Why is Firearms Credit Card Processing So Weird?

About This Episode

Are you looking for a reliable and secure payment processing solution for your business?. In this episode of Tactical Entrepreneur, host Tony Smith sits down with Adam Carlson of TacticalPay to discuss high risk payments and their fraud prevention system. Tactical Payments is the #1 trusted credit card processing partner for all types of firearms businesses. Watch this episode for a fun and interesting dive into this latest development in payments and fintech.

Insights In This Episode

• Setting up a merchant account with TacticalPay, what you need to know
• TacticalPay’s unique approach to serving merchants
• How TacticalPay keeps your business safe with their fraud prevention system
• An overview on SIC and MCC codes
• TacticalPay’s team of experts who are ready to help your business succeed
• With low fraud risk you can rest easy when it comes to chargebacks
• And so much more!

About Tactical Business

Tactical Business is the weekly business show for the firearms industry. The podcast features in-depth interviews with the entrepreneurs, professionals and technologists who are enabling the next generation of firearms businesses to innovate and grow.

Episode Transcript

Tony: Welcome to the Tactical Business. I’m your host, Tony Smith. In each episode, we’ll be exploring what it takes to thrive as a business owner in the firearms industry. We’ll speak with a range of guests, including entrepreneurs, to discuss their experience building their companies. In addition, we’ll speak with legislators who are shaping the industry, as well as tech executives whose innovations will reshape the future of the firearms industry. Anyone that’s been in the firearms industry knows the challenges that it can be in terms of credit card processing. They know that credit cards can shut you down without notice. They may consider this a high-risk category. In today’s episode, we’re going to dive in with Adam, who’s the CEO of TacticalPay, to get a little bit more information about credit card processing, what it is, how it works and what makes it unique and particular in the firearms industry. So welcome to the show.

Adam: Hey, Tony. Thanks for having me.

Tony: Yeah, Thanks for being on. Maybe people that aren’t familiar with it. What exactly is a credit card processor? What do they do? How do they operate? Just give us a high level overview and then we can dive into the specifics in the firearms industry.

Adam: Sure. So credit card processor like TacticalPay or some of the other ones that are out there essentially really operate behind the scenes there. When you have a customer that is purchasing a product or a service from you, whether that’s e-commerce through a website or in person, retail credit card processor is going to essentially grab those funds from the merchant’s customer’s credit card or debit card. And we facilitate the funds transfer of getting the funds from their account, clearing them and then depositing them into the to the merchant’s account.

Tony: Got it. So there’s a lot of things happening obviously, behind the scenes. Now, is that only for online credit card payments or is that online in person or both?

Adam: So really both. So there’s really three that we break it down. So retail, which is you’ll probably hear me use this term later in the show, is a card present, meaning you’ve got actually a physical card. It’s going into a terminal or a card reader, and then you have mail or telephone orders, which is, hey, you’re calling the business and you’re giving them your credit card information, your credit card number, expiration date billing, zip code code, all that’s done over the phone. And then the last piece is, is e-commerce. And that’s what we’re all familiar with, going on to Amazon, going on to clothing stores, website, filling up your shopping cart and then checking out right there on their website and really having very limited interaction with another human being. It’s all done right there on the website. And in those last two examples, moto mail, telephone order or e-commerce, those are what we consider to be card, not present transactions. Got it.

Tony: I’m sure there’s a ton of credit card processors in the industry. Why TacticalPay? Why firearms? Why does there need to be a credit card processor that focuses on this niche in the firearms industry?

Adam: So I’d say that firearms are considered, at least if it’s a full firearm that can be fired, that is in our industry, considered to be high risk. There’s a number of reasons around that. Regulatory requirements there could be legal and reputational risks. It could be some supply chain issues downstream. If a merchant is getting their product from countries that are currently under some form of embargo, then I would say not a huge issue. But sometimes there’s a little bit of a lack of transparency in the industry and then just the overall conversation that’s going on around firearms, specifically in the United States, that’s given a lot of these bigger banks just some trepidation in terms of working with these businesses. And and, you know, we hear some horror stories from our new customers that are looking to make a change because they had previously had processing with these bigger companies, more household names and where they get shut down, sometimes their funds are withheld for a significant period of time. So that’s why we created tactical payments, because we know that really if you get down to the nuts and bolts of these businesses, they are good businesses. They’re following the letter of the law when it comes to federal, state and local regulations. So really what we were trying to do is provide these businesses with an avenue to get credit card processing at comparable and competitive rates, but they don’t really have to worry about their processor or their underlying bank, really just kind of arbitrarily saying, hey, I’m out. We don’t want to work with these types of businesses anymore. So the banks that we work with, they fully understand these types of businesses and are comfortable with them and aren’t going to make these knee jerk, reputational, reputational decisions that kind of leave the the firearm businesses in the lurch.

