need for immediate funds for large transactions on the consumer end. I mean, I don't see that being a driver yet.
Daniel Wolfe (42:40):
Yeah!
Maria Roscoe (42:42):
Fair enough. Yeah. So what we've seen in the market is that a lot of players are already trying to mimic RTP, but more of a next day scenario. So you'll see these different companies supporting this type of funds flow with their own reserves in order to facilitate quicker money movement because that's what merchants and dispensaries need. So I'm not sure that the value is really going to be there to spend additional money when ACH is so cheap. Definitely on the B2B route, you know, see some of these B2B payable solutions that we might cannibalize some of our wire fees. That's something that I definitely see coming. And then another huge player where we're seeing a lot of companies try to come in is in payroll and expense management. So more of these providers are willing to dip their toes in cannabis. And I definitely think there's an argument for RTP and for early wage access things like we were discussing yesterday to be an opportunity in the cannabis space.
Daniel Wolfe (43:48):
All right. Well, I think we are at time, so I want to thank everyone here for your participation, the audience as well, for your participation, and it was a great conversation. Thank you.
Dustin Eide (43:57):
Thank you, chair.