As many as 79% of American credit reports contain errors that cost customers thousands of dollars of increased interest paid on mortgages, car loans, and other credit lines evaluated by underwriters. So it’s no wonder why there is such a lucrative market for credit repair companies.
Demand for services that improve credit scores has soared in the wake of the pandemic. With individuals and businesses looking to borrow funds to see them through the recession, the market is set to expand well beyond initial forecasts for the 2020 to 2025 period.
However, this industry has a tarnished reputation thanks to the actions of a few deceitful outfits. Many high-profile fraud cases involving credit repair businesses have led merchant account providers to label the industry as high risk. Securing a credit repair merchant account has since become challenging.
However, this post will walk you through some of the pitfalls to avoid when operating a credit repair services company and lay out a roadmap to securing better payment processing for your credit repair payments.
Credit Repair Industry Boom Leads to Soaring Credit Repair Merchant Account Applications
While many industries have been struggling thanks to COVID-19, companies offering to repair poor credit scores have seen an increase in demand. Many individuals have been looking to shore up bad credit indicators on their reports with the recession biting. By doing so, they can secure lines of credit or loans at much more agreeable interest rates.
From wrongfully applied late credit card payments to incorrect bankruptcy filings, credit repair consultancies, debt consolidation services, and credit education services can be worth their weight in gold. Especially when people are struggling to pay their bills on time.
Regardless of the specific credit repair services being offered, companies in this vertical tend to follow specific pricing and product structures. The business model is usually based on monthly payments in exchange for actions such as challenging incorrect bad credit markers or monitoring your credit score on an ongoing basis.
Generally speaking, fees range from $19 to $149 per month, depending on the number of services offered. It will take six months for all incorrect information to be removed from someone’s credit report in most scenarios. For debt consolidation providers and credit repair educators and consultants, a one-time fee is much more prevalent.
However, despite the increase in demand for credit and debt expertise, the ride has not been smooth sailing for merchants.
Credit Repair Merchants Face Increasing Numbers of Chargebacks, Fraud, and Refunds
Of course, the issue with a tanking economy is that it helps and hurts merchants operating in this vertical. Chargeback ratios are soaring across much of the Western world. Customers who can no longer afford the monthly fees are committing so-called “friendly fraud” by issuing a chargeback rather than pursuing a refund.
Even those without high chargeback ratios are suffering from high refund rates. These may be less serious than a slew of chargebacks. But acquiring banks and other financial institutions still view those with high refund rates as high-risk businesses on their online applications. In fact, refund rates over 15% can limit your available payment processing solutions.
Given that clients will be coming to you regarding issues with credit card bill payments, it should come as no surprise that most merchant services providers like to give the credit repair industry a wide berth.
The subscription-based business model causes the vast majority of the issues. When customers make payment using their Visa or Mastercard credit card via your payment gateway, they usually sign up for monthly rebilling. However, when they check their statement, buyers’ remorse sets in, and they call their credit card issuer to initiate a chargeback.
In other cases, once most of the work has taken place to correct mistakes on a client’s credit report, they no longer want to receive your service. Rather than cancel the monthly contract correctly, they simply issue a chargeback as they think it’s less work.
Lastly, numerous individuals who are using this service are close to maxing out their credit cards. While the initial payment might go through, the subsequent monthly payments may be declined by credit card processors due to insufficient funds. Those charging one-time fees upfront can suffer the same fate with payment processors rejecting attempted payments. In many cases, this is because the upfront fee exceeds the customer’s credit limit.
Thus, even if you manage to secure high-risk merchant account providers’ services, credit card processing might not be the answer to your high-risk industry payment processing.
When Credit Card Merchant Accounts Fail, Look to ACH and eCheck Instead
There’s no need to despair if securing merchant account services for your credit card transactions doesn’t go to plan. It’s essential to understand that there are other options available to you. Just because your customers struggle with bad credit, it doesn’t mean that they can’t pay for your valuable services.
