The landscape of firearm merchant accounts has undergone significant changes over the last several years. While the sale of firearms is protected by the Constitution of the United States, there is a level of scrutiny applied to the sale of firearms by the payment industry. Many major payment companies apply these regulations to their merchant accounts to provide greater control over the flow of funds from businesses that sell firearms.
It is critical to understand these regulations, as most traditional merchant account providers for small businesses do not allow the sale of firearms in the terms of service applied to those merchants. A firearms merchant must establish an infrastructure in place that can withstand changes in the banking industry and merchant policies. This article analyzes issues related to firearms merchants and the requirements of the firearms industry.
Topics covered in this article include MCC codes, underwriting firearm merchants, and establishing a routing structure for firearms merchants. By examining the infrastructure of firearm merchants, the payment industry can develop a more thorough understanding of their needs and ensure each firearm merchant operates efficiently and in compliance.
Why Do Firearms Have a High-Risk Classification?
Firearms are almost universally considered to be a high-risk vertical for payments companies. Again, this is not indicative of the legality of the firearms industry, but rather of the regulatory and compliance challenges within it. Since the firearms industry is heavily regulated by federal and state governments, there are compliance requirements in place that must be followed by those with a firearms-related business.
Mainstream payment aggregators do not have these compliance systems in place for firearms-related businesses. Thus, if an ecommerce website that sells firearms decides to use a low-risk payment provider to manage its firearms merchant account, the payment company may freeze that merchant account. This is because the acquiring bank must have an understanding of and an appetite for high-risk commerce.
The Impact of Merchant Category Code 5723
As with most significant shifts in the industry, the introduction of MCC 5723 sparked debate over its significance. Previously, firearms retailers used more general codes, such as MCC 5941 for sporting goods stores. However, creating a specific code for firearms retailers was intended to enable more granular data on where these transactions were occurring.
While there is debate over the extent to which MCC 5723 has been implemented across the industry, some states have enacted legislation regulating its use, and its existence still affects the industry. Merchants must ensure their payment gateways are correctly categorized to avoid fines for incorrectly categorized business transactions. Additionally, the categorization of merchant transactions can affect how merchant fraud systems manage and monitor them.
How To Navigate Online Firearm Merchant Account Underwriting
The underwriting process for online firearm merchants is significantly more invasive than for retail merchants in general. Underwriters will review the merchant’s website to ensure it includes appropriate refund and return policies, shipping policies, and legal disclaimers. Additionally, the company will need to provide three to six months of processing statements to demonstrate a low chargeback ratio (under 1%).
The merchant will have to detail their process for shipping firearms to local FFLs to satisfy local firearm laws. The payment system must handle billing to an address different from the shipping address, as the firearms will be shipped to an FFL rather than the customer. FFLs will be notified of the order, and customers will have to show up to collect their firearms. Outlining this process to the underwriter will go a long way in securing approval for the merchant account.
Fraud Monitoring and Chargeback Mitigation
Chargebacks are not just a loss of revenue for firearms merchants; they can also threaten the longevity of their merchant accounts. If the chargeback rate exceeds 1% of the merchant’s total transactions, Visa or Mastercard may place the merchant in monitoring programs, resulting in heavy monthly fines that can eventually lead to the termination of the merchant’s account.
To combat this, merchants can use fraud-scoring software that leverages hardware IDs, IP addresses, and other data to assess the risk of fraudulent transactions before they occur. Additionally, merchants can employ a customer service strategy to resolve customer disputes before they are charged to the merchant’s account. If a chargeback is received, the merchant will need a system to document the transaction and the receipt from the FFL to contest the chargeback effectively.
PCI Compliance and Data Security Standards
All entities involved in firearm merchant services must comply with the Payment Card Industry Data Security Standard (PCI DSS). For firearm merchants, protecting card data is of the utmost importance, as any breach of data security can lead to penalties and damage to the merchant’s reputation. Most payment gateway companies that serve firearms merchants use tokenization to ensure card data is not stored on the merchant’s servers.
