Here’s how startup KindTap circumvents ban on credit card payments for cannabis
Privately supported cannabis payments start-up KindTap Technologies plans to roll out a new line of credit product that bypasses the industry ban by credit card companies.
With Mastercard Inc. MA,
American Express Co. AXP,
Visa inc. V,
and other credit card network managers avoiding cannabis transactions due to the federal cannabis ban, KindTap has started testing its line of credit in Massachusetts ahead of a wider launch in states with dispensaries. legal for medical and adult use.
Cathy Corby Iannuzzelli, co-founder and head of payments at KindTap, said the company has built a “closed-loop network” through direct relationships with merchants and consumers for its debit card and line products. credit. The company lends money to consumers for credit purchases or helps transfer money to the merchant through its network.
“It’s really, really simple,” Iannuzzelli told MarketWatch. “Everyone in our network must have a bank account. A merchant must have a bank account and the consumer must have a bank account. We transfer money between the merchant’s bank and the consumer’s bank.
KindTap previously offered a credit card product, but is now adding customer credit lines ranging from $ 250 to $ 1,500 to help consumers ease the process of buying cannabis on payday.
Line of credit repayment periods are shorter, similar to a buy it now and pay later model, with interest rates in high percentages of teens, not in the 20s or 30s like with a card traditional credit. Line of credit interest rates will vary from state to state.
“We have woven solutions that look like a credit card or a debit card that go through the National Automated Clearing House Association (ACH) on our own tracks,” said Iannuzzelli. “It’s a new model with similarities to Venmo or Amex, but it’s really its own model serving the very unique cannabis payments situation.”
KindTap works with FDIC insured financial institutions to transfer money. Citing confidentiality requirements, Iannuzzelli declined to name regulated banking partners.
More and more cannabis dispensaries have been able to align business accounts with credit unions and some local banks. KindTap said he would introduce cannabis dealers to banks serving the cannabis market, when asked.
Iannuzzelli has been in the payments industry for 15 years and decided to help launch KindTap to meet a need in the cannabis industry.
“I saw the opportunity to do something that could dramatically change people’s lives – especially for medical patients where cannabis is the medicine they need and want, and the payments are holding back the industry. “she said.
Investors have also steered clear of the sector this year as cannabis exchange-traded fund THCX,
lost 1.7% year-to-date through Friday afternoon and the AdvisorShares Pure US Cannabis ETF MSOS,
fell 17.2%, while the S&P 500 SPX index,
KindTap remains a unit of Kreditforce Ltd., a private investment bank. The company has also benefited from backing from fintech and venture capital firms, but no further details were disclosed.
“We plan to be in all of the states where cannabis is legal,” she said.
KindTap now employs 15 people, most of whom were hired in 2021. It is hiring merchant customer service people as it expands into other states.
For the most part, the industry remains subject to payment solutions with higher fees. In some cases, transactions may appear to be made on a credit card, but payments end up being billed to customers in the form of cash advances, which come with a hefty fee. Some dispensaries offer cashless payments at ATMs, but these types of transactions include levels of fees charged by ATM owners and banks.
“The Old West is a good way to describe the cannabis payments industry,” said Iannuzzelli. “Several solutions work in gray areas like a cannabis merchant whose merchant processor has coded them as a dental office. In some cases, it is downright fraudulent.
Along with KindTap, other companies in the cannabis payments space include CanPay, eMerchant Broker (EMB), Nature Pay, Sky High Moly, GreenLeaf Pay, and others.
In total, the legal cannabis trade in the United States is expected to reach $ 43 billion by 2025, according to estimates by New Frontier Data.