SPEAKER_01 0:00

Welcome to FentCat, the podcast where payments need for personality. From TechRends to legal twists, compliance courts to marketplace moves. Let's dive in and make payments make sense.

SPEAKER_03 0:23

Welcome back to Sunshot, the show where payments meet personality, operations meet reality, and every simple checkout feature eventually becomes a compliance question with a support queue. I'm Kitty, Steve is here with me, and a little later we are bringing in Kyle Hatfield from Senseless to talk about the payment method everyone forgot to productize cash. Card's got APIs, ACH got rules, B and PL got buttons, crypto got conference panels, stablecoins got frameworks, cash got a drawer, a drug, and maybe a spreadsheet named Final Final Cash Recon V9. But now the penny is going away, rounding is showing up, and ISVs may need to treat cash like the newest alternative payment method hiding in plain sight. Today we're gonna say something that sounds ridiculous until you look at how software platforms actually handle the cash drawer. Cash might be the new APM. And yes, I know, cash is not new. Cash is aggressively not new. Cash predates APIs, hosted checkout, embedded payments, stable coins, and every fintech panel where someone says programmable money with a straight face. But for ISVs and vertical software companies, alternative payment method doesn't just mean the newest thing with a logo and a launch deck. It means any payment workflow that doesn't fit cleanly inside the card and ACH Rails, the platform already understands.

SPEAKER_02 1:32

Exactly. And this is where cash gets really interesting because a lot of platforms technically support cash, but only in the same way a notes field technically supports enterprise workflow. There is a button, there is a tender label, maybe there is a cash drawer, but the controls around it are often pretty thin.

SPEAKER_03 1:48

Meanwhile, the APM conversion keeps getting bigger. Bind out pay later, wallets, crypto, ACH upgrades, real-time payments, stable coins, and now we have open USD entering the conversation. Open standard announced, stable coins are being talked about, less like a crypto side quest and more like payment infrastructure, governance, operating rules, reliability, and trust.

SPEAKER_02 2:09

And this is the piece I really care about. Every payment method starts with the exciting part read, access, cost, and optionality. Then the operating model shows up. Who reconciles it? Who monitors it? Who handles refunds? And who owns customer support? Who can prove the controls works when volume shows up?

SPEAKER_03 2:27

Steve actually wrote about that last week in the open USD article in Sunshot. So if OpenUSD announcement has you thinking about stable coins as another APM, go read that article next. It's a good reminder that a new rail is not the same thing as a clean operating model.

SPEAKER_02 2:40

And that is the bridge to today's episode. Because the exact same operating model problem exists with the least glamorous APM in the room.

SPEAKER_03 2:49

Cash has been treated like the exception. The thing that happens outside the payment stack. The merchant handles it, the cashier counts it, the back office reconciles it, and the platform moves on. That was already a weak assumption. Now it's getting more complicated because the US has stopped producing new pennies. Existing pennies are still legal tender. Electronic payments can still settle to the exact cent. Prices can still be set to the cent. But when the door doesn't have pennies, cash payments may need rounding.

SPEAKER_02 3:14

And once rounding enters the workflow, this stops being huge. You have to know whether rounding happens before or after tax. You have to know whether it applies only to cash. You have to show the exact sale amount, the tax amount, the cash rounding adjustment, and the final cash collected or paid out. Then you have to reconcile the drawer and answer the questions later.

SPEAKER_03 3:36

Which brings us to one of my favorite real-world examples, the Home Depot exact change sign. A major retailer telling customers essentially, please pay exact change because pennies are becoming a problem. That's not just a sign, that's a product requirement document taped to the checkout lane.

SPEAKER_02 3:51

Right. Exact change might be a permissible short-term workaround in some places. And Kyle can walk us through the Florida angle, but it does not solve the software problem. If the platform owns the sale, tax, receipt, pinder record, drawer close, refund, and account export. If the platform owns the sale, tax, receipt, pinder record, drawer close, refund, and accounting export, the platform is in the cash workflow, whether it likes it or not.

SPEAKER_03 4:23

So today we're talking about cash as the APM software teams forgotten. Not because cash is new, but because cash is about to require the same product discipline we already expect from every other payment method. Rules, records, reconciliation, transparency, and proof. And that brings us to senseless. Kyle Hatfield is the co-founder and the CEO of Sensless, which is building cash rounding compliance infrastructure for merchants, POS vendors, and financial institutions navigating the postpenny economy. Senseless isn't trying to be the POS. It's not trying to be the processor. It's the compliance engine that fits into the stack after sales tax is calculated, applies the right cash rounding logic, and creates the audit trail behind the scenes. Kyle, welcome to SenseChat.