One of the best methods is using the Automated Clearing House (ACH) network. This network is responsible for more than 90% of US electronic payments, with $40 trillion moved across the network each year. Rather than using the networks used by credit or EMV debit cards, this payment infrastructure facilitates bank-to-bank payments. You probably use the network yourself without realizing it, as most salaries are paid into employee accounts using the ACH network.
What you also might not know is that you can leverage the ACH network to sell your services. You can secure credit repair merchant accounts that work as a processing account for ACH and eCheck payments. If you’re wondering, eChecks work like their paper counterpart. They are just issued electronically and leverage the ACH network to move funds from a customer’s bank account to yours.
There are many methods for taking payment in this way, including using an ACH virtual terminal. Using this method, you can reap all of the benefits, such as PCI compliance and anti-fraud tools such as AVS, without the increased risk of incurring chargebacks. You see, chargebacks are much harder to issue for this payment method as they come directly from a bank account. And, since you will be setting up recurring payments in many instances, you can use this method to scale to high volumes of payments, quickly building a rock-solid processing history.
But as a credit repair or debt consolidation merchant, what else can you do to lower the risks presented to your business?
Did you know that credit repair companies are not the only type of businesses that can scale quickly using ACH and eCheck payments? Read our ultimate guide to ACH and eCheck payments to see if your business type is listed.
How to Lower Risks as A Credit Repair Merchant and Secure Better Payment Processing
To ensure your credit repair merchant account application process goes well, there are several steps you can take to reduce the number of red flags (risk) that your business presents to acquiring banks. Remember, payment processors are effectively underwriting the risk to them your payments present, so they are first going to make sure you’re a business worth dealing with.
For starters, you need to collate your bank statements and processing statements going back at least six months. It would help if you could show acquirers that processing your payments is worth the additional risk. Thus, showing you have excellent cash flow from your credit repair e-commerce site is an excellent start.
But there are several more steps you can take to pique the interest of merchant services providers who offer both credit repair credit card and ACH/eCheck processing. Start by making sure how you advertise your services is well within the law. Don’t misrepresent the services you offer. Remember, if the information on a credit report is accurate, it can’t be removed by anyone. So don’t make promises to the contrary. Credit repair companies also don’t undertake services that can’t be carried out by the individuals themselves.
Next, make your service agreements and any other contracts you have with your client as clear and unambiguous as possible. Make cancellation as easy as possible to avoid incurring chargebacks from lazy or disgruntled customers who decide to pay by card. It’s also illegal to charge for services upfront before performing the work.
There are other steps you can take to reduce risk. You can limit the size of the fees you charge for your packages to increase conversions. You can also split big one-time fees into several installments to ensure you can carry out at least some paperwork before charging a client anything.
Finally, as a merchant, you can also perform several checks (such as a cursory investigation of their credit history) to ensure that the customer is a good fit for your credit repair services. Taking on a customer who has no chance of securing good credit will only lead to a refund or a chargeback when your services make no tangible difference.
Take Advantage of the Credit Services Boom by Securing a Specialized Credit Repair Merchant Account
When times are tough economically, the demand for credit improving products and services goes up. With the world still recovering from the pandemic, there’s never been a better time to secure a slice of this lucrative high-risk business vertical. But credit repair merchants need to be aware that, more often than not, credit cards are not an option for e-commerce offerings in this space.
The best alternative solution comes in the form of ACH and eCheck processing. By taking payment directly from a customer’s bank account, you can avoid the risks associated with client payments made on credit cards close to their limit or in default.
Here at DirectPayNet, we serve some of the world’s leading credit repair companies, debt consolidation specialists, and credit education outfits. We know what it takes to secure payment processing that allows your business to take advantage of the current market conditions.
To find out more about how to convince merchant services providers that you have what it takes to secure a specialist credit repair merchant account, contact our payments experts today.