What Causes Profitability?

August 12, 2014
/   Spotlight

Digital Insight proves that digital bankers actually drive increase engagement and profitability with their financial institution.

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Cause and Effect: If you build it, will they come?

/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Platform Shift in the Making

February 13, 2013
/   Insights

What does the banking industry as a whole have to do with Amazon, Microsoft and Apple? Just about nothing—and down the road, it may turn into a major problem (if it isn’t already). Consider...

Infographic: How to Spot a Fake Check

March 8, 2013
/   Insights

The team over at TROY pulled together an infographic on how to spot a fraudulent check. With more consumers using remote deposit capture to upload and deposit checks through their smartphones, it’s important to...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

Reserve Banking: The New Radical Idea

June 5, 2014
/   Insights

Banking is by nature a very conservative industry. That’s why the current buzz over ‘reserve banking’ is so interesting. Even the term seems innocuous, but the scenario it proposes is nothing short of revolutionary....

Financial Literacy Month: How are you celebrating?

March 22, 2013
/   Insights

With April approaching, it’s almost time to kick off Financial Literacy Month! Strongly supported by the United States Congress and the Financial Literacy and Education Commission, Financial Literacy Month aims to promote the importance...

weed plantBanking and weed: It’s easy to snicker at the very idea. But as the marijuana industry—and that’s exactly what it’s becoming—continues to grow, there will have to be a system in place in handle the finances. That’s where we come in.

The question is, do we want to?

Let’s be clear about the broader issues here. At last count, 20 states and the District of Columbia permit medical cannabis, specifically as therapy to treat a range of diseases and alleviate symptoms. This is a relatively recent phenomenon, although the cannabis plant has been used for this purpose for many thousands of years. On fact, the trend toward the acceptance and even embrace of medical marijuana was happening gradually, but it got a swift kick forward in the 2012 election when two states, Colorado and Washington, voted in favor of legalizing the recreational use of cannabis (a similar effort in Oregon came up short). Not surprisingly, other states are seeing initiatives to follow suit.

It’s still way too early to gauge the effects of the new trend. By the time the law had taken effect in Colorado on Jan. 1, 2014, at least 37 outlets were legally open for business. It was initially reported that overwhelmingly high demand was causing stores in Denver to run out of inventory, but that proved erroneous; while the novelty factor likely drove many consumers to check out the merchandise, there was thankfully no shortage.

However, what all this really means is that there’s quite a bit of money coming in, with more on the way. Most of the companies doing the selling, and perhaps even those in the supply chain—yes, the marijuana supply chain—are presumably small businesses. And just like every other small business, they need a financial services support system. And again, that brings it back to us.

It’s been reported that some of these entrepreneurs are doing business in cold, hard cash lugging bags around even to pay taxes. And of course, as volumes continue to rise, there be more money in more bags—a dangerous scenario by any measure. Of course, banks are heavily regulated by the federal government, which still has laws on the books banning not the sale but even the use of marijuana. Taking in and storing money from pot dealers sounds like the textbook definition of a criminal enterprise.

This isn’t just an inconvenient gap between what’s legal in one place and illegal in another. It’s a chasm the size of the Grand Canyon.

However, the feds have finally stepped up. The U.S. government just issued rules that, for the first time, allows banks to legally provide financial services to state-licensed marijuana businesses. There are still strict penalties against certain infractions: distribution to children, trafficking by cartels, shipping to states where marijuana isn’t legal, and so on. Short of those restrictions, however, financial services providers doing business with these businesses “may not” be prosecuted.

That said, the guidelines—which comes from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)—basically just signal that banks doing business with pot dealers are in compliance with federal anti-money laundering laws. That clearly falls short of the explicit authorization the industry was hoping for.

In other words, it’s not as if the floodgates have opened. We’ve got a long way to go before the cannabis industry—medical or recreational—is comfortable with us, and vice versa. But the stage is set for the best practices to be established.

The real action may be just a little bit further down the road. For now, most of the debate seems to be focused on whether the entrants in this category can officially open bank accounts and avail of the services, just everyone else.  (Some businesses already have, with innocuous names and without explicitly saying what he business does.) But what happens when aspiring entrepreneurs come to us for startup funds? How do we even assess the viability of a business plan built around a substance that’s technically illegal in most parts of the country?

Let’s acknowledge that if we don’t provide banking services to these businesses, someone else will. This is a textbook case of an industry that has long flourished underground and is slowly coming out, with public support and government sanction. The dealers and suppliers are, in their own way, innovators and entrepreneurs. Where do we fit in?

 

Image courtesy of Paul/ FreeDigitalPhotos.net

(362)

Insights

Banking.com’s perspective on industry news and trends

(201)

Spotlight

Must-read news and insights from financial industry leaders

(86)

Voices

Compelling voices and contributed content from around the web

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp

James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.