SPEAKER_00 5:02

Hi everyone, thank you for having me. Again, this is Kyle Hatfield, CEO and co-founder of Senseless. My co-founders are Daniel Hoban and Alex Ortega. And we are Senseless, the cash rounding jurisdiction awareness compliance engine, the solution to every operator's uh concern for how to properly round uh in today's environment without a penny. And we're excited to be able to talk about this topic today.

SPEAKER_03 5:27

All right, Kyle, let's start simple. What does senseless do in plain English? Pretend the listener is an ISV products leader who thinks they already support cash because there is a cash button in their POS.

SPEAKER_00 5:37

POS providers are providing a toggle switch turn-on for cash rounding, for cash going out. And right now, that solves one part of the many uh complexities when it comes to cash transactions. So senseless and basic layman terms is that it is the engine that operates after sales tax is calculated on a cash transaction, and then it correctly around that transaction based on the legislation enacted in that state. And therefore the customer gets the right cash amount at the end and the business has an audit trail behind it so they know operationally that they've correctly implemented their cash rounding procedure.

SPEAKER_02 6:15

I want to underline the after-tax piece because this is where a lot of people get sloppy. If the sale is ten dollars and fifty-two cents and the cash collected is ten dollars and fifty cents because of rounding, the sale did not become ten dollars and fifty cents. The tax did not magically recalculate itself. The system needs to preserve the exact sale, exact tax, tender type, rounding adjustment, and final cash movement. Where exactly does senseless sit in that transaction flow? And what does the POS need to send you? Great question.

SPEAKER_00 6:53

And thankfully, the 18 states that are enacted all agree on one thing, and that is cash rounding needs to happen after sales tax is calculated. Therefore, it is essential that the tax is calculated and cash rounding happens after that calculation. And that's when our engine kicks in via an API call and ensures that the again, the tax is preserved for collection purposes, and then the cash rounding takes effect afterwards in order for the again, the consumer to get the correct cash received at the end of the transaction, and again, having that operational trail behind it so the business has a way to reconcile their accounting books at the end of the year and ensure there's no cash variances uh to handle.

SPEAKER_03 7:40

Kyle, it looks like Censeless is tracking 18 states with cash rounding laws, 14 that apply broadly to retail, and four that are a little bit narrower, like alcohol and government tax collection. The common threat is that rounding happens after sales tax. After that, the rules divert. Give us that landscape. What's actually happening with legislation and why does it get dangerous for multi-state merchants or POS providers using simple toggle settings?

SPEAKER_00 8:03

So, starting from the top down, so what I've been able to learn from the federal level down is that the Common Sense Act federal legislation is on hold or stalled, uh, mainly due to preemption language and that both parties aren't able to come to terms or agreement on that implementation because, again, 18 states have enacted their own cash rounding laws. Now, at the state level, what that looks like, an example I can give you is that if somebody was to pay $7.23 at the register in cash, it's going to look differently in a different in a number of states. For example, in Arizona, it's going to round up mandatory Swedish rounding. In Indiana, it's going to round down to $7.20. And then here in Florida, it's permissive. It's either to the exact penny or again, Swedish rounding. So if you're a multi-state operator operating in those three states, and you simply turn on your POS provider's toggle switch, rounding to the nearest nickel, you're already out of compliance between those three states.

SPEAKER_02 9:05

Yeah, and you can clearly see this is the kind of issue that looks small until someone asks for proof. It is not just did you round? It is which rule did you apply in which jurisdiction? On which effective date? To which tender type? And can you prove that was the rule at that time? That is a very different requirement from flipping a rounding setting in a POS admin screen.

SPEAKER_03 9:25

Now let's bring in the real world example. Home Depot asking for exact change rather than rounding. I love this example because it makes the whole thing visible. The software problem is now a sign at checkout. What's going on there and what should ISVs learn from an exact change sign?

SPEAKER_00 9:39

So this is a perfect example, a large company such as Home Depot who does and would have the resources to uh implement cash rounding, but instead they're passing off the problem to the consumer at the register. They're saying, please provide us exact change or use another form of payment to complete your transaction. And that's a temporary band-aid to a much growing problem. Uh, again, in a business such as Home Depot operating in many states, they're going to have to come to uh terms to really implement a correct and fair and transparent cash rounding procedure. Uh so again, this is something that we are seeing more and more businesses are either providing penny shortage uh disclosures of the register, uh, letting them know that there will be rounding, or again, paying with exact change or using another form of payment. But again, this adds more friction to the consumer who relies on using cash for payment and may not have a form of other payment solution. Whereas nowadays we're so used to card and cashless options as our primary form of uh payment, and cash is seen as second or alternative, where again, there's millions of Americans who still rely on cash as their primary form of payment, and we cannot exclude them from being able to make those payments.

