Last updated on March 26th, 2025 at 07:53 pm
Pawnshop Merchant Account: The Insider’s Guide
A pawnshop merchant account is a specialized payment processing solution that allows pawnshops to accept credit and debit card payments. Pawnshops perform business activities such as buying, selling, and lending money. Sponsor banks and credit card processors consider pawnshops to be high risk because of the nature of the business.
The QuadraPay content team has written this extensive guide for you. The purpose of this guide is to explain all factors related to pawnshop credit card processing to you. We are confident that this guide will clear all your doubts regarding pawnshop merchant services. Let’s begin.
Why Are Pawnshops High-Risk?
Before you apply for a pawnshop merchant account, it is important for you to understand the key reasons that demotivate regular payment processors to onboard merchants like you. You may be aware of a few of these factors, but this comprehensive list will give you a deeper understanding.
High Chargeback Ratios
The items sold by the pawnshops are not brand new, and this can be the reason for disputes and chargebacks. Customers may dispute the purchase for many reasons. Buyer’s remorse is quite common in the pawnshop industry. Customers may think they have paid a high price for a low-value product. Many customers dispute the transaction based on the authenticity issues of the product, and this is especially common with items such as jewelry and electronics. Chargebacks can also happen because of the delayed delivery of products. Many pawnshops prefer to verify the ownership and the condition of the item before shipping, and this may delay the shipment. Customers may get impatient and dispute the charge.
Large Transaction Volume
Pawnshops sell valuable items such as luxury watches, precious metals, and antiques. These high-ticket products can attract fraudulent buyers. Fraudsters may try to buy these products by using stolen credit cards. Such a scenario is not favorable for credit card processing companies.
Complex Regulatory Compliance
To the general public, a pawnshop may look like a regular business. In reality, running a pawnshop business is very complex. Merchants must comply with federal and state compliance. Pawnshop owners are required to report high-value cash transactions to the government. In some states, a specific license is required. Pawnshops that also offer loans must comply with the Truth in Lending Act (TILA) and disclose loan terms clearly. All these complexities make it challenging for a payment processor to support pawnshops.
Card-Not-Present (CNP) Transactions
Many pawnshops sell their products over the internet. All these transactions are called card not present transactions, which are riskier than regular face-to-face transactions. Most regular payment service providers reject pawnshop applications just because of the high percentage of CNP transactions.
Poor Credit & Industry Stigma
Many payment service providers avoid working with pawnshops primarily because of UBOs’ poor credit scores. Some processors avoid working with pawnshops because of the negative reputation of the industry. All the above-listed factors are the reasons that make low-risk payment processors a wrong choice for pawnshops.
Most low-risk payment processors avoid working with pawnshops because of high chargebacks. These businesses require high-risk pawnshop merchant accounts. Such accounts are offered by specialized payment processors. Unfortunately, finding the right high-risk PSP can be difficult for most pawnshop owners. QuadraPay has been providing credit card processing solutions to pawnshops since 2016. Our connectivity with reliable high-risk payment service providers makes it easy for us to help you get your pawnshop merchant account approved.
Types of Pawnshop Merchant Accounts
Traditionally, pawnshops only operated in the brick-and-mortar store format; however, now they also operate over the internet via e-commerce websites. QuadraPay can provide payment solutions to all types of pawnshops, irrespective of whether they operate online or via a retail store. Let us quickly look at the two types of payment solutions that are available for pawnshops.
Retail Pawnshop Credit Card Processing
For any pawnshops that conduct in-person transactions and operate from a retail store, we can offer credit card terminals. With these credit card processing devices, merchants can accept all types of credit cards, including EMV, magnetic strip, and tap-and-pay cards. Merchants can integrate their inventory management software with the credit card terminal for tracking of pawned goods and sales. Mobile payment terminals are perfect for on-the-go payment collection. These devices come with Bluetooth and wireless connectivity for on-the-spot payments. Retail credit card terminals are especially beneficial for those pawnshops that deal in high-ticket items such as luxury watches and firearm collectibles.
