Pawn shops have played a large role in local economies for decades, contrary to a common misbelief that pawn shops only just became popular due to the shows Pawn Stars and Pawn Kings. Pawn shops have been around for quite some time, supplying secured loans to millions of people. The loans are almost always secured by some piece of personal property, such as jewelry or electronics. The demand for pawn shop services has not decreased, and these businesses thrive regardless of economic climate changes. Traditionally a cash-driven industry, many pawn brokers are new to credit card processing. Pawn shops, pawn brokers, and gold dealers are often considered high-risk, which can pose a problem when you’re looking for a reliable merchant services provider.
How Do Pawn Shops Work?
Most times, a pawn shop operates by loaning money. To protect the pawn shop, it will collect something of equal or higher value than the amount of money that it lends to a person. For example, if a person needs a $100 loan, the pawn shop will normally ask for an item that is worth $200 or more to sit as collateral until the loan is paid off. If the loan is not paid in full, the pawn shop will sell the item to recoup for the loss. However, because the item was worth more than the amount of money that was borrowed, the pawn shop almost always profits enormously. In fact, pawn shops like it when people don't pay off their loans because it gives them the right to go ahead and sell the item used as collateral.
When the pawn shop sells the items that were used as collateral, it has different ways to accept payment. Traditionally, most pawn shops were cash-only, however, many now offer debit and credit card payment methods. The ability to accept credit cards is more convenient for modern customers who predominantly use credit and debit cards to pay for goods and services.
Why are Pawn Shops Considered High-Risk?
Pawn shops are considered high-risk when it comes to credit card processing for a number of reasons. They typically sell high priced items (average price above $100). High ticket transactions are particularly susceptible to so-called “friendly fraud” and pose a chargeback risk to the credit card processor. Many also sell their merchandise online (i.e. eBay, Facebook community pages, etc.), which results in card-not-present transactions that have an increased risk of fraud and chargebacks.
Pawn shops are subject to certain types of consumer protection regulations, and reviewing a merchant services application for compliance requires extra underwriting due diligence by the processor. Many credit card processing merchants also consider pawn shops high-risk because many people assume that pawn shops sell stolen goods. This presumption is invalid, since pawn shops operate under licensing and government regulation to protect against unlawful activity.
Finding a High-Risk Merchant Account to Process Credit Card Transactions
Regardless of the type of pawn shop that you run—brick-and-mortar or online—you will need a high-risk merchant account to process credit card transactions. You may think you can turn to PayPal for credit card processing, but in most cases, PayPal doesn't work with high-risk entities like pawn shops.
Once you've decided to partner with a high-risk merchant account to process your credit card transactions, you will have to do your due diligence to find one that can meet your needs. It is very important to review the rates and fees associated with processing high-risk transactions. Make sure you thoroughly review the fine print and ask for clarity regarding any terms or conditions you don’t fully understand.
It is also important to choose a merchant account provider that specializes in high-risk industries and understands your business. When you partner with BankCard, you'll gain access to free credit card processing equipment, chargeback and fraud prevention, relationships with banks that underwrite regulated industries, and a payment gateway that allows you to process larger ticket items.
Just because you run a pawn shop doesn't mean you have to go without credit card processing. With BankCard Services, you can rest easy knowing you have an industry leading, high-risk credit card processing merchant in your corner. Contact us today!