Tony: Yeah, I guess two points to to spin off there. You mentioned the word high risk. And when we say firearms industry, I think of it as two possible pieces. There’s the brands that actually sell firearms specifically, and then there’s other companies that sell firearms related items. So say a holster brand or somebody that sells gun safes or scopes or magazines, something like that that doesn’t actually fire a gun. I’ve heard stories of. They also being considered high risk as well. Is that actually the case, that they could get lumped in and possibly treated in that same category and TacticalPay could possibly be a solution for those second, second businesses as well?

Adam: Absolutely. Anything in the accessory, the realm tactical pay does not really consider those to be high risk. But to your point, if you’re with those bigger banks and they make those knee jerk reactions, a lot of times we see that the accessory businesses will get lumped into it, in my opinion, rather unfairly so with TacticalPay, we really do all the due diligence up front to make sure that we fully understand the business, that our banks understand the business, and therefore there’s not really that propensity for these out of the blue terminations or fund funds being held.

Tony: Yeah, you touched on it a couple of times. There’s the payment processors like Stripe or Square or some of those that we’re all familiar with that Have you own a bakery in your local town? You might want to set up one of those, but we’ve heard stories of firearms related businesses getting initially set up with those and possibly dropped after the fact. And the customers funds are essentially hell. Is that actually the case? Do you see that happening? And I can only imagine. If so, how detrimental it’d be to the business that’s impacted by it.

Adam: Yeah, absolutely. So we do see it happening. And I don’t want to talk ill of Square and Stripe. They just have what I would consider a different business model, right? These companies auto approve merchants to keep up with the latest trend in the payment space, which is you’re going to fill out this form and you’re going to be able to start processing credit cards as soon as you fill out the form. But what they’re really and they call those auto approvals or instant approvals. But what really happens on the back end is that they’ll start to really underwrite and try and understand those businesses 15, 30, 45 days out. And if anything is off or if they feel like it’s too close to to a to a product that actually fires or detonates or what have you, just because way their their website might be presented very arbitrary things in my personal opinion. But you know, every company has their own kind of risk, risk tolerance. So so what they’ll do is they’ll just terminate the account rather than fix the issue because they’re so large and they’ve got all of these these reputational risks that could continue to allow potentially harmful merchants process. So what you see is a lot of the good guys get swept up in in in these processors trying to make sure that every account fits their mold.

Tony: Yeah. And I think correct me if I’m wrong, but this has been in the news quite a bit lately with I think I saw a snippet on a new SIC code that was being created specifically for gun manufacturers. Maybe elaborate, if you could, on why. That’s what that is. Exactly. And why that’s something to sort of pay attention to.

Adam: Sure. So can’t remember exactly when it was released or when it was kind of released out there into the market. But the card brands, Visa and Mastercard did create a new SIC or MCC code that is specific to firearms and firearms only. That has, for the most part, been been put on hold. There’s a lot of speculation as to the real reason, but for the most part, given my experience, I’m it seems like it’s purely legislative reasons at this point. I think there’s a lot of concern of these credit card processors tracking gun sales, which in my opinion, you really can’t because really all you’re doing is saying, hey, this business sells guns or firearms as opposed to what you’re typically seeing today is this company is a sporting goods company. So I don’t really know what’s going to happen with it. We really haven’t heard any news about that, that new SIC code or MCC code since about March. But my own personal opinion is that we will see that that that rollout. But, you know, like I said, it could be this year, next year or the year after, before that, that really comes to fruition.

Tony: This episode is brought to you by TacticalPay.com. Every few years it seems large banks and national credit card processors suddenly decide that they no longer want to process payments for firearms and firearms related businesses. So they drop these businesses with almost no notice, freezing tens of thousands of dollars in payments for months on end. If you want to ensure your partnered with the payments provider that’s dedicated to supporting the firearms industry or you just want to find out if you could be paying less for your ACH debit and credit card processing, visit TacticalPay.com today.

Tony: The maybe we could talk about just how it works, the the setup process, the approval process with TacticalPay. Say I’m a merchant and well, maybe before we do that, what sort of the the ideal customer profile for you or the range of customers that TacticalPay might be a good fit for? And then from there we can segway into like what the process is for for getting up and running.

