The Card Networks’ Move on Gun Data Raises As Many Questions As Answers

The decision over the weekend by three of the nation’s largest payments networks to introduce a new category code for gun shops could raise more questions for the payments industry than answers.

The move by American Express Co., Mastercard Inc., and Visa Inc. would for the first time create a merchant code specifically for sales at gun shops. So far, such sales have been classified by acquirers as general merchandise. It was unclear Monday morning how soon the new classification, which comes in the wake of a long period of gun violence in the United States, can be generally adopted.

The move by the card networks follows a decision by the Geneva, Switzerland-based International Organization for Standardization to create a category code for gun-shop sales. Visa for its part said over the weekend it would follow the ISO standard.

But some experts question whether the new code will have the impact its advocates hope it will. “I wish there were a magic bullet to end this gun violence, but there isn’t,” says Patricia Hewitt, proprietor of PG Research & Advisory, a Savannah, Ga.-based payments consultancy. For one thing, she argues, while the new code could make it easier for processors to refuse to process gun sales, such overarching recoding efforts by acquirers don’t happen quickly. “It’s going to take some time,” she adds.

Questions could also arise regarding how much issuers can earn from such sales, since interchange fees are tied to merchant codes, she says, adding that the networks may also need to clarify whether there will be any changes to chargeback rights.

But one big question hangs over how useful the new code can be. Generally, merchant codes are specific to a merchant category, not necessarily to a type of product. “You categorize [the sale] as a gun store, not a gun,” Hewitt says, unless more specific information, known as Level 3 data, is required. A hardware store, for example, that “happens to sell guns,” she adds, could require a separate code to cover a gun purchase.

“We’re going to uncover all the complexities around [merchant category codes],” Hewitt says. But she adds that the effort will be worth any coding headaches if it reduces gun violence, which in the United States in recent years has included school shootings as well as massacres at special events, such as the July 4 parade this summer in Highland Park, Ill., at which a gunman claimed the lives of seven people and injured another two dozen.

“If [the new code] prevents one person from killing someone, it’s worth it,” Hewitt says.