With the UK collections sector holding over £30 billion of consumer debt, across more than 25 million customer accounts, it’s clear collections and debt purchase agencies play a major role in the economy. It’s an old fashioned industry that is also undergoing rapid digital transformation: credit reporting company Experian estimates that 52% of consumers who visit a digital site when prompted by a collection agency agree to pay what they owe.
For todays debt management companies, allowing clients to pay recurring debts online or over the phone is a fundamental part of doing business. But due to the higher-risk nature of the sector, mainstream companies such as Stripe or Go Cardless aren’t an option.
Instead, you’ll need a high-risk merchant account offered by a company with expertise and risk tolerance for the sector. As a payments expert with a lot of experience in this area, I’ve researched the best companies to fit the bill.
Understanding the High-Risk Nature of Debt Collection
Debt collection companies fall into a high-risk category for payment providers for the following reasons:
- Regulatory scrutiny: Debt collection is a highly regulated industry, and any violations of the law can lead to fines and penalties for both the debt collection company and the payment provider.
- Customer Complaints: Debt collection often leads to disputes and complaints from customers, giving the industry a challenging reputation.
- High Chargebacks: There’s a bigger chance of chargebacks in debt collection, as customers might disagree with how their debts are handled or face financial problems.
- Unpredictable Cash Flow: Collecting debts can bring causing unstable cash flow. This makes banks cautious as it might affect the company’s regular transactions.
- Risk of Fraud: The industry is also at risk of fraud, like fake debt recovery claims or identity theft. This increases the risk for those providing merchant accounts.
- Card Not Present’ Transaction Risks: Debt collection frequently involves ‘Card Not Present’ transactions, such as online or over-the-phone payments, which carry additional risks of fraud.
- Negative public perception: Debt collection is often associated with aggressive tactics and unfair practices, which can damage the reputation of the payment provider if they are seen to be working with such companies.
The Best Merchant Account for Debt Management
Total Processing is our recommended provider of merchant accounts for debt collection and insolvency companies, with a wealth of sector-specific experience. Recently voted one of the UK’s fastest growing fintech’s, this Manchester based company has major clients like Total Jobs and Capital.com, in addition to specialising in high-risk sectors.
Since implementing Total Processing’s system in 2018, Hanover Insolvency reported a remarkable 300% growth in revenue. This demonstrates the tangible impact that a well-tailored merchant account solution can have on a business’s financial performance.
The following aspects highlight why Total Processing is highly regarded in this sector:
Customised Recurring Billing Solutions
Total Processing specialises in providing bespoke recurring billing services, an essential feature for debt collection and insolvency companies managing regular payment plans, like IVAs. This service streamlines the process of handling recurring payments, ensuring consistency and reliability in revenue collection.
Total Control and Efficient Reporting
The Total Control dashboard offers comprehensive management and reporting capabilities. It allows companies to efficiently track and manage payment activities, access real-time insights, and generate customised reports. This feature is crucial for maintaining transparency and control over financial transactions.
Automated Re-billing for Failed Transactions
Total Processing addresses the issue of failed payments by integrating an automated re-billing system. This system attempts to process failed transactions again, thereby increasing the likelihood of successful payment collections. Such a feature is invaluable in reducing arrears and maintaining steady cash flow.
Convenient Payment Alternatives
Recognising the need for flexible payment options, Total Processing offers custom payment links and an automated phone payment system (IVR). These alternatives provide clients with more convenient ways to settle their debts, further reducing the risk of missed payments.
When planning your collections strategy, you should consider working with a partner who is experienced in payment recovery solutions.
Key Features of an Ideal Merchant Account for a Debt Collection Agency
Here are key considerations for a merchant account provider in this sector:
Sector-Specific Expertise – Every sector has its own challenge and opportunities. Working with a high-risk processor who knows the debt collection industry will help you optimise the way you’re doing business and ultimately bring higher profit.
Technological Innovation – Receiving payments is only half the battle. Managing the backend efficiently via customised dashboards with bespoke reporting and analytics features gives your company full autonomy over payment collection.
Advanced Chargeback Protection: Given the high likelihood of chargebacks in debt collection, a merchant account with robust chargeback prevention and mitigation tools is crucial. Look for services that offer real-time alert systems, dispute management tools, and proactive chargeback prevention strategies.
Compliance and Security Measures: Ensuring compliance with industry regulations, such as the Financial Conduct Authority (FCA) standards in the UK, is non-negotiable. The provider should offer secure transaction processing that complies with Payment Card Industry Data Security Standard (PCI DSS) and other relevant regulations.
