We’ve approached MC several times about the fee and their response is always that it’s a “high risk” category fee with no other justification. We see cannabis POS companies trying to rally the industry to turn off Mastercard.
Payment processor
Accepting credit cards for cannabis in the US is still a fairytale, though it will happen eventually.
But in Canada, card payments have been legal for quite some time.
Yet Mastercard charges what we believe is an arbitrary fee to dispensaries: $500 annually.
That’s nothing to sneeze at.
And in response we’ve seen a lot of POS companies and their dispensaries ban Mastercard from their stores.
Reminds us of the bulk buying stores Costco and Sam’s Club, who, depending on the year, don’t accept certain card brands.
As of today for example, Costco only accepts Visa cards.
Why do we think this Mastercard fee is an arbitrary fee?
Cannabis isn’t a high risk industry.
Sure, certain investors define it as a sin industry and therefore won’t invest money in the space, but it’s not high risk according to the actual data.
It’s only reputationally a high risk, but mathematically it’s sound business.
How is a high risk merchant defined?
According to Sift, a payments fraud prevention software,
A 1% chargeback rate is the industry-standard maximum, which equates to one chargeback per 100 successful orders. And that 1% is usually the absolute maximum allowed for direct merchant accounts. Those accounts deal directly with Visa or MasterCard. You can be in trouble if you’re caught with a chargeback rate that’s higher than 1%.
Credit card companies are looking at proportionate rates. And it sits at or below 1% for a specific timeframe, which is one month. Anything that equates to 1% or greater will dub you as a ‘high-risk’ merchant.
Sift
Once a merchant hits these levels of surcharges they will see an increased cost of processing, usually by 100 bps.
So it’s not trivial.
One cannabis POS company told us that their chargeback ratio was 0.5%.
Another said theirs was 0.3%
Still another said that they hadn’t had a chargeback in over three months.
All of this points to a low chargeback ratio.
And this isn’t some subjective statement.
Let’s look at a chart of averages from Clearly Payments:
Mastercard has it out for cannabis.
This looks to us like a money grab for no good reason.
But when you’re an oligarch, you can make the peasants do as you wish.
The card schemes are the ultimate payment bros.
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