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COMMENTARY: Gun Sales Can Be Tracked, But MCC Codes Are the Wrong Tool for the Job

Digital Transactions

Plenty of attention has been given recently to the tracking of gun sales, with no lack of argument for and against. This article lies outside of any market motives or political opinions. It speaks only to the underlying mechanism of tracking purchases. As an engineer and a pragmatist, I can say it’s all about picking the right tool for the job.

At the heart of the issue, it’s being advocated that merchants who sell firearms be mandated to track gun sales using Merchant Category Codes (MCC). That’s like mandating a merchant to tighten a bolt with a screwdriver.

MCCs are used in payment ecosystems to categorize merchants by the type of products or services they sell. In the credit/debit world, MCCs impact interchange rates, chargeback protections, and how acquirers manage risk and underwriting controls.

But MCCs don’t work for tracking actual goods sold, and here’s why. When someone purchases a shotgun from Jane’s Sporting Goods, which operates under a sporting-goods MCC, reporting could be interpreted as someone buying some fishing poles, because Jane’s sells those, too.

Conversely, Dick’s Guns operates under a (to date imaginary) firearms MCC. So when a consumer purchases some maps and a hunting license there, MCC reporting would likely imply he bought a gun. Because MCC reporting can only report the total amount of a purchase, neither example would paint an accurate picture of what was actually purchased.

Clearly, MCCs are the wrong tool for the job.

But we don’t have to look far to find the right tool. Tracking of specific items purchased has been handled in the payments world for decades. Visa and MasterCard call it Level III. The business world loosely refers to it as EDI (Electronic Data Interchange). Long used in business-to-business relationships, Level III is the data standard underlying digital invoicing and inventory management.

When Costco buys $1 million worth of electronics from Samsung, you can bet they get all kinds of detail on exactly what’s in the shipping container. That’s all done with Level III data. It’s the digital receipt, containing all the elements related to a given purchase.

Not only are EDI protocols the right tool for the job, but industry trends towards automation and orchestration are making Level III accessible to wider audiences. Interoperability of application programming interfaces, open integration standards, and the cloud are all making EDI-capable products— once available only to larger organizations—viable in the small-and-medium-size business space.

Of course, it would be foolish to consider Level III a panacea for gun-sales reporting. After all, credit and debit are hardly the only payment methods popular today. For cash and other forms of payment, Level III reporting would be impractical in legacy POS environments.

In fact, POS integration represents one of the central challenges of the greater issue: using the wrong tool has a distinct advantage, in that the banks currently possess all the data and controls to enforce MCC reporting, so no new technology is needed.

A mandate on gun-purchase tracking that uses EDI-based architecture shifts the cost of technology compliance to the merchant. But that’s not all. Even with the modern tools and simplified integrations available, POS upgrades for certain merchants in this vertical could have a negative net impact on their bottom line, leave them vulnerable to service interruptions and degradation during migration, and increase attrition.

Regardless of the reasons, tracking gun purchases is not complex. It just requires the right tools. Let’s hope the industry opts for the practical solution, Level III. It might hurt a little more at first but produces trustable methods that will be valuable to all parties involved in the long term.

Cliff Gray senior associate at The Strawhecker Group.