Want our guide to merchant account approval for debt collectors?
Collecting payments from consumers can be tough — and processing those payments is even tougher.
Collection agencies are some of the highest-risk businesses processors accept. Volume can fluctuate wildly. Chargebacks come with the territory. Agencies face stiff federal and state regulations. Add it all up and collection agencies have a very hard time getting approved for merchant accounts.
Unless they know what they’re doing.
Understanding the merchant account approval process for collection agencies is changing. Modern payment tools are allowing agencies to compete with stronger payment profiles and stay out of the chargeback abyss. Agencies that take advantage get approved. Agencies that don’t…. Well, the outcome is already well-known.
Here’s what this covers:
- Why Debt Collection is High Risk
- The Chargeback Problem Agencies Can’t Avoid
- New Tech Improves Approval Odds
- Today’s Processor Expectations
- Best Tools For Debt Collection Agencies
Why Debt Collection is High Risk
Payment processing is already hard for collection agencies. Between the usual struggles of obtaining merchant services plus hurdles unique to the industry, agencies face an uphill battle when applying for merchant accounts.
Collection agencies are highly regulated at both the federal and state level. They also deal with The Fair Debt Collection Practices Act, which further complicates how agencies operate.
Unlike other industries with monthly recurring billing cycles — debt collection volume can change drastically from month-to-month. That makes it difficult to prove stability to banks and processors.
Add in pesky chargebacks and there’s a very high-risk payment profile.
Most collection agency applications get rejected by processors before they’re even reviewed.
Understanding what makes debt collection agencies so high-risk is the first step to overcoming those odds.
- Recurring billing cycles that cause consumers to question charges
- Automatic payments that consumers forget about and dispute charges
- State regulations which change payment rules by region
- Processing volume fluctuates every month
Unpredictability equals risk. That’s why banks and payment processors shy away from the debt collection industry.
The Chargeback Problem Agencies Can’t Avoid
Chargebacks and collections go hand-in-hand.
Collections = chargebacks.
Period.
Debtors love disputing payments they legitimately owe to collection agencies. It’s a big problem across the industry — and it keeps agencies from ever getting approved by payment processors.
Chargebacks damage a processing history.
Too many chargebacks and a merchant account will be flagged for review — and possible termination.
Processors don’t have a firm threshold. But a safe rule-of-thumb is keeping chargebacks under 1% of total payments. For agencies that sounds like a miracle. But with the right tools it is possible.
Collection agency chargebacks won’t magically disappear. But they can be managed before they reach critical mass.
U.S. consumer debt reached $17.57 trillion by Q3 of 2024. That means collection agencies are only going to continue growing. Which is great news because that means more specialized processors are building products catered to the collection industry.
How Technology Is Improving Approval Odds
Here’s where it gets exciting.
Payment technology built for high-risk industries is changing how collection agencies qualify for merchant accounts. Instead of simply surviving in the payment world — agencies can now thrive.
First off, not all payment technology is created equal. Collection agencies require so much more from their payment processors than simple credit card processing.
And that technology is here.
What’s the debt collection software market worth? $4.8 billion in 2024. And it’s expected to reach $11.3 billion by 2033. Payment processors see the writing on the wall — this industry is evolving.
Collection agencies with access to dedicated reporting, modern payment tools, and compliant payment gateways are dominating the space. Here’s how:
- Real-time chargeback alerts
- Automated documentation delivery
- Payment fraud filtering
- Recurring billing management tools
- Payment options beyond credit cards (ACH, eCheck, digital wallets)
Imagine being a payment processor who sees an agency proactively managing every aspect of their payment process. That’s a winning profile right there.
Stop accepting wildly inconsistent processing fees. Learn how forward-thinking agencies utilize payment technology to get more control over their rates.
What Processors Are Looking For Today
Obtaining a merchant account isn’t just about technology. There are plenty of other things that go into qualifying for a merchant account these days.
Payment processors want to feel confident in a business. They’ll review everything from processing history to the payment gateway being used.
Here are some of the things they look for when underwriting collection agencies:
- Chargeback percentages — Sub 0.5% is ideal
- Inconsistent month-to-month processing volume
- State licenses and local permits
- Proof of compliance (FDCPA, Business registration, etc.)
- How long the agency has been in business
- Payment gateway modernity
Cloud-based platforms held 64% of market share in 2024 and are on track for strong growth through 2033. Meeting processors halfway with modern technology, clean processing history, and proactive chargeback management is the name of the game these days.
Tools That Give Collection Agencies The Edge
All payment processing platforms are not created equal.
Collection agencies have specific needs that most payment processors don’t cater to. But the ones that do can offer incredibly valuable tools to help agencies not only get approved, but stay approved.
Managing chargebacks begins before the dispute is even filed. If an agency is fighting tooth-and-nail to stay below 1% chargebacks then it’s already losing.
Successful agencies utilize:
- Automated payment reminders
- Tokenized customer payment information
- ACH payments as an alternative to credit cards
- Built-in compliance reporting
- Comprehensive payment history records
Payment processing shouldn’t be a headache. Learn what sets best-in-class payment partners apart from the rest.
Chargebacks are a part of life in the collection industry. But they don’t have to control the outcome.
Preparing a business to get approved for a merchant account is half the battle. Staying approved is what builds a long-term relationship with a processor and better rates.
The Bottom Line
Running a debt collection agency has never been easier when the right payment tools are in place.
Chargebacks are inevitable. Managing them efficiently is what separates agencies that stay approved from those that don’t.
Agency owners who recognize the power of modern payment technology are passing the competition left and right.
- Know the high-risk triggers specific to collection agencies and work against them
- Use chargeback management tools to fight back
- Partner with a processor that specializes in high-risk industries
- Start building a clean payment processing history today
- Adopt a payment platform that offers real-time reporting and transparency
