Merchant account for debt collection companies

Debt Collection and Debt Management Payment Processing

Payment processing for debt collection and debt management businesses is about considerably more than finding a provider willing to accept the sector.

A collection business may need to take:

• One-off settlements
• Regular repayment-plan instalments
• Payments while a customer is speaking to an agent
• Online self-service payments
• Card payments
• Direct Debits
• Bank payments
• Payments across thousands of individual customer accounts

For larger businesses, small weaknesses in the payment journey can quickly become expensive.

A poor setup can result in:

• Failed collections
• Unnecessary card declines
• High levels of manual payment handling
• Repeated telephone calls
• Difficult reconciliation
• Customer complaints
• Chargebacks
• Poor visibility over repayment plans

The right payment arrangement should therefore support both efficient collection and appropriate customer treatment.

Debt collection businesses can sit outside the standard risk appetite of some payment providers because of their transaction model, card-not-present activity and the nature of the underlying payments. Our High-Risk Merchant Accounts guide explains how specialist acquiring and underwriting can differ from mainstream merchant accounts.

This guide looks at merchant accounts, gateways, recurring payments, payment links and high-volume payment processing for debt collection and debt management businesses.

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Quick answer: Can debt collection companies get merchant accounts?

Yes.

Debt collection businesses can obtain merchant accounts and payment gateways, but provider choice can be more restricted than for ordinary retail.

An acquiring provider may want to understand:

• What type of debts are being collected
• Whether they are consumer or commercial debts
• Whether the company owns the debt or collects for another creditor
• FCA permissions where applicable
• How repayment arrangements are agreed
• How customers make payments
• Whether payments are one-off or recurring
• Whether customer money is subsequently passed to another party
• Monthly processing volume
• Average payment value
• Chargeback history
• Previous acquiring relationships

Mastercard currently identifies MCC 7322 – Debt Collection Agency for businesses primarily collecting debts in default that are owed, or were originally owed, to others. The final MCC remains the responsibility of the acquiring provider based on the actual business activity. 

Debt collection and debt management are not the same thing

This distinction is important both for regulation and payment underwriting.

A debt collection business may pursue and collect money owed to:

• Lenders
• Utilities
• Telecoms companies
• Local authorities
• Commercial businesses
• Other creditors

Some agencies collect on behalf of the original creditor, while others purchase portfolios of debt.

A debt management business may instead help a consumer deal with their debts, for example by providing debt counselling or adjusting and helping arrange a debt solution.

The FCA defines debt management activity around debt counselling or debt adjusting carried on with a view to an individual entering into, or in relation to, a debt solution. 

The payment flows can therefore be completely different.

An acquiring bank needs to know which business it is actually underwriting.

Does a debt collection company need FCA authorisation?

It depends on the activity.

Not every company chasing an unpaid commercial invoice is automatically carrying on an FCA-regulated activity.

However, debt collecting, debt administration, debt counselling and debt adjusting can all be regulated consumer-credit activities in relevant circumstances. Firms conducting regulated activities need the appropriate FCA authorisation and permissions. 

An acquiring provider may therefore check:

• FCA Register entry
• Permissions held
• Any limitations on those permissions
• Whether the activity described on the website matches the permissions
• Whether the debts being collected fall within regulated consumer credit

MAS does not determine whether a business requires FCA authorisation. Firms should establish their regulatory position independently.

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Why are debt collection merchant accounts considered higher risk?

There are several reasons payment providers may apply enhanced underwriting.

Recurring payments

Many customers repay debts over a number of months.

That can involve recurring card payments or other scheduled collection methods.

Customer disputes

Payments may be disputed because:

• The customer does not recognise the collector
• The debt itself is disputed
• A recurring payment was cancelled
• The customer believes the wrong amount was collected
• The card payment was allegedly unauthorised

Vulnerable customers

Debt collection frequently involves customers experiencing financial difficulty.

For FCA-regulated debt collection, firms must treat customers in arrears or default with forbearance and due consideration. FCA rules also prohibit pressuring customers into unreasonably large or rapid repayments where this would adversely affect their financial circumstances. 

Third-party money flows

Some firms collect money on behalf of another creditor.

An acquirer may need to understand:

• Who is owed the money
• Whether paying the collection firm discharges or reduces the underlying debt
• Where acquiring settlements go
• How money is allocated
• How funds are subsequently remitted

That is very different from an ordinary merchant selling its own products.

MAS insight: The payment journey matters as much as the merchant account

Many debt businesses focus first on:

“Which bank will accept debt collection?”

For an established collector, the bigger question can be:

“Is the way we collect payments actually working efficiently?”