Flexible Payment Processing Options: The ability to process various payment methods, including credit/debit cards, ACH payments, and possibly even international payments, is important. This flexibility can increase successful collection rates.
Transparent Fee Structure: High-risk merchant accounts often come with higher fees. It’s important to choose a provider with a clear and straightforward fee structure to avoid unexpected costs.
Reliable Customer Support: Given the complexities and potential issues that can arise in high-risk processing, having access to responsive and knowledgeable customer support is invaluable.
Integration Capabilities: The merchant account should seamlessly integrate with your existing debt collection software and tools. This integration enhances operational efficiency and ensures a smoother transaction process.
How to Get a Debt Collector Merchant Account For Your Business?
When you approach potential providers, be prepared to present comprehensive details about your business. This includes your company’s financial statements, transaction history, and any measures you have taken to mitigate risks like chargebacks and fraud. The more information you can provide, the better your chances of securing a merchant account that suits your needs.
You’ll likely need:
- Proof of business bank account
- Compliant website
- Payment processing history
- Business financial history
- Personal financial history
- Photo ID
- Age of the business
Another key aspect is to ensure that your business complies with all relevant regulations, such as those set by the Financial Conduct Authority (FCA) in the UK. Compliance not only minimises the risk for the merchant account provider but also enhances your business’s credibility.
It’s also advisable to discuss and negotiate terms and fees with potential providers. Given the high-risk nature of the industry, fees may be higher, but with the right provider, they can be manageable and aligned with your business’s financial capabilities.
Finally, after securing a merchant account, it’s essential to maintain good standing. This includes managing chargebacks effectively, adhering to agreed-upon processing limits, and maintaining transparent and ethical business practices. By doing so, you’ll not only ensure the longevity of your merchant account but also contribute to the financial health and reputation of your business.
How to Increase Your Chances of Getting a Merchant Account For Debt Collectors
To increase your chances of getting a merchant account for debt collection, focus on the following steps:
- Apply with Specialist Providers: Look for payment service providers that have experience with debt collection or high-risk businesses.
- Lower Your Chargeback Ratio: If you already accept card payments, work on reducing your chargeback ratio, as this impacts both approval chances and processing rates.
- Prepare Documents in Advance: Gather all required documents and information before submitting your application.
- Ensure Accuracy: Double-check that all the information you provide is completely accurate.
- Respond Promptly: Be quick to respond to any requests from the payment service provider during the application process.
FAQs on Choosing Merchant Services for Debt Collection Agencies
Can traditional payment processors like Stripe, Square or PayPal be used for debt collection?
Generally, no. Payment processors like PayPal, Stripe, or Square often do not support debt collection activities, as these are considered high-risk. Accounts may be initially accepted but face a high risk of being terminated later.
Can debt collection agencies process international payments through their merchant accounts?
This depends on the provider. Some high-risk merchant account providers (such as Total Processing) do offer the capability to process international payments, but it’s important to confirm this feature and understand the associated fees.
What are the common fees associated with high-risk merchant accounts for debt collection?
Common fees include transaction fees, monthly account fees, chargeback fees, and potentially higher processing rates due to the high-risk nature of the business. This will always be quoted on a case by case basis, depending on your trading history, credit score, industry and turnover amongst other factors.
How does a high chargeback ratio affect a debt collection agency’s merchant account?
A high chargeback ratio can lead to increased fees, additional scrutiny from the account provider, or even account termination. It’s crucial to keep chargeback ratios as low as possible.
What should a debt collection agency consider when switching merchant account providers?
When considering a switch, evaluate factors like better chargeback management, lower fees, improved customer support, advanced security features, and more flexible payment options. Assess how well the new provider understands the debt collection industry’s challenges.
Can a merchant account provider help a debt collection agency with regulatory compliance?
Yes, experienced providers can offer valuable guidance on compliance with industry-specific regulations such as FCA or FDCPA guidelines, helping to reduce the risk of penalties or legal issues.
Are there specific technological integrations a debt collection agency should look for in a merchant account provider?
Yes, look for providers that offer easy integration with your existing debt collection software and tools, facilitating seamless payment processing and reducing administrative overhead.
What is the role of fraud detection in a debt collection agency’s merchant account?
Effective fraud detection is vital to protect against unauthorized transactions and maintain the integrity of the payment process. Look for a provider offering advanced fraud detection and prevention tools.