By Scott Hawksworth
Being a gun dealer isn’t easy. Sure, the previous president (AKA The Greatest Gun Salesman of All Time) offered a sustained sales boom to gun dealers everywhere. But, over the last decade, internet sales have created clear winners and losers. The high volume/low-margin sales model of national dealers, such as Buds Gun Shop, hasn’t only cut into the sales of local gun shops, but they’ve also put downward pressure on their pricing power and profitability.
Of course, this is simply capitalism at work. And it’s a net win for consumers. But other recent forces acting against the firearms businesses can’t be explained away as the invisible hand of the market performing its normal function.
Rather, leftist bureaucrats and executives in both governmental agencies and in publicly-traded corporations have acted in bad faith to “choke” legitimate, legal firearms businesses from being able to operate (let alone profit and grow) by denying them access to the banking, lending and credit card processing services that businesses in other industries take for granted. This discrimination was originally brought to the mainstream media’s attention via eposes of Operation Choke Point.
A Short History
A 2013 initiative of President Obama and the Department of Justice, Operation Choke Point was a program designed to investigate banks and other financial institutions that did business with firearms dealers and other “suspect” industries. From its inception, the law received criticism from the right as a transparent attempt by the government to pressure the financial industry to cut off these companies’ access to banking services and capital, without first having shown that the targeted companies had violated the law.
In a pointed critique in the St. Louis Post-Dispatch US Rep. Blaine Luetkemeyer characterized the law this way:
“It’s a thinly veiled ideological attack on industries the Obama administration doesn’t like, such as gun sellers and coal producers.”
In practice, the law had the effect of dramatically increasing the regulatory and financial stakes for banks, lenders, and credit card processors to do business with the firearms industry. Consequently, for a period of about five years, most financial services firms simply stopped doing business with any gun-related business.
Thankfully, the groundswell of criticism against the law finally reached a point — and the election of Donald Trump resulted in a much more gun-friendly administration — that the program has been cancelled.
Despite its end, however, all has not returned to “normal” for firearms businesses.
Operation Chokepoint Legitimized Financial Discrimination In the Private Sector
Instead, Operation Choke Point, despite now being defunct, served to legitimize second class treatment of the firearms industry by those in corporate America who choose to do so based on personal ideology. As it turns out, the vast majority of corporate America’s leadership, even in the finance sector, leans left. Hard.
And corporate America still has the gun industry in their crosshairs.
Low Risk, High Risk, And “We Just Don’t Like You”
In theory, the mandate of a publicly-traded company is to maximize returns for their shareholders while operating within the law. In practice, the leading American public corporations are all too happy to sacrifice profits in return for the positive press they receive for pushing leftist social engineering goals.
For example, TTAG has previously reported on the anti-firearms agenda of Bank of America. But it’s not just BofA that wants to limit your natural, civil, and constitutional right to own a firearm (or buy or sell one). In fact, banks and financial services companies across the nation – particularly the largest ones – have taken a hostile stance against the gun business. In some cases, banks and credit card processors simply refuse to do business with firearms-related businesses outright.
Perhaps most nefariously, many large financial services companies like Intuit, Paypal, Stripe, or Square, “technically” prohibit firearms-related businesses from using their services in their fine print.
In practice, however, these firms regularly allow firearms businesses to utilize their services, but at the first sign of even a minor issue, such as the company’s first credit card chargeback, lo and behold, the service provider “discovers” that the firearms company’s use of their service violates their terms of service. The account and the business’s funds are then frozen, leaving the business in a serious cash crunch.
These large, anti-gun banks and financial services providers can’t claim their agenda is driven by risk management, profitability, or a non-political “business purpose.” The simple fact: firearms businesses are, as a group, one of the most profitable and least-risky industries from the perspective of a bank or financial services provider. Here’s why, in layman’s terms…
Most Sales Are Retail: For banks and financial services companies, the biggest financial risk is a client business that generates lots of credit card chargebacks. When it comes to chargebacks, however, retail businesses almost uniformly have lower chargeback rates than eCommerce businesses.
That’s because a cashier is generally going to “smell something fishy” better than an eCommerce shopping cart, so fraudsters tend to increasingly ply their craft online where they don’t have to deal with a person or security cameras. Given that the bulk of firearms industry businesses are still retail, as an industry, they are ipso facto lower risk.
Even eCommerce Firearms Sales Are Safe: Even for those firearms retailers that sell guns online, however, existing US law, which requires that eCommerce firearms purchases be picked up via a local FFL, means that eCommerce firearms sales are, surprisingly, often even more secure from the bank and credit card processor’s perspective than traditional retail sales.
FFLs, Generally, Are Highly Responsible Business Owners: Any American can build a website or open a storefront and be selling almost any type of widget tomorrow. That means, generally speaking, that the average American business is no more secure than the average American.
By contrast, only licensed FFLs have the right to retail firearms. That license comes only after an extensive application, background check and ongoing annual oversight. Collectively, these requirements mean that the average FFL is significantly more “upstanding” than the average retailer in an unregulated industry.
Moreover, FFLs know that the loss of their license due to a failure to, for example, check a customer’s age prior to completing a sale, would be devastating to their business. As a result, not only is the average firearms retailer more “accredited” than the typical American business, they also are highly incentivized to follow legal regulations in a way that the average business owner might not be.
Gun Purchases Are Document-Heavy Transactions: You can purchase almost any legal good in the United States in cash, without an ID and leave virtually no record of the purchase. Not so with firearms. FFLs are required to check two forms of ID as well as conduct a background check screening. Combined, these requirements have a dramatic effect on reducing credit card chargebacks and purchase fraud.
So from the perspective of banks and financial services companies, firearms businesses should be among their most profitable and least risky customers. Yet due to personal biases at the top of these corporations and discriminatory political calculations, most financial service providers and banks refuse to do do business with them.
Growth Of The B2B Firearms Industry
Given the ongoing hostility of much of corporate America towards the retail firearms industry even after the demise of Operation Choke Point, a new financial “niche” sector is growing. One that’s focused specifically on serving firearms industry businesses.
As firearm industry total revenue grows, it becomes large enough to sustain financial services providers and payment processing companies that specialize in firearms-related transactions. These businesses are typically owned and operated by 2A-friendly entrepreneurs, but more importantly, they derive most or all of their revenue from the consumer firearms industry. Essentially, these financial service providers are in the same boat as their clients.
This development should ultimately provide the gun industry with a more stable financial footing, as the firearms-focused providers have a vested interest in developing lasting partnerships with banks and other upstream financial services providers that will, in turn, create vested interests in those organizations to continue to support firearms businesses.
Scott Hawksworth writes for TacticalPay.com, a merchant services company that specializes in providing credit card processing for gun dealers and other businesses in the firearms industry.