Adam: Sure. I would say that really any business that is that is selling firearms that can fire, explode, suppress in any way, any type of of firearms or components that do that are a perfect fit. And really, I say that really any business that’s doing on average more than $5,000 a month can experience some significant costs, cost savings from a couple of the companies that we’ve mentioned in the past, whether it be or previously in this conversation, whether it be square or Stripe, they work on what’s called a flat rate model in the industry. And if you really break down the nuts and bolts and do the math, $5,000 is about the Nexus point where if you’re doing that consistently on a monthly basis, you can experience some cost savings from those other companies. As far as the types of businesses, I mean, it really runs the gamut. We’ve got small local mom and pop stores all the way up to some really big names in the industry that we do, the credit card processing for sure.

Tony: And I guess to maybe dig a little bit deeper there. You mentioned sort of the 5000 as being the monetary threshold where it starts. Maybe there’s some cost savings there. Is there a sort of an upper limit where maybe it just gets too complex or does it sort of scale infinitely with the service that that you have?

Adam: I would say that it scales There’s really no maximum.

Tony: Yeah, that makes complete sense. And then in terms of platforms that you guys integrate with or that you’re fit for, say you’re a mom and pop that has, I don’t know, a Squarespace site or a Shopify store or a WooCommerce or maybe you’re selling on Gunbroker, like where are I guess, what do you guys integrate with? Or in terms of a web interface, if that makes sense?

Adam: Sure. So there’s a lot of web shopping carts out there. I probably couldn’t name them all, but we definitely can integrate. I haven’t. I have certainly come across integrations that are a little bit more complex, but we can certainly integrate with really anyone and especially some of your larger ones, whether it be Squarespace, Shopify, Wix, Gunbroker is a big one. We really don’t have any concerns in terms of integrating. Again, like I said, some of them are easier than others, but we’ve got a good support staff that’s able to help walk these customers through getting their website integrated with the merchant account.

Tony: That makes sense. So customer comes to you. Let’s say they’ve, I don’t know, had a business that got up and running. They were selling. They had some problems with their existing processor. They come knock on your door and say, I want to work with you, maybe walk through briefly what that process looks like and getting set up and getting up and running and how long it takes a due diligence just so people have a little bit of an understanding of what they’re walking into?

Adam: Yeah, absolutely. So for every merchant account, we need a minimum of a valid government ID, whether it be driver’s license, passport, etcetera. We typically try and get three months business bank statements so we can really try to understand the financial picture behind the business. And then we’ll also like to if you’re if you’ve had previous processing, we’d like to take a look at those statements as well, because again, it gives us that more complete picture of the business and allows us to be a little bit more flexible in underwriting terms in terms of, hey, how much can you potentially process to start out and what’s an appropriate high ticket excuse me for your business then? Obviously, as I mentioned a few times, we do need an FFL. If anything is being sold that fires explodes or detonates or suppresses, those are kind of the easy way to explain on when we actually need an FFL. Yeah. And then if there’s any NFA documents like the special occupancy tax one, 2 or 3, you know, if your business falls under those requirements, we’ll need to see those documents as well. And then, you know, typically we’d like to get some pictures of if you have a retail store, pictures of your store, just to confirm that, hey, this is a real business. They’re doing what they say they’re doing. And then if you’re an e-commerce, either pictures of your inventory or a fulfillment or distributor agreement. And with all of that, we’re able to complete a real package of, hey, this is what this business does, this is what they sell, this is how they’re accepting the payments. And really that kind of doing all of that work on the front end is the model that PacticalPay is taken as opposed to some of the companies we had discussed previously where they do all of this after the fact, which could potentially, like I have mentioned, leave these merchants in the lurch.

Tony: Yeah.

Tony: So it doesn’t sound like that that due diligence is very onerous. I mean that any legitimate business has those documents and things you just referenced readily available. So it doesn’t sound like it’s a particularly difficult process to get. You know.

Adam: It’s very simple and we’ve got a good team that can walk everyone through what’s needed, what to expect, and then work with them through any issues that they may have or have had. And then as far as timeline, typically for a firearms business, we can get them up and running. And I would say sometimes the same day, but we like to try and under-promise and overdeliver. So we try to give a range of 24 to 72 hours.

Tony: Yeah, that sounds completely reasonable.