Online Pawnshop Credit Card Processing
For online pawnshops, we offer an e-commerce payment solution. An online pawnshop merchant account can be easily connected to well-known content management systems such as WooCommerce, OpenCart, Shopify, Magento, PrestaShop, and ZenCart. The multi-currency processing feature makes the solution perfect for those pawnshops that accept international orders. Built-in security tools such as 3DS, address verification systems, and velocity checks help reduce chargebacks and fraudulent transactions.
Pawnshop Merchant Account Application Process
It will help you if you are fully aware of the application process of pawnshops and merchant accounts. Let us explore the key steps involved so that you stay prepared.
Step 1: Fill Out the Application
The first step is to fill out the merchant account application. In this application form you will submit business and personal details. The details that you share on the merchant account application form should be accurate and must match the supporting KYC documents. The key information required on any merchant account application includes the legal name of the business, business structure, years in operation, estimated monthly sales volume, highest ticket size, lowest ticket size, average ticket size, previous processing history, business URL, and the acceptance of the application terms and conditions.
Step 2: Submit KYC Documents
Only sending the application form to the payment service provider is not enough; you will also have to provide some business and personal documents. These are called know your customer documents.
For business verification, you will have to submit your business license and a pawnbroker license (if applicable). This will help the payment processor to confirm that you are legally allowed to operate the business. The payment service provider will also ask for an EIN or VAT, whichever is applicable in your country of operation. For the address proof of the company, you can provide a recent utility bill in the company name.
The payment processor will need documents to verify the owners. For the photo ID, you can submit the copy of the driver’s license or passport. Some payment service providers will check the credit history of the business owner. They may request a personal bank statement. If it is not a startup application and you are switching your payment processor, then you will have to submit previous processing history.
Depending upon how your business runs, you will have to provide proof of business establishment. If you run your pawnshop business over the internet, then you will have to share the website’s WHOIS screenshot or proof of domain purchase. If you have a retail pawnshop, then you will have to provide photographs of the store from inside and outside.
By performing a comprehensive KYC analysis, payment service providers verify the legitimacy of your business. This way, both the processor and you comply with important KYC and AML requirements. Remember, not providing the requested documents or providing manipulated documents can result in rejection of the application.
Step 3: Underwriting & Risk Assessment
Once you have submitted all the documents and the application form to the payment service provider, the underwriting team will conduct a detailed review. They will check your business model, type of inventory, sales channels, and your financial stability. They will also check whether your company meets the mandatory state and federal requirements or not.
Based on the underwriting review, the payment service provider will either approve or decline the application. Once your account is approved, the payment processor will send you the merchant account agreement for signing. You should review the agreement carefully and look at the rate structure. Look for hidden charges and make sure that you understand the contract terms fully before signing.
Once the processor and the merchant have signed an agreement, then the next step is integration and activation. If you have applied for an online payment gateway, then the payment service provider will send the login details of the payment gateway. If you have applied for a retail credit card terminal, then the same will be shipped to your location.
The technical team of the payment processor will provide you all the assistance throughout the integration and activation process. Initially, you will perform some test transactions, and after that, your processor will switch the merchant account to live mode so that you can accept real transactions.
Approval Timeline for Pawnshop Credit Card Processing
The approval of a pawnshop merchant account can take anywhere between two business days to two weeks. The payment processors conduct compliance and risk assessment to ensure that only genuine businesses get access to the payment solution.
In general, the payment service provider takes 1 to 2 business days to conduct the primary review of the merchant’s profile. After that they take another 3 to 5 business days to perform a complete underwriting and risk analysis. In most cases the final approval and the integration happen between the 7th and 10th business day.
It is important for merchants to understand that once a payment service provider onboards a pawnshop business, then it takes a lot of risk. It is important for them to carefully evaluate all the factors related to the merchant’s risk profile. This is why merchants should have patience.
Benefits of a Pawnshop Merchant Account
There are various benefits of choosing the right merchant account for your pawnshop. These benefits can help improve your business operation and also elevate customer experience.
Increased Revenue Opportunities
The first benefit that we would like to highlight is the increased revenue opportunity. It has been noticed in various industries that when a merchant starts accepting credit and debit card payments, then the overall revenue of the business increases. It also helps in expanding the overall customer base. By reducing the dependency on cash and increasing focus on card processing, you can significantly boost your company’s performance.
