The legal cannabis market's financial services challenges are, by now, well-known.
For several years, while state-level legalization has expanded, access to traditional banks remains an issue thanks to their status as federally regulated entities.
Today, however, the banking challenge has largely been solved. Credit unions and regional or community banks have stepped in to fill the banking gap, making barriers to accessing much needed financial services lower than ever before for marijuana businesses.
That doesn't mean these companies have the ability to easily adopt the same payments solutions that businesses in other industries can access. According to Daniel Muller, CEO of AeroPay, perhaps they don't need that ability.
Speaking with PYMNTS, Muller highlighted the opportunity that the cannabis space has to adopt payments and other financial technologies that have leapfrogged over legacy solutions. And while payments tools indeed must be wary of the complex and ever-changing compliance requirements unique to the cannabis market, there is opportunity, he said, for the marijuana sector to eventually become a powerful influencer over other industries' adoption of solutions like optimized B2B payment tools.
Augmenting Legacy Infrastructure
Thanks to a lowered barrier to access banking services, more legal cannabis companies — often small businesses — are able to accept digital payments from their consumers, a shift that Muller noted is encouraging the owners of these companies to expand into their B2B operations as well.
But current legacy rails can make this difficult. Just as in other markets, eChecks, ACH, paper checks, wires and credit cards all come with their various benefits, as well as their pain points, from high processing fees to a lack of security. For marijuana businesses, with compliance a critical yet challenging factor, these payment rails don't always adequately address the needs of the sector.
According to Muller, data is often at the heart of this issue. Whether it be the requirement to manually enter in bank account details and other information, or the pain point of a lack of transaction data, legacy payment solutions can not only create inefficiencies, but expose companies in the market to risks of non-compliance, fraud and other threats.
To solve for this, AeroPay recently launched its cannabis-targeting payments solution designed for both B2C and B2B payments. Muller explained that the technology augments existing rails like eCheck and ACH to enhance data capture and transmission to complete a transaction. At the same time, the tool introduces other value-adds on top of legacy payment tools, including ensuring sufficient funds in a sender's bank account.
"We use additional data in our software platform to make a payment more secure because it's closed-loop in nature and doesn't run through your traditional card rails," he explained, adding that this strategy can lower fees and support accelerated transaction speeds.
An Emerging Payments Influencer
This enhancement of current payment tools enables what AeroPay describes as a "smart bank transfer," and, noted Muller, it's only one example of the opportunity for legal cannabis companies to take advantage of recent FinTech interest in the space.
As financial solution providers and innovators wield technology to address the market's unique pain points, Muller said that there is also the opportunity for cannabis to become a leader in payments evolution.
"It's a bit of an inverted model," he said. "You might start to see efficiencies within the payments landscape in cannabis that now extend outward into non-cannabis — rather than the traditional, old ways of doing things being applied to cannabis."
Rather than cannabis companies waiting to be able to access the same familiar, yet outdated payment tools other companies use, they can leapfrog over older tools to adopt cutting-edge solutions that solve for friction points in their own market, like compliance and security. As it turns out, other industries can benefit from technology that addresses those same pain points.
It's why, said Muller, payment innovators in the cannabis market must keep a macro view while targeting micro use-cases and user populations.
"You can build technology in a flexible and modern way to serve more verticals and more use-cases," he noted. "Some cannabis payment providers today are solving a niche solution, potentially with old ways that may not be compliant, or they're solving it in new ways, but without a macro view on the overall payments landscape.
"Taking a top-down, rather than a bottom-up, approach can solve inefficiencies for all verticals, and apply it to ones like cannabis," he added.