Are you a debt collection agency worried that traditional merchant accounts won’t accept your high-risk business?
Debt collection companies often face difficulty finding a suitable payment processor due to the high risk associated with their businesses.
Fortunately, payment processing solutions tailored to businesses in the debt collection industry exist. These processors offer high-risk businesses lower rates and more flexible payment plans than traditional merchant accounts.
This article will discuss how debt-collection businesses can safely and securely process payments while protecting their bottom line.
What Is a Collection Agency Merchant Account?
A collection agency merchant account is a specialized form of payment processing for debt collection businesses. It allows these companies to accept customer payments and securely process them into their accounts.
Merchant accounts are essential for any business taking credit cards or e-check payments. However, many traditional banks refuse these services due to the reputational risk associated with collection agency businesses.
Credit card companies are also unwilling to deal with and take on further credit card debt from customers of debt buyers and collectors.
For this reason, it is important to seek out collection agency merchant services with a company that specializes in providing high-risk merchant accounts. These providers have experience dealing with the specific risks associated with debt collection and can offer collection agencies more flexible solutions than traditional banks.
Some of these solutions may even come complete with chargeback protection and fraud prevention tools specifically designed for this industry. This can help ensure customer security while providing peace of mind for collection agencies dealing with a significant amount of the debt.
Types of Merchant Accounts for Debt Collection
Various types of merchant accounts are available for debt collection companies. They include debit cards, credit cards, ACH, and e-Check merchant accounts.
Debit Card Merchant Accounts
A debit card merchant account can make it much easier for your agency to accept such payments on a one-time or recurring basis.
But there’s also a catch—unfortunately, the payment data often changes each year when it comes to debit cards.
Over 20% of all debit cards must be reissued due to expired dates, lost or stolen cards, and data breaches. That means you must collect updated payment information from debtors every time their card is reissued.
Updating the payment information is especially important if you’re using recurring billing. Otherwise, the payments will decline unless the data is accurate and up-to-date.
This waste of time and labor can be avoided with ACH/e-check payments—bank accounts rarely change, eliminating the need to update payment data regularly.
ACH & e-Check Merchant Accounts
ACH and e-check payments allow you to electronically debit funds from debtors’ bank accounts. These payment methods offer less risk than card payments—an important consideration when running a business in the debt collection industry.
These payment methods are more reliable for recurring payments as bank accounts don’t often change.
For instance, people often have direct deposits tied to their accounts and use them for household bills. Or they use their banks for direct salary deposits.
When consumers switch banks, there’s no need to update data. Bank accounts tend to remain the same and stable in the long run. They rarely need to change payment information tied to their bank accounts.
This makes ACH and e-Check Merchant Accounts perfect for recurring payments; it increases cash flow stability and avoids revenue leaks.
Credit Card Merchant Accounts
Getting qualified for a credit card merchant account for debt collection agencies is no easy feat. Most acquiring banks classify debt collection agencies as higher risk due to chargebacks. After all, disputing a credit card transaction is the go-to move for many debtors looking to buy time or default on their payments.
Furthermore, credit card companies are often unwilling to let merchant accounts take on more debt from unpaid balances.
That said, getting approved isn’t the biggest hurdle for this type of account—it’s keeping chargebacks down. And when chargebacks rise too much, it can seriously affect your long-term credit card processing ability.
With credit card merchant accounts, it’s crucial to have chargeback management in place.
Why Are Debt Collectors Labeled High-risk?
Here are reasons why debt collectors are considered high-risk:
Nonpayment/Inconsistent cash flow: If a debt collector fails to collect payments on time (if at all), it can result in significant losses for the company and its business operations.
Chargebacks: Debt collectors have no control over customer disputes or fraud-related incidents that may lead to chargebacks. Card companies can also reject payments based on the amount of risk the debt collector represents. This can result in significant financial losses and damage to the reputation of debt collectors.
Reputational risks: Debt collection businesses are vulnerable to reputational risks due to the nature of their work and their collection efforts with customers. A debt collector seen as having aggressive collection actions or engaging in deceptive practices could lead to consumer complaints and public criticism.
Subscription/Recurring billing: Each month, the debt collectors must ensure that their customer base doesn’t decrease or default on payments. If customers don’t renew contracts or are past due on paying, the debt collection company will suffer significant losses.
How to Apply for a Debt Collection Merchant Account
When applying for a Debt Collection Merchant Account, you will need to provide the following documents to ensure quick approval:
Proof of your business bank account: This must be a bank statement, checkbook, or voided check with your name and address printed on it. This is to ensure that the funds from the processing will be settled into the correct bank account.
Compliant website: Your website should adhere to industry standards set by PCI Security Standards Council and comply with any country-specific regulations that apply to your business.
Processing history: Three months of the most recent processing statements showing customer transactions and payments.
Business financial history: Three months of the most current bank statements showing activity within the business account, such as deposits and withdrawals.
Personal financial history: For businesses owned by one person (sole proprietorship), providing three months of personal bank statements can help speed up the process and avoid delays due to additional verification requirements being needed.
Photo ID: A valid photo ID must be presented for every signer on an application so that we can verify their identity to protect against potential fraud or malicious activities related to our services.
Age of business: The age of your business is also essential for determining if you qualify for an account and how long it will take to get approved. Generally speaking, companies that have been operating within one year are more likely to get approved than those which are new or just starting out in their operations.
Von Payments Is Ready To Help With Debt Collection
As a business owner in a high-risk vertical or industry, you must ensure your debt collection practices are secure and compliant.
That’s where Von Payments comes in. We specialize in helping debt collectors process payments quickly and safely.
We offer numerous features that ensure you follow the credit bureaus‘ regulations while securely managing customer data. Our advanced fraud detection system flags suspicious activity instantly, so your customers’ security is always top of mind.
Von Payments provides end-to-end encryption to guarantee payment information remains safe and secure while offering tokenization technology, making storing customer data easier and more cost-effective under one centralized platform.
At Von Payments, we understand how important it is to have a secure payment processing system when dealing with high-risk industries—which is why we are dedicated to providing the highest level of protection for both customers and businesses.
Contact us today to discover how Von Payments can help you get high-risk merchant accounts!