Collection agency merchant accounts are nearly all in a category considered high-risk by just about every credit card processing company or merchant. However, to understand why collection agency payment processing is regarded as high risk, it is essential to know about the factors that are part of the debt collection business model which lead to it being considered as high risk.
· The need to process recurring payments
· Handling payments using the so-called “card not present” method – meaning the physical card isn’t with the individual processing payment.
· A high percentage of chargebacks
Apart from the high-risk practices of collection agencies, some businesses within the industry have created challenges by threatening and harassing customers without regard for the Fair Debt Collection Practices Act. These issues further tarnish the industry’s reputation and thus put it at risk of compliance concerns.
The practices mentioned above and others can make it near impossible for businesses in the debt collection industry to find an ideal merchant account that allows credit card processing. Even if the agency in question has an excellent, untarnished track record of processing debt, the industry is still considered high risk.
At FLEX Payment Solutions, we understand that for businesses in the debt collection industry, processing credit card payments is an essential factor. In fact, it can be crucial to the business’s practice. That’s why we offer and help companies in this industry secure debt collection merchant account, which also may be known or categorized as high-risk merchant accounts.
FLEX Payment Solutions makes it easy to set up you merchant account, and our team is happy to assist along the way. Contact us today to find out more.
Why Do Banks Consider Collection Agencies High-Risk Industries?
As mentioned above, many times banks offering merchant accounts view debt collection agencies as being high-risk, which is tied to the industry’s reputation. That’s why most typical acquiring banks turn down applications from most collection agencies because they don’t want to be associated with, or assume the challenges of a high-risk industry. Simply put, the banks view these types of companies as too risky to do business with.
That said, as within many high-risk business categories, it is a small number of collection agencies in the US have tarnished the reputation of all the others that operate honestly and by the book. Scare tactics like calling debtors at all times of the day, reaching out to them at their place of work, or harassing them at their homes have led to the common perception that the agencies are deceitful, troublesome and unethical.
In addition to the overall negative perception by the public, the debt collection agency is highly regulated by the CFPB and FDCPA. That is why all debt collection agencies must be updated with the latest policies and processes so that it helps their ability to do business. Ultimately, this makes it increasingly challenging for debt collection agencies to open debt collection merchant accounts.
Other Factors That Work Against All Collection Agencies
Another factor that work against collection agencies is getting bank reviews during approval which have chargebacks that the business has experienced. As most agency owners will confirm, many people may promise to pay and later call their banks to initiate a chargeback or file a dispute with the bank stating the transaction is invalid.
Since this can add up quickly to quite a significant amount, banks often worry that the collection agencies don’t have enough funds to refund the transactions, and thus repayment will be their burden to bear.
Additionally, banks will consider before approving a merchant account is low stability. Debt collection businesses often have a high employee turnover due to job stress and low morale.
What Debit Collection Agencies Need To Open A High-Risk Merchant Account?
The exact documentation needed to open the account will vary from one merchant to the next. Though in general, the bare minimum required will be:
· Voided Business Check
· A valid driver’s license for all signers
· Recent bank statements, usually of the past three months
· EIN Number, which will be verified
· Collection license scanned copy
· Business license or articles of organization
Now the standards will vary, but if you are intent on processing credit cards, it is always good to ensure that the chargeback ratio is under 1%. The good news is that payment processors like FLEX Payment Solutions use highly efficient underwriting online, ensuring that your application can be approved in the shortest time possible.
What Are Some Factors Underwriters Looking For When Approving An Application?
Regardless of the payment processor, they may be partnering with; all underwriters assess risk. The reason they are assessing risk is to ensure that the collection agency they approve is a reputable business, is obeying the law and their debt collectors are following regulations. This is done to ascertain reasonable risk.
There are a few other things that underwriters working for payment processing solutions may consider when reviewing a debt collection agency that applies to open a merchant account:
· Have a solid business model
· Have lots of industry experience
· Prior history of processing (if any can be given)
· A credit score of the business owner
· Compliance of the website with Mastercard and Visa regulations
Applicants will be wise to take care of any outstanding matters before submitting their application. Plus, it pays to work with an established and trusted merchant service provider like FLEX Payment Solutions.
We Make It Look Easy
At FLEX Payment Solutions, we are the leading high-risk merchant payment processing service for numerous businesses, which is why there is no reason why we can help you. Get in touch with our team today to find out more about our debt collection merchant services.