SPEAKER_02 10:51

So the sign is doing what the software did not do, it is telling the customer the cash workflow change, but a sign does not create an audit trail, close the drawer, connect to the refund, or tell accounting why the amount in the till does not match the exact transaction total.

SPEAKER_03 11:07

Now, let's say I'm a POS vendor and I tell you, we're good, we have a rounding toggle. Why isn't that enough?

SPEAKER_00 11:12

That's a great question. For operators that are with their POS providers, providing that toggle switch for cash rounding is a nice payment to feature nice have, if you will, uh, but it does not provide a defensible trail behind it. So as an operator, I turn on that toggle switch provided by my POS provider. I think I'm compliant, everything's good at the end of the year. I'll figure out how to reconcile the books. And then in a year or two, when the auditors come, they're going to at that point not ask if you rounded, but prove how you rounded. And that is where the toggle ends. So the toggle will simply provide the solution to rounding, but doesn't give you the defensible trail behind it. And that's where senseless uh comes into the picture. We are able to provide that complete audit trail, ensuring that the correct cash rounding method was applied, whether it was locally, state, or federal jurisdiction requirements. And this way, whether it's an auditor that's reading through your books or a litigation that might be coming your way for cash rounding compliance concerns, our trail uh will provide that interpretive risk protection for an operator.

SPEAKER_02 12:21

Already understand this with CARD and ACH. The transaction is not just the amount, it is also the authorization, settlement record, return code, dispute trail, effective date, and reporting context. Cash has avoided some of that discipline because it is felt local and physical. But if the software is calculating, displaying, recording, and reporting the cash transaction, the software needs the evidence too.

SPEAKER_03 12:46

So when you say 44-point audit trail, what are the most important data points for an ISV or POS platform to actually understand? Not all 44, but the ones that make or break defensibility.

SPEAKER_00 12:56

So this is where again POS providers are more than likely not going to want to build this out. If they were to, companies such as Avalero wouldn't exist today, who handles much of many of the tax compliance complexities that happen in POS environments. So with our trail, the biggest important factors are going to be ensuring, again, you've cash rounded based on the jurisdiction, whether it's locally, state, or federal, ensuring that tax is not tampered or touched with, it's preserved, and that cash rounding is only what's implemented and tracked behind that, ensuring, again, as well, not only that cash is going out that's being rounded, uh, but then also there are operators that are turning off the valve, so to speak, and receiving pennies uh in the sense that if they're not able to give out pennies all the time consistently, then why take in the pennies uh altogether? So cash rounding is not only happening when cash goes out, but cash rounding is also going to need to be happening coming in, as well as another factor is refunds. So when somebody purchases with cash and they go back to the store to refund that item, there's also the refund dynamic to ensure that the consumer doesn't lose out on two cents twice or the business doesn't lose out on two cents twice. And none of these enacted laws touch on any of those cash rounding transaction types when it comes to cash in or refunds. They're only discussing about cash going out. Uh so again, the POS toggles are only handling one piece of the many uh complexities that it comes to cash rounding transactions. And again, ensuring that trail is behind it to defend for auditors and litigation.

SPEAKER_03 14:33

Now, every payments topic eventually finds its way to refunds because refunds are where clean diagrams go to die. Now let's talk about edge cases. First, the baseline. Cash rounding is specific to cash. It doesn't apply to card, ACH, online payments, or electronic transactions. But the moment the transaction gets more realistic, cash still touches a lot of workflows. Split tender, EBT, and SNAP, refunds, tips, cash payouts, cash going in, cash going out. Let's take those one by one. What breaks with refunds if the platform does not track the original rounding event?

SPEAKER_00 15:05

Refunds, again, is probably the most interpretive risk when it comes to cash rounding. Again, because again, no legislation is addressing it. POS toggles are not able to handle it, or at least right now, they're not providing that solution. And so refunds, if anything, has the biggest risk when it comes to being out of compliance. Uh so if a consumer buys something again for 723 and it rounded up to 725 and they go back to refund that item, but it it refunds back to the original price of 723 or goes down to 720, the consumer can see that tangibly uh in their hand or on that receipt. And right there, there's a litigation to be had. And again, a business operator is going to be, you know, on the hook essentially for you know cash variance uh laws and litigation, and they could be facing a heavy lawsuit on top of that.

SPEAKER_02 15:55

Yeah, and split tender is the other one I would put near the top. Part cash, part card, maybe a benefit tender in the middle, maybe a refund later. If the system does not isolate the cash portion correctly, you can create a reconciliation issue and a customer fairness issue at the same time. How should ISVs think about the split tender and EBT and SNAP users here?

