Double-Edged Sword: The SAFE Banking Act's Medical Cannabis Solutions May Create New Problems

By Aaron Lazor, CEO of Finscend

Now that the SAFE Banking Act has passed the U.S. House, it needs to be passed by the Senate and signed by the President to become law. There’s still time to improve the law to prevent some potentially negative financial side effects for consumers and banks. The intent of the law is to allow financial institutions such as banks and card networks to participate in the legal cannabis industry in the U.S. Until now, this has been a cash-only business due to the legal obstacles preventing other payment systems from entering the field.

Credit card dispute processing has plagued banks for decades with inefficiencies, billions in costs and lost time. The slow manually-driven process is in need of a digital solution on par with other segments of the banking industry. As I examine the SAFE Banking Act, I am concerned that its outdated process for dispute resolution has the potential to manifest unforeseen detrimental financial outcomes for banks and consumers.

We live in an increasingly cashless society. Verticals that rely entirely on cash payments are almost by definition illicit. Black markets, counterfeit products, unreported employment, and the like all rely on cash to remain under the radar of the authorities. It is grossly unfair to lump legitimately ill patients consuming a prescribed medication with the above cases. Cashless payments are more convenient and carry the benefit of consumer protection against fraud, misbilling, non-delivery of goods and services, and more. I applaud the intent of the SAFE Banking Act legislation, which is way overdue. However, I urge the powers that be to pause and make sure all aspects of the law are truly safe.

My recent paper, Double-Edged Sword: The SAFE Banking Act’s Medical Cannabis Solutions May Create New Problems, examines the potential effects of the SAFE Banking Act in its current form. In addition to its likely benefits, I’ve identified three key areas of concern including the lack of financial protection for consumers, potential costs to banks due to payment defaults and disputes and the potential for abuse due to insufficient AML/KYC requirements, leading to the diversion of medical cannabis to illicit secondary markets.

Should SAFE pass, credit card transactions will begin and inevitably, payment disputes and chargebacks will follow. More needs to be done to anticipate and mitigate this coming problem, especially given that banks are already falling behind in payment dispute resolution. Dispute resolution is a process that with today’s technology should take minutes or, in exceptionally complex cases, days. As it stands, it often takes weeks or months.

A real opportunity exists whereby banks could take an inherently unpleasant interaction — if a customer is disputing a charge, something has obviously gone wrong — and use it to build loyalty and satisfaction.

Whatever happens with the SAFE Baking Act, sooner or later the issue of dispute processing will come to the forefront and require a disruptive change agent to fix it.

Image by Ilona Szentivanyi. Copyright: Benzinga

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