A business may be taking thousands of payments but still relying heavily on:

• Agents manually entering card details
• MOTO transactions
• Repeated card attempts
• Manual bank transfers
• Spreadsheets
• Customers calling back to make payments
• Separate systems for payment and case management

At scale, this becomes expensive.

A better setup may combine:

agent conversation → secure online payment → tokenised card where appropriate → agreed repayment arrangement → automated reconciliation

rather than treating every repayment as a standalone telephone transaction.

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Taking payments while the customer is on the phone

Telephone collection teams often need to take a payment immediately.

Historically, that has commonly meant the agent taking the customer's card number and processing it as a MOTO transaction.

MOTO can still have a role, but it does not need to be the default for every telephone-assisted payment.

Using secure payment links

An alternative journey can be:

1. Agent agrees the payment with the customer
2. Customer receives a secure payment link by text or email
3. Customer enters their own card information
4. The payment is authenticated where appropriate
5. The result is returned to the collection system

This can potentially offer:

• Less card data handled by agents
• Reduced PCI scope in some configurations
• Access to 3D Secure where supported
• Clearer customer consent
• Better transaction evidence
• Easier payment reconciliation

The agent can remain on the telephone while the customer completes the payment if required.

Online self-service debt payments

A customer portal can allow people to make payments without having to speak to an agent.

Useful functionality can include:

• Outstanding balance
• One-off payment
• Agreed repayment amount
• Payment date
• Secure card payment
• Bank-payment option
• Receipt
• Case/reference number
• Payment history
• Contact or support options

For a high-volume collector, encouraging appropriate self-service payments can reduce:

• Call-centre demand
• Manual payment entry
• Payment errors
• Reconciliation work

The portal should not be designed to pressure customers into unaffordable payments.

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Recurring card payments and Continuous Payment Authorities

Recurring card payments are sometimes known as a Continuous Payment Authority or CPA.

They allow a business to request future card payments under an arrangement agreed with the customer.

The FCA explains that consent must be clear, specific and informed. Consumers can cancel a recurring card payment either with the business or directly through their card issuer. Cancelling the payment authority does not itself necessarily remove the underlying debt. 

For regulated consumer-credit collection there are additional FCA rules around CPAs.

The FCA Handbook permits CPAs in certain repayment-plan circumstances involving customers in or approaching arrears or default, including debt collectors acting under an appropriate arrangement with the lender. Their use must support fair treatment and forbearance. 

The FCA also requires the exercise of a CPA to be reasonable, proportionate and not excessive, including in relation to collection attempts. 

This makes recurring-payment technology particularly important.

The system should help the business control how and when transactions are attempted rather than encouraging uncontrolled retrying.

Failed recurring payments should not simply be retried repeatedly

Not every card decline means the same thing.

A useful payment system should identify whether a decline is potentially recoverable or whether the merchant should stop trying that card.

For example, a recoverable problem might involve:

• Insufficient funds
• Temporary issuer issue
• Expired card
• Authentication required

A hard decline might indicate:

• Lost or stolen card
• Closed account
• Restricted card
• Revoked authority

Repeatedly attempting a card following a hard decline is unlikely to improve collections and may worsen the customer experience.

For regulated debt collection, payment-retry logic also needs to sit alongside the firm's obligations around fair treatment, affordability and forbearance.

A better failed-payment journey may involve:

failed payment → appropriate reason identified → customer contacted → new payment date or method agreed

rather than simply:

decline → retry → retry → retry

Card updater and tokenisation

Recurring-payment businesses can lose otherwise successful payments when customers:

• Receive a replacement card
• Have a card expire
• Change banks
• Replace a lost card

Depending on the provider and payment setup, tokenisation and card-account updating services may help maintain legitimate recurring-payment arrangements.

A high-volume debt collector should ask:

• How card credentials are stored
• Whether network or gateway tokens are supported
• Whether card updater is available
• How a replaced card affects the repayment plan
• How customer consent is recorded

Direct Debit versus recurring card payments

There is no single best payment method for every repayment arrangement.

Direct Debit

Direct Debit can work well for regular scheduled payments.

Potential advantages include:

• Familiar customer experience
• Predictable regular collections
• Direct Debit Guarantee protection
• No reliance on the customer's payment card remaining valid

Recurring card payments

Recurring card payments can offer:

• Fast setup
• Card-based collections
• Tokenisation
• Flexible billing dates where appropriately agreed
• Integration with card gateways

They do not have the Direct Debit Guarantee and the customer retains the right to cancel the card-payment authority. 

One-off card payments

These can be useful for:

• Full settlements
• Additional payments
• Missed instalments
• Telephone-assisted payments

Bank transfer or Pay by Bank

Account-to-account payments can also be appropriate for some one-off collections.

