[Industry Focus] Fraud Risk Profile for Firearms Retailers

The annual revenue for guns and ammunition skyrocketed to $11 billion in 2016, and online firearms retailers are taking an increased share of this total. But as e-commerce grows in popularity, so does the risk to merchants for fraud.

The highly regulated nature of the firearms industry deems these retailers “high risk” by the Federal Deposit Insurance Corporation (FDIC) and other credit card processors. This classification, combined with the increased fraud risk, means retailers must take a proactive approach to protecting their online sales.

Why Are Firearms Retailers a Target for Cybercriminals?

With customers’ increased preference to make purchases electronically, retailers have realized the importance of establishing and building a trusted online business, which means mitigating the increased fraud risk that comes from:

• Guns and their accessories are always popular, so fraudsters know they can easily find buyers for their fraudulently purchased items.
• High ticket price. The average price of a quality firearm is anywhere between $400-1000, increasing their desirability for fraudsters. Just one fraudulent transaction of a firearm can result in significant profit to the criminal but a hefty monetary loss to the retailer.
• Resale on the secondary market. After making online purchases using stolen credit cards, fraudsters may look to resell or pawn the items. The active secondary market makes it effortless for cybercriminals to easily find purchasers for weapons, ammunition and accessories at close to the original purchase price.

Why Fraud Is a Problem Among Firearms Retailers

Firearms retailers must fight a tough battle against determined criminals and their intent to commit fraud. To protect profits and reputations, merchants must defend their business against:

• Increased chargeback risk. With the high price tag on firearms, legitimate customers have elevated expectations about the quality of their purchases. If they receive an order that is damaged or doesn’t match the online descriptions, customers are quick to file a chargeback instead of first contacting the merchant for a resolution.
  
  Still, other customers may initiate a chargeback simply because they know it gives them temporary access to the funds used for the purchase — not because there’s a justified reason for the chargeback.
• Increased difficulty confirming identities. Firearms retailers, as part of a highly regulated industry, must follow local and state laws about the individuals to whom they can sell firearms and where purchases can be shipped. Not all purchases can be shipped directly to the customer; some must be delivered to a Federal Firearms License holder (like a gun shop or range) for customer pickup. Such restrictions may increase the difficulty for merchants to match customer names and addresses with delivery information.

How Firearms Retailers Can Minimize Their Fraud Risk

Even with the significant fraud risk associated with online transactions, there are steps firearms retailers can take to reduce their exposure to card-not-present (CNP) fraud and chargebacks, including:

• Establish a merchant account with a trusted vendor. It’s important to find a credit card processor that supports high-risk merchants and understands the unique needs of online firearms vendors.
• E-mail detailed receipts and shipping confirmations. E-commerce retailers should immediately send an electronic confirmation of a purchase — including a detailed description of the items, tracking information, the company name that will be listed on the credit card bill and customer service contact information. This initial communication, coupled with shipping and delivery updates, will help prevent unwarranted chargebacks.
• Follow up with customers. Connecting with customers after purchases are delivered gives merchants the opportunity to ensure customer satisfaction and resolve any problems before they escalate to chargebacks.
• Implement a comprehensive fraud protection program. Through real-time monitoring of credit card transactions, merchants can catch fraudulent transactions before they’re processed and avoid declining legitimate transactions.
• Verify customers’ identities. It’s easy for cybercriminals to use stolen identities and credit cards to make online purchases. Use the Address Verification System to match customer-provided billing addresses with those on file with the credit card-issuing bank. Merchants can also compare the cities, states and area codes against the ZIP codes customers provide to ensure they match.

Protecting Firearms Retailers Against the Rising Threat of CNP Fraud

Fraud can be devastating to any business, but it can be especially devastating to a high-risk merchant like a firearms retailer. One way for these merchants to reduce their risk is by avoiding chargebacks altogether; another is by using a credit card processor that can accommodate a high-risk merchant’s unique needs.

But perhaps one of the most effective fraud protection strategies is implementing a comprehensive solution that can distinguish between legitimate and fraudulent transactions and screen every online order while still offering a seamless shopping experience.

At ClearSale, we’re committed to helping firearms retailers maximize their sales and protect their profits. Contact us today to learn how our Total Guaranteed Protection Solution can help you maximize your online sales and protect your profits.