By using tokenization and hosting payment fields for firearms merchants, merchants significantly reduce their PCI compliance burden, making the compliance audit simpler and less costly. Additionally, merchants must ensure that their website hosting and e-commerce platforms are regularly updated and protected against cyber threats. Given the rise in cyber threats and data breaches, maintaining the security of the merchant’s payment servers is an absolute necessity for maintaining the merchant’s business relationship with the payment processor.
The Role of Payment Gateways in Firearm Sales
As the bridge between the firearm merchant’s website and the payment processor, not all payment gateways are created equal and are firearm-friendly. Several of the most popular payment gateway providers have internal policies stating they will not facilitate the purchase or sale of firearms. Firearms merchants must use a payment gateway designed for high-risk industries to ensure compliance with regulations and facilitate firearm sales.
Furthermore, payment gateways that facilitate firearm sales should offer reporting tools for payment operations teams to monitor purchase authorization rates. High rates of declined purchases can be addressed by adjusting the fraud filters the payment gateway uses or by working with the merchant’s payment processor to adjust the merchant’s settings to meet the credit card networks’ standards. The payment gateway is the “heart” of the firearm merchant that will determine the success of their online commerce.
State-Specific Compliance and Geo-Blocking
The legal environment surrounding firearms varies from state to state in the United States. Some states have passed laws that affect the processing of payments for merchants that carry specific firearms; however, for instance, some states have enacted laws that limit the use of the merchant category code (MCC) associated with firearms stores, while other states have implemented bans on the sale of specific firearms accessories.
To comply with these state-specific firearms laws, merchants may need to include geo-blocking software in their payment processing solutions. By doing so, merchants can automatically deny customers access to specific payment methods or geo-block transactions based on the customer’s shipping address. This type of automation ensures that the merchant cannot accidentally sell illegal firearms to customers, and it signals to the merchant’s payment processor that they comply with the law. If merchants do not take steps to ensure their systems comply with state-specific firearms laws, they may face legal issues or lose their firearms merchant services.
Settlement, Funding, and Financial Planning
Understanding the settlement process for firearms merchants is vital to managing a firearms business’s cash flow. For many firearms businesses, the funding process can take longer than for low-risk businesses to access the funds in their bank account. Additionally, as the merchant decides to roll their reserves, some of the merchant’s revenue will be “trapped” in the reserve for the firearms business for many months. Such a figure must be accounted for in the business’s financial planning.
Another important factor for firearms merchants to be aware of is the fees that their firearms merchant services will charge. These fees are generally higher than those of retail businesses. Furthermore, as firearms merchants are considered high-risk, they will face higher transaction fees, higher monthly fees, and an interchange plus margin that may also be higher. Although higher fees can be challenging for the firearms merchant to understand, they are a necessary evil for a line of business that often lacks access to traditional financial funding.
The Future of Payments Infrastructure for Firearms
Data transparency and technical compliance will likely define the future of firearms sales. As card networks continue to introduce new data requirements and states continue to enact new laws, compliance will fall to the merchant’s technical infrastructure. Investing in a quality payments infrastructure today will allow merchants to better handle the data and compliance demands of the future.
There may also be an increase in alternative payment methods (APMs) for firearms. APMs might include bank-to-bank transfers or digital wallets that do not use the major credit and debit card networks. However, there will likely remain a primary means of selecting payment methods: credit and debit cards. Thus, maintaining a quality firearms merchant account with a reputable high-risk processor will give merchants the best chance of growing their businesses sustainably.
Key Operational Requirements for a Firearms Merchant Account
Federal Firearms License Verification
The first line of defense for any firearms merchant services provider is the verification of a valid Federal Firearms License (FFL). During merchant onboarding, the underwriter will access the ATF's EZ Check system to verify the Federal Firearms License is active. Merchants are required to maintain the license digitally and be able to provide a copy upon license renewal.