Faster Transactions
Cash transactions are cumbersome. A busy pawnshop that only accepts cash payments can have a huge line of customers waiting at the cash register. This is not a business-friendly situation. By utilizing advanced digital payment solutions such as merchant accounts and payment gateways, you will offer a faster transaction processing experience to your customers.
Online Payment Capability
With the right merchant account, you will be able to sell pawned goods online. Your customers will be able to use their preferred credit and debit cards on your business website to make the purchases of such products. This way your shop will operate around the clock without any disruptions.
Chargeback Prevention Strategies
Chargebacks can have a significant impact on the overall revenue of your business. High chargebacks can also impact your relationship with your payment service provider. It is important for you to implement strategies that help you reduce the risk of chargebacks.
Clear Return & Refund Policies
When a customer buys a product from your website, they can only request returns and refunds based on the policy mentioned on your site. At the time of merchant account application, the underwriters read these policies and retain the same for future references. Your refund policy should be clearly visible on your website. Make sure you display the refund and return policies at checkout and on receipts to reduce misunderstandings. Insist on customer acknowledgement signatures for all high-value transactions.
Maintain Detailed Transaction Records
Make sure that you keep itemized receipts and transaction logs with you and do not throw them away. These can be used at the time of chargebacks to present your defense. You should record the serial number and description of all pawned goods. Make sure you retain the customers’ consent forms and signed agreements all the time.
Verify Customer Identity
If you are selling expensive items, we strongly recommend you perform ID verification before all high-value transactions. At your retail location you can use biometric verification for high-value purchases. Utilizing security features like 3D secure authentication is also beneficial.
Provide Excellent Customer Support
Remember your customer service team can help you prevent a significant number of chargebacks. Offer multiple channels of communication to the customer. Make sure that your customer service team responds to queries quickly. We suggest that your team should offer dispute resolution to the customer to avoid chargebacks. A return can sometimes be better than fighting a chargeback case.
Pricing & Fees
The exact pricing can only be given after a complete evaluation of the merchant’s risk profile and processing requirements. However, it will help if you are aware of the various fees that can be associated with your merchant account.
Transaction Fees
This is a percentage that you pay on each sale. This fee is charged by the payment processor. This can be either a fixed percentage or can vary based on the card type used by the customer. This fee includes the interchange fee and processor’s markup.
Per-Item Fee
This is a small amount that you pay on each transaction, whether approved or declined. You can consider it as a fee that you pay for using the payment gateway. It is generally around a few cents.
Monthly Account Fees
Some payment service providers may charge a monthly account maintenance fee. However, depending upon your committed transaction volume, the payment service provider may reduce or remove this charge.
Chargeback & Refund Fees
If your customer requests a refund and you initiate it, then you pay a refund fee. If your customer disputes a transaction by contacting the card issuer and you lose the chargeback case, you will have to pay chargeback fees. Usually these fees range from $10 to $50.
Rolling Reserve
Most high-risk payment service providers may hold a small percentage of your transaction to cover the risk of chargebacks. Generally this is between 5% and 10% of your monthly transaction. Processors release this amount after 6 months, subject to any deductions.
Choosing the Right Payment Processor
When choosing a payment processor, make sure that you work with a provider that has experience in working with merchants from your industry. The provider should have the ability to manage chargebacks and disputes effectively. Along with that, it is also important for you to ensure that the payment service provider is fully aware of the compliance and regulatory requirements.
While choosing a provider, you will get two types of options: domestic and offshore. A domestic provider will offer easier integration but potentially have strict compliance requirements. On the other hand, an offshore payment service provider may have flexible approval but may charge higher fees.
You should avoid working with any provider that does not provide a clear pricing structure, as it may be an indication of their strategy of charging hidden fees. Prefer to work with the processor that offers a month-to-month contract rather than a long-term contract with early termination fees. Check the reviews and online complaints of the payment gateway company regarding payment holds and account shutdowns. If you get a lot of negative reviews and complaints, then you should avoid that processor.
