There are certain business segments in which getting approved for merchant account services (or credit card processing) is extraordinarily difficult. Typically, merchant account service providers are hesitant to provide processing services to businesses that they believe to be “high risk.” Businesses that fall into this category might include those that see a high volume of credit or debit card transactions and those that undertake inherently tricky and risky services as part of their business model. Debt collection agencies fall into the latter category.
Debt Collection and Credit Card Processing: Why Merchant Services for Collection Agencies Are Difficult to Find
Debt collection is an important service industry in the United States. According to 2017 figures from the Federal Reserve, the average American family has over $137,000 in debt. The largest category of household debt is home loans or mortgages, which explains why so many families have debt at all—let alone such a high amount. Even high-earning families may have debt in the form of a 15- or 30-year mortgage. However, debt from other sources—such as student loan debt, car loan debt, and credit card debt—is also extremely common.
Many individuals and families dutifully make payments on their loans every month, on time and even above the minimum required payment. Still, it isn’t uncommon for consumers to get overwhelmed by debt and stop paying. According to CNBC, more than seven million Americans are currently 90 days behind (or more) on their car payments—a record high for car loan delinquency in the United States.
When debts go unpaid, banks, lenders, credit card companies, and other creditors aren’t the ones to go after debtors. Instead, they hand the baton to collection agencies, which then track down debtors with the goal of getting them to pay their debts. In the financial world, debt collection agencies play a crucial role in handling the growing problem of debt delinquency.
Despite their importance, collection agencies are underserved by merchant account services providers. Many credit card processors will not offer merchant accounts for collection agencies and will automatically reject any applications that they receive from debt collectors. These merchant account providers have their reasons: debt collection is a specialized business with high potential for risk. Credit card processors will often choose to avoid this risk altogether.
The risk in the debt collection industry for merchant account service providers stems from the “friendly fraud” chargeback. Friendly fraud chargebacks happen when consumers make legitimate payments for products or services and then dispute the charges with their credit card company. When the chargeback gets approved, the credit card processor is on the hook for costly penalties. As a result, many processors try to avoid industries in which friendly fraud chargebacks tend to occur with high regularity. Debt collection is one of those industries.
Why are friendly fraud chargebacks so common for debt collection companies and the merchant account providers that serve them? Unfortunately, the nature of the debt collection businesses makes friendly fraud a top-line risk for these businesses.
Individuals who are in debt may have little cash on hand or poor credit. As a result, debtors may make a payment to a debt collection agency and then dispute the charge with their credit card company. This maneuver allows these individuals to maintain their cash reserves and, potentially, get the debt collectors off their backs for the short term. Since credit card companies are required by law to reverse any disputed charges unless the merchant that billed the charges can prove their legitimacy, the dishonest debtor often comes out on top in this situation.
As chargebacks add up, any business becomes less profitable for a credit card processor to serve. In most cases, credit card processors are looking for merchant accounts that have a chargeback rate of two percent or less. Processors label accounts with higher chargeback rates “high risk” and terminate them. Industries including debt collection have so many high-risk accounts that finding merchant services in the first place is no small feat for many collection agencies.
Premier One Payments Offers Merchant Services for Collection Agencies
At Premier One Payments, we are the rare merchant account services provider that is ready and willing to work with collection agencies. We specialize in collaborating with high-risk businesses and providing the payment processing services that they struggle to find elsewhere.
We make life easier for these businesses, offering fast approvals, high approval rates (up to 99 percent), fee-free account setup, chargeback protection programs, no caps on transaction volumes, and rapid implementation. With us, you will be able to get approved quickly, set up shop fast, and start accepting credit, debit, and eCheck payments in no time—all with the peace of mind of knowing that we are here to protect you. We are willing to work with virtually any merchants in the debt collection industry. Whether your company is acting as a debt collection agent for a creditor or is actively purchasing discounted debt portfolios from creditors, we can provide the payment processing solutions that you need.
Even the limited number of processors that are willing to work with debt collectors may pick and choose depending on business structure or longevity–startup debt collection companies find it especially difficult to set up merchant accounts because credit card processors want to see payment history information from all high-risk businesses. At Premier One Payments, our application process is simple and less restrictive, making it easier for you to get the approval that you need even if your business is new or taking on riskier debt portfolios.
Premier One’s chargeback protection programs are extremely important, both to us and to the high-risk clients that we serve. Credit card companies are required to reverse disputed credit or debit charges unless the merchant behind those charges can offer proof of their legitimacy. The problem: monitoring payments and watching for chargebacks is something that most businesses have neither the resources nor the know-how to do. As a result, even if the merchant’s charges are completely legitimate—and even if the merchant can prove that legitimacy, as most debt collection agencies can—the chargebacks still go through without dispute.
What we do at Premier One is provide daily monitoring of your accounts plus risk and reversal management programs. These services come at an extra fee, but they will allow you to spot chargebacks and dispute them, keeping your processing costs down and saving you from the high chargeback rates that typically lead credit card processors to terminate merchant accounts.
Learn More about Premier One and Our Merchant Accounts for Collection Agencies
Perhaps your collection agency was recently dropped by a credit card processor over a high chargeback rate. Maybe you are starting a new debt collection company and have been struggling to locate a merchant account service provider willing to work with you. In either case, Premier One Payments is ready to help you succeed in a risky but opportunity-filled industry.
To learn more about Premier One Payments or ask about our merchant services for collection agencies, reach out today.
You’ll receive a phone call from one of our reps within 24 hours.