Why Are Cashless ATMs Having Issues?

Cashless ATM Issues 2024 – A Year In Review

What is a Cashless ATM?

Cashless ATMs for dispensaries were considered an innovative financial solution designed to facilitate transactions without the need for physical cash. These systems allow customers to make purchases using debit or credit cards, effectively turning a point-of-sale terminal into an ATM-like experience. When a customer wants to buy cannabis products, they can swipe their card, and the system processes the transaction as if it were an ATM withdrawal.

The amount is typically adjusted to reflect the purchase price, allowing dispensaries to avoid direct sales of cannabis through traditional card processing, which many banks and financial institutions may refuse due to federal regulations. The operation of cashless ATMs is relatively straightforward. Upon selecting products, customers initiate a transaction on the terminal.

Instead of receiving cash back like in a standard ATM withdrawal, they receive a receipt that details their purchase while the funds are transferred from their bank account to the dispensary’s account. This method circumvents some of the complications associated with direct credit card processing for cannabis sales by presenting the transaction as an ATM withdrawal rather than a purchase of cannabis products. As such, these systems provide a workaround for dispensaries operating in states where cannabis is legal but face challenges with traditional banking services.

Most cashless ATM’s rounded up to the nearest $20 amount, and the customer was given the “cash back” over the amount of the purchase. Many customers thought that this was done to influence tips.

Recently, cashless ATMs have surged in popularity among dispensaries due to their ability to streamline payment processes and improve customer convenience. However, as regulatory scrutiny increases, operators must remain vigilant regarding compliance issues. Authorities have begun cracking down on cashless ATM operations that do not adhere strictly to legal guidelines, particularly those that misrepresent transactions or fail to maintain proper documentation.

Dispensary owners should be cautious about choosing reputable providers and ensuring that their systems comply with state and federal laws to avoid potential penalties or disruptions in service.

Q1 and Q2

Following their original widespread shutdowns in November and December 2022, Cashless ATMs “pivoted” to appear to be more traditional in nature, both to the customer and employee. 2023 saw the rise of “single dollar round ups” for Cashless ATM transactions.

These were  successful as the “compliance” was an easy sell. Unlike prior solutions who simply appeared to be an ATM transaction, these modern Cashless ATM transactions contended they were remote dispensing units – the physical cash did, in fact, leave a physical ATM, inside their sponsor bank’s walls – and it was that physical cash which was deposited into the dispensary’s bank account.

However, this compliance was smoke and mirrors. Behind the scenes, regulators, card networks, ATM networks, and the banks were kept in the dark and not provided the transparency required for these transactions. Long story short, by April and May 2024, these single dollar round up Cashless ATM transactions had been identified and shut down.

Many payment processors shut down, some returned in a frenzy to what they knew – $5 and $10 miscoded ATM round ups. 

Q3 and Q4

More Cashless ATM interruptions continued through the summer. Smaller operators were targeted by the ATM networks and ATM sponsor banks. 

Fast forward to last month, September 2024, and the enforcement of illegal money laundering devices had become widespread. ATM powerhouses Switch Commerce and DNS identified what they consider to be illegal money laundering devices. This identification resulted in gateway access being revoked to payment processors and funds owed to merchants being held. 

PAI joined forces in October 2024, revoking access to their networks and gateways, holding all owed funds as well.

All that has to happen for merchants to not receive owed funds is for the ATM networks to prove transactions were run on Cashless ATM devices within 120 days.

More processors will exit the space as more ATM networks identify these transactions and revoke access to their systems. This only results in harm to merchants and owed funds. 

Leave your Cashless ATM now. 

Recap on Issues with Cashless ATM’s

Cashless ATMs have the following issues.

1. Banks, Card Networks, Card Issuers, Merchant Acquirers, ATM Networks, ATM Gateways, and Processors uniformly consider these transactions to be non-compliant.
   
2. This Financial Institution related Non-Compliance is due to the following: Although cannabis is legal in many states, it remains a federally illegal Schedule 1 substance under the U.S. Controlled Substances Act (CSA). The major card networks – MasterCard, Visa, American Express, and Discover – have fundamentally asserted that they will not support any cannabis transactions on their networks. Coercing or deceiving a bank into supporting card transactions for a federally illegal substance not supported by the card networks and/or the intermediary or settlement banks constitutes fraud and money laundering. Compliant payment processing for cannabis has evolved over the years. It can be done legally, if the processor or solution has the mandatory bank relationships and transparency and has a costly, exhaustive compliance program. However, by design, Cashless ATMs are NOT able to perform any compliance. 
   
3. There is also Consumer related Non-Compliance, due to the following: The fees charged to customers for use of a Cashless ATM are in violation of a Dodd-Frank rule known as the Durbin Amendment. This provision prohibits card networks from charging consumers add-on fees when processing debit transactions. Simply put, when a customer purchases cannabis via the use of a Cashless ATM, they are victims of price gouging. They are being hit with a miscoded ATM convenience fee and, often, an Out of Network ATM Fee. The worst case scenario is a customer being charged upwards of $7.00 to use a debit card, a consumer decision which has costs well below a dollar. 
   
4. 2001 US Patriot Act and 1970 RICO Act violations: As the sky-high profits of selling Cashless ATMs have become common knowledge in the cannabis industry and to all those adjacent to the cannabis industry, an all-too common race to zero has taken place. What this means is that massive kick backs have become the norm to winning business. The problem here is that “kickbacks for payment processing” is considered a form of racketeering per the 1970 RICO ACT and is in violation of the 2001 US Patriot Act. The absolute best case scenario for kickbacks is a very small percentage of a transaction, somewhere in the range of .25-.50%. Kickbacks tied to Cashless ATM transactions can range from 50-200% of the cost. 

Take Away

Work with the Get Cannabis Payments Team and empower yourself with the only solution that is bank-direct and fully compliant.