Tony: That doesn’t sound like a super long timeframe at all. A couple additional questions and then we’ll start to wrap it up. Anybody that’s been in either the e-commerce space or retail is probably unfortunately familiar with chargebacks comes in. They maybe are fraudulent or maybe they just don’t like whatever it is. Maybe elaborate on that. And are there any particular uniqueness or unique scenarios or challenges around chargebacks or industry trends that you see in the firearms industry?

Adam: One of the reasons why I love the firearms industry is, as I alluded to in the beginning of the call, I mean, these are businesses that have gone through the process of obtaining federal licensing. So there’s not a huge chargeback risk, especially when it comes to the actual firearms. And the reason for that is anytime you sell a firearm, someone’s actually got has to go to that store, complete all the paperwork. So there’s really not any of that. Oh, I didn’t receive my item thing. And you know, we do see people try and dispute it. We call that friendly fraud. And really what they’re trying to do, especially in this particular case, when there is irrefutable proof that they have picked up the item that they have purchased is really they’re buying themselves 60 days to not have to pay for it. The problem is, is that for businesses like TacticalPay, is it? And those merchants, that just creates a lot of extra work. You get that dispute in immediately. The customer is given a credit until the whole process plays out. You’ve got to submit your supporting documents.

Adam: And then once the processor, both us and that customer’s bank agree like, hey, okay, this product was delivered, we’re denying the dispute. Ever money gets put back in the account and everything’s good. But I mean, you can see how that creates additional labor considerations for the business. Not to mention while that customer that is doing friendly fraud got a nice 60 days afloat. Well, the merchant paid for that float, right? So now on the accessory side, that’s a little bit different. And again, if it’s a card present transaction, that’s very easy to overcome those types of disputes. But friendly fraud on an e-commerce platform for accessories, you do see a lot more friendly fraud in that area. And really, you know, if we start to see that, we try and work in tandem with our merchants to put in proper chargeback mitigation plans, whether that be at the point of sale on the website, some customer verification or even back end in programs that can help these merchants lower their dispute ratio and and really be able to fight this friendly fraud on a cost effective basis.

Tony: That makes sense. Makes sense. Great.

Tony: I think I only have one other question for you before we start to wrap things up. But we mentioned different business types. Is there any difference between e-commerce payment processor or the retail side from your perspective, anything there? Or is it all the same setup process and everything on the back end?

Adam: There’s different integration challenges when it comes to a card present. It’s a completely different system. We need a terminal that you swipe, insert or tap your card into and sometimes that could be married with or be incorporated in a point of sale system. Whereas on the e-commerce side, we’ve got to look at those integrations into their website and that could be through a gateway as an intermediary so that our merchant account can talk with the website. So other than that, what we call in the industry boarding as far as the initial getting the merchant account set up, all of that is, is pretty standard between the two. Now the one thing that you might see if you’re a merchant is the pricing is a little bit higher on a card, not present account. And that’s not something that’s set by TacticalPay or really any of the other reputable merchant companies that are out there in the industry. Those are set by Visa and Mastercard. They have different what are called interchange rates for a card that has been presented, swiped, chipped or chip insert, chipped, dipped, what have you. Those interchange rates are lower than a card not present and that just goes with, hey, the card not present. There’s just a little bit more risk and that in those types of transactions and that’s true really across the board.

Tony: That makes sense. Makes sense. Great.

Tony: Well, this has been fun. It’s been educational for me and hopefully for the audience as well. Are there any other parting shots that you have or things that you want to add that may be beneficial to the listeners?

Adam: No, I think you’ve done a great job in kind of covering everything. I would just say that our team here in Houston, Texas, is really ready, willing and able and standing by to help any anyone in the in any industry really, but specifically in firearms, obtain a merchant account, have a relationship with that processor, and really someone that kind of partners with you and your business to make sure the lifeblood of your company cash flow is stable, consistent and doesn’t run. Some of these risks that we’ve talked about of having funds held, having to scramble to get them new merchant account, things of that nature makes sense.

Tony: Great.

Tony: Adam, I appreciate your time. And if anybody out there needs a new credit card processor, sure, we’ll point them your way. And it’s been enjoyable for me.

Adam: Yeah, absolutely. So we’re pretty active on LinkedIn, so you can find us there and then obviously you can reach us at TacticalPay.com.

Tony: Got it. Thanks so much for your time.

Adam: All right, Tony, thanks.

Tony: You’ve been listening to the Tactical entrepreneur by Tactical Pay. Join us again next episode as we explore what it takes to start, grow and thrive in the firearms industry.