Second-Day Funding and Reserve Structures
Due to the high-risk nature of firearms, many payment processors will not offer T+1 funding to online firearm merchants. Second-day funding and later funding cycles are common for firearm merchants. Additionally, many online firearm merchant accounts have a rolling reserve that requires merchants to hold a percentage of their sales for an 180-day period to cover chargebacks.
Age Verification Integration
As an online business, age verification is required and built into the customer checkout process. Online firearm merchant accounts require third-party age verification services to comply with state laws regarding firearm purchases. These services compare the customer's data to government databases to verify identity.
Card-Not-Present Security Protocols
As an online merchant, all sales will be card not present transactions. For this reason, 3-D Secure authentication is recommended to protect authorization rates from fraudulent purchases. 3-D Secure authentication requires the customer to enter an authentication code from their banking institution to complete their purchase.
Transaction Monitoring and Reporting
As part of the compliance regulations for online firearm merchants, transaction monitoring is required to comply with Anti-Money Laundering and Know Your Customer regulations. To comply with these regulations, the merchant must provide descriptions of the products sold on their website. Any sudden change in sales can be flagged by the acquiring bank and require a manual review of the merchant's account.
Multi-Processor Redundancy
Due to the high-risk nature of firearm sales, online firearm merchants are encouraged to utilize a multi-processor agreement. By working with two separate acquiring banks and a payment gateway that can route transactions to each acquiring bank based on specific parameters, the merchant is protected from failing with one acquiring bank.
FAQs
Q: Why is it difficult to get a firearms merchant account with standard processors?
A: Most credit card processors and payment aggregators classify firearms as a prohibited industry due to the numerous regulations surrounding firearms. Additionally, these companies lack the tools to ensure that the firearms merchant is complying with all applicable laws, which is why they decided to exclude this vertical altogether.
Q: What is the significance of MCC 5723 for firearm retailers?
A: MCC 5723 is the merchant category code for firearms retailers. This code allows the firearms store to be classified as such, separately from stores that sell sporting goods. This code is used only for tracking sales by firearms retailers and is significant because it allows tracking sales in specific states.
Q: How long does the underwriting process usually take for an online firearm merchant account?
A: The underwriting process will take between one and two weeks for firearms merchants, as the review of the business is much more thorough than that required for an average business merchant account. The processor will review the merchant’s FFL, the website for compliance, past processing statements, and the age verification and fraud prevention software in place for the website.
Q: Do firearms merchant services require a rolling reserve?
A: Yes, the majority of firearms merchant account processors will require the merchant to establish a rolling reserve. Typically, the merchant will maintain 5% to 10% of their gross sales for a six-month period in a non-interest-bearing account to provide a rolling reserve for the processing company in the event of high returns or fraudulent transactions.
Conclusion
To secure and maintain a firearms merchant account, an individual must have a deep understanding of the payments industry and meet the operational requirements of the firearms industry. As a high-risk industry, merchants will need to present their documentation and technology to the bank to ensure their business can withstand the test of time. From merchant account numbers to multiple processor options, a gun merchant must focus on creating a system that minimizes business risks.
The goal of any gun merchant or online firearm retailer is to provide a seamless customer experience while maintaining the security of their business. By focusing on industry requirements, gun merchants can overcome the challenges of selling a high-risk product. The future of firearm sales will rely upon the marriage of the two seemingly separate industries.
Sources
- Bureau of Alcohol, Tobacco, Firearms and Explosives. “FFL eZ Check.” Accessed March 2026.
- Visa. “Visa Core Rules and Visa Product and Service Rules.” Accessed March 2026.
- CitiBank. “Merchant Category Codes.” Accessed March 2026.
- PCI Security Standards Council. “Best Practices for Maintaining PCI DSS Compliance.” Accessed March 2026.