SPEAKER_00 16:15

Yes, so again, split tender is another uh dynamic that needs to be addressed completely. So ensuring that EBT snap recipients are not charged differently as the federal rule requires. Again, ensuring that those who make purchases through online or using card, part card or par cash, that that card is preserved from the cash transaction. And again, this is something that POS toggles that I'm seeing are not yet building out. And this is where, again, having a complete engine that's going to ensure that the segmentation is properly maintained, as well as ensuring that trail is behind it. And that's something that senseless does. It ensures that EBT and SNAP recipients are not going to be charged differently, ensuring that again those electronic transactions are preserved. And that's all going to be part of that auto trail behind the scenes so that again, uh loss prevention, those teams are able to reconcile the books at the end of the year.

SPEAKER_03 17:11

Now let's set the cash outside too. Restaurants, salons, service businesses, tip payouts, maybe employee cash payouts. This can become more than a customer checkout issue. It can become a wage issue. Where does wage theft risk or employee trust come into the story?

SPEAKER_00 17:25

A lot of a cash rounding talk has always been about front of the house when it comes to the consumer transaction at the register. There is the back of the house, and that is when, again, uh servers, waiters, waitresses in that environment or any other environment that handles cash tips and ensuring that they pay their employees at the end of the day via cash are not going to face, again, the concerns of uh theft and wages. So that is another dynamic that uh is not being necessarily fully addressed, and a toggle isn't in place to handle that. And thankfully with senseless, we have that solution in place so that it is going to round in favor of the employee every time to avoid that concern of theft wage litigation uh to the operator at the same time.

SPEAKER_02 18:10

Okay, Kyle. I like to bring in casinos and cannabis now because those examples make this bigger than just a penny story. Cannabis can still be very cash heavy, and casinos live in a control-heavy environment where small adjustments need records. Why are those verticals so good early warning examples for ISVs?

SPEAKER_00 18:27

So with cannabis is a much more heavier cash uh retail environment, uh more like 30 to 35 percent, whereas usual retail environments are around 14 to 16 percent cash usage. So with the cannabis environment, it's certainly one that is already scrutinized, constant new regulations, and one being the highest usage environment. So with that, they're going to be a vertical that needs to address this early on. And then unfortunately, the conversations I've had with uh some cannabis operators is that they're going to round to the nearest dollar in some cases. Now that's going to be wildly out of compliance. There's no need to do that. And when there's still nickels, dimes, and quarters, and they're going to put themselves at an even bigger risk. So again, cannabis is certainly one vertical that needs to perhaps address this earlier on than other retail environments. And then you have, like you mentioned, casinos. Casinos giving uh advice from the casino gaming board that they can round in favor of the consumer. They can also have the ability to write off their taxes for cash rounding as long as they can prove that ability, meaning that they are going to round in favor of the consumer. And as long as they can prove what they did for cash rounding, they can write that off for tax purposes. Now, again, that's one thing to be able to do it, and there's one thing to be able to prove it. And that is also going to be another environment that's going to need to have a really defensible trail behind it, and that's where again senseless steps in to be able to provide that solution.

SPEAKER_03 19:53

And one of the juicier parts of this topic is fraud. Most people hear cash rounding and think customer fairness, but there's also tamper-proofing, suspicious price changes, and Zapper software. How can a few cents become a fraud and manipulation problem?

SPEAKER_00 20:06

So, Zapper software, if anyone is aware, is a software where an operator can manipulate their cash transaction. They're wanting to wipe out some so much cash off of the books. So they implement the software, they want to scrub $300 cash off the books. It's going to manipulate the pricings or the transactions of the day to make it look that way. That software is hard to determine if it was actually used. It's been difficult to prosecute on those cases because unfortunately, POS providers are not providing a defensible trail when it comes to cash transactions. When it comes to car transactions, ACH transactions, electronic transactions, there's a complete fraud system built in around that environment. Whereas cash transactions, it is unfortunately what's on the receipt or what's been inputted on the system is only what's being tracked. So with our engine, it has a tamper-proof evidence to it. So that ensuring that the original cash rounding is not tampered with, it is not altered. So our engine, in effect, will also help preserve more of those cash transactions from being manipulated using software such as Zapper.

SPEAKER_02 21:11

And this is why it is only a few cents, it's not a control framework. A few cents can be nothing, but a few cents can also be a pattern. If the system cannot tell the difference between fair rounding and systematic manipulation, the platform has a control gap.

