PAI Sticks To Its Guns in Serving Firearms Merchants As Square Walks Away

Sometimes news developments turn certain types of merchants into public-relations and political hot potatoes for their payment processors, forcing merchant acquirers to decide whether they want to continue serving them. Despite strong sales, firearms merchants are one such category today, thanks to several mass shootings in the past two years, especially the tragic killings in December of 26 students and teachers at the Sandy Hook elementary school in Newtown, Conn.

Prominent mobile-payments processor Square Inc. in May amended its seller agreement to ban sales of “firearms, firearm parts or hardware, and ammunition; or weapons and other devices designed to cause physical injury” by its merchants. That change, effective in June and reportedly given without explanation, gave an unknown number of small firearms merchants about a month to seek new payment processors.

A spokesperson for Square declined to comment to Digital Transactions News but did acknowledge the change in the merchant agreement banning sales of firearms. The updated agreement lists 28 other types of merchants that Square won’t serve.

Square’s move prompted Payment Alliance International Inc., a big independent sales organization based in Louisville, Ky., to trumpet its sizable firearms-payments business. “We had kind of a flood of people calling us up” after Square notified gun sellers it was exiting the segment, says Nathan Danus, PAI’s vice president of national accounts. “I can say we’ve had hundreds of leads.”

PAI is the endorsed payment processor of several firearms trade associations and groups, including the National Rifle Association’s NRA Business Alliance and the National Shooting Sports Foundation. The latter sponsors the annual SHOT (Shooting, Hunting and Outdoor Trade) Show in Las Vegas, a huge exhibition for retailers, manufacturers, and others in the firearms industry. The 2013 show in January attracted 62,000 attendees and had about 1,600 booths. The SHOT Show is PAI’s single most effective way of reaching firearms merchants, says Danus.

Payment Alliance calls its processing services for firearms dealers its “PAI Shooting Sports Payments Package.” In addition to acceptance of major-brand payment cards, the package includes check and automated clearing house services, and also PAImobile, which provides a card swipe for Apple and Windows mobile devices—a feature the former Square merchants might appreciate. Danus won’t say how many firearms merchants PAI has, but he claims his company is the biggest in the segment.

“This goes back nine years when we started developing the shooting-sports vertical,” Danus says. Working in the segment not only requires knowledge of payment-network rules, but also of regulations from the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and states, he says.

While many Americans worry about gun sales to criminals, PAI plays up the hunting-sports aspect of gun ownership that enjoys broad popular support even in the face of shooting tragedies. PAI underwrites each dealer individually, and its back-end processor, Global Payments Inc., requires each merchant to have a Federal Firearms License (FFL) from the ATF.

Although some payment processors refuse to serve the gun market, firearms and ammunition are hard to beat for acquirers looking looking for a steadily growing segment. Research firm IBISWorld estimates firearms manufacturers’ revenues could hit $15 billion this year and that revenues have been growing at an annualized rate of 8.4% since 2008. Plus, firearms sales often surge when gun owners fear the government might impose restrictions. Some PAI merchants saw 300% spikes in sales after Sandy Hook. “There was much more demand than supply,” says Danus.

Another ISO serving the segment, BankCard Central, has “several hundred” firearms  merchants, says Rick Noble, chief executive of BankCard Central’s parent company, North Kansas City, Mo.-based BCC Merchant Solutions.

“We are a member of the NRA and proud supporters of the Second Amendment and all that,” says Noble. He says serving firearms merchants, “if done right, is pretty safe.ng it right involves learning about applicable state and federal laws in detail, as well as careful underwriting, he says. “The big issue is who you’re selling to,” says Noble. “We will not do gun shows and we will not do sales between individuals.”

Neither Danus nor Noble claims to know why Square exited the segment, though they speculate that its model of aggregating merchants rather than underwriting each one individually might not work for firearms retailers. “That model would be a horrible model,” says Noble. “You’ve got to know who you’re processing for.”