SPEAKER_03 21:26

All right, guys, now let's talk timing. Senseless is early, but early can mean on time. Where are we in the market right now? Are merchants already feeling the pain, or are you building before it hits the accounting books?

SPEAKER_00 21:36

I'm glad to say we've definitely built the solution well before the problem has risen to the surface. We are having great conversations with business accounting firms, with sales tax auditors, and also with large corporations that have retail companies under their umbrella. And they're all trying to get the insight in terms of making sure they execute this correctly to ensure that they're not going to be the scapegoat, the virus and Sensation uh fallout when it comes to cash rounding implementation. So we're still very much nude arena, but we're also again the only solution that's being able to provide this defensible trail that operators are going to need once auditors have the playbook built out to properly audit these cash rounding compliance issues. And that's could be in a year or two years. And unfortunately, when that happens, you can't go back in time and build out how you actually proved your cash rounding. So right now we're definitely the proactive solution that operators should be looking to. Or if not, asking those questions to their ISV, POS providers, what does your toggle do? Does it provide me a defensible trail, or does it leave me hanging and that I have to manage it on my own?

SPEAKER_02 22:45

And that timing really matters. By the time auditors have playbooks and plaintiff attorneys have theories, it is already late. Platforms that wait until a merchant gets questioned are doing emergency compliance roadmap work under pressure. And nobody wants that genre of product management.

SPEAKER_03 23:01

Now let's make this practical.

SPEAKER_00 23:09

Yes. So going back to what I mentioned before is that if you're an operator and you are especially a multi-state operator, and assuming your business is operating in many of the 18 states that have enacted their cash rounding legislation, you need to be asking the question is this POS toggle switch going to keep me compliant with Florida, Arizona, Indiana, and so on? Or is it simply going to just round based on what your solution is providing? And if you find out that they're not providing anything more, then you know you're already out of compliance today and going forward. And you've now are creating thousands of cash variances that you're not able to prove how cash rounding was implemented effectively, and you're going to have a big reconciling issue at the end of the year. And speaking of the end of the year, uh November, December is where nearly a fifth of all retail transactions take place. So I would imagine many business operators are going to want to really have a grasp of having this solved before then, and then having to deal with many cash variants issues, reconciling their accounting books right after the holidays.

SPEAKER_02 24:16

And I would like to add, do not just ask whether the math works, ask whether the record works too. A platform can calculate the right number and still fail the audit trail, the customer explanation, the refund workflow, or the reconciliation report.

SPEAKER_03 24:30

And I think that's really the takeaway here. Cash isn't becoming new. Cash is becoming software defined. The industry loves talking about alternative payment methods when they come with new Rails, new logos, new revenue models, and a conference booth. But for a lot of ISVs, cash is the APM hiding in plain sight. It's outside the processor report, outside the neat card flow, outside the e-commerce checkout path. And now it needs rules, records, receipts, refunds, reconciliation, and proof.

SPEAKER_02 24:59

If cash cannot be reconciled, it cannot be controlled. If it cannot be controlled, it eventually becomes support volume, merchant confusion, audit exposure, litigation risk, or fraud exposure. Payments has a real talent for turning small gaps into expensive workflows.

SPEAKER_03 25:16

Kyle, thank you so much for joining us and for making the cash drawer feel like the payments infrastructure problem, it apparently already was.

SPEAKER_00 25:23

Thank you again to SenseChat for having Senseless on here to talk about this small coin problem that is growing into a bigger non-compliance problem. So again, if you're an operator, ISV, POS provider, and you're getting these questions or you're having these questions and concerns about am I correctly and compliantly cash rounding for my business and for the consumer to avoid litigation, fines, and fees down the road, then certainly reach out to us.

SPEAKER_02 25:50

Kyle, thanks. Thanks so much for coming on the show. Thanks for tackling what you're doing there with senseless. Obviously, there's a big need for that. And we appreciate you. And as always, Kitty, thanks for running this program. You're great.

SPEAKER_03 26:01

And for everyone listening, go check out senseless at senseless.org. And if you want the stablecoin side of the APM conversation, read Steve's recent OpenUSD article in SenseChat. The point is the same in both places. The button is not the operating model. The penny may be going away, but the sense still matter. Thanks for listening.

SPEAKER_01 26:20

Thanks for tuning in to SenseChat. Got questions? Got ideas? Got payment problems keeping you up at night? We've got you covered. Head over to our website to take our quick survey. You'd like to land a guest spot on the pod. Don't forget to subscribe and share this episode with your favorite ISB. And follow us on all social for the latest trends, tips, and debates. We promise no boring slideshows. At FenceChat, we're here to make payments that make sense. And make it fun while we're at it. See you next time.