A payment link can potentially direct the customer into a secure bank-payment journey, with the payment reference passed back automatically.

For a high-volume business, that can reduce dependence on manual bank-transfer references.

A good debt collection payment setup may therefore use several payment methods, rather than forcing every customer into the same route.

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FCA obligations and payment technology

Payment technology should support the firm's regulatory obligations rather than work against them.

The FCA's current CONC rules require regulated firms dealing with customers in or approaching arrears or default to have regard to the Consumer Duty or customer-interest requirements and to treat customers with forbearance and due consideration. 

For example, the payment system may need to allow staff to:

• Change an agreed payment date
• Reduce an instalment where appropriate
• Pause collections
• Stop a recurring authority
• Record customer contact
• Offer alternative payment methods
• Prevent inappropriate automatic retries

A system designed purely to maximise collections without recognising customer circumstances may create both operational and regulatory problems.

Vulnerable customers

Debt collection businesses are particularly likely to deal with people experiencing:

• Financial difficulty
• Illness
• Bereavement
• Mental-health problems
• Relationship breakdown
• Loss of employment
• Other vulnerable circumstances

The payment process should therefore be designed carefully.

For example:

• Payment links should show the agreed amount clearly
• Customers should not be encouraged to pay more than agreed
• Recurring arrangements should be transparent
• Cancellation routes should be clear
• Failed-payment communications should be appropriate
• Staff should have the ability to pause automated collection activity

This is one reason why payment automation should not mean removing human oversight altogether.

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Debt management firms and client money

Debt management businesses can have a further consideration that ordinary debt collection agencies may not.

Where a CASS debt management firm receives or holds client money, the FCA's CASS 11 Debt Management Client Money rules can apply. 

These rules include requirements around the treatment and segregation of client money. CASS 11 states that relevant client money should be paid directly into a client bank account rather than first being received into the firm's own account. 

That makes the payment architecture important.

Before implementing card acquiring for a debt management plan, a firm may need to establish:

• Where the acquirer settles the funds
• Which account receives the payment
• Whether money is client money
• How money is allocated
• How creditor distributions are made
• How refunds are handled
• How payment fees are accounted for

A standard ecommerce merchant-account structure should not automatically be assumed to be suitable for a debt management firm's client-money flow.

Chargebacks and disputed debt payments

Debt collection businesses can receive chargebacks for reasons including:

• Transaction not recognised
• Cardholder says payment was unauthorised
• Recurring authority had been cancelled
• Incorrect amount
• Customer disputes the debt
• Descriptor is unfamiliar

A merchant should retain appropriate evidence such as:

• Payment agreement
• Customer consent
• Transaction confirmation
• Correspondence
• Payment-plan terms
• Case reference
• Evidence of any recurring-payment authority

A clear billing descriptor is especially important.

If a customer does not recognise the company name appearing on their card statement, an otherwise legitimate repayment may become an avoidable dispute.

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High-turnover debt collection: payments become an operational problem

For larger debt collection businesses, the commercial opportunity is not simply a cheaper acquiring rate.

A business taking tens of thousands of monthly repayments should understand:

• How many transactions succeed
• How many payments fail
• Why they fail
• How often failed cards are retried
• How much payment activity is MOTO
• How much is self-service
• How many payment plans use cards
• How many use Direct Debit
• How much agent time is spent processing payments
• How quickly payments reconcile against customer accounts
• How many chargebacks occur
• How much each payment method actually costs

At this scale, small improvements in the process can become significant.

MAS insight: Cost per successful collection matters more than transaction rate alone

Imagine one provider quotes a slightly lower card rate.

That looks attractive.

But the alternative provider has:

• Lower authorisation performance
• Weak recurring-payment tools
• No card updater
• Poor reporting
• Manual reconciliation
• No payment-link functionality

The apparent saving may disappear very quickly.

For high-volume collection businesses, a better measurement is:

What does it cost us to successfully collect and correctly allocate a payment?

That means considering:

processing cost + failed payments + staff time + reconciliation + chargebacks + technology

rather than simply the merchant service charge.

Payment authorisation rates

High-volume collection businesses should monitor payment approval performance.

Useful questions include:

• What percentage of attempted card payments succeed?
• Which decline codes are most common?
• Are the same cards repeatedly retried?
• How do online payments compare with MOTO?
• Are recurring payments correctly configured?
• Are customers being asked to update expired cards?
• Are authentication-related declines occurring?
• Are failed payments being moved into an alternative payment journey?

A business processing large volumes can lose substantial revenue through avoidable declines.

Moving MOTO payments online

This could be one of the biggest opportunities for an established collection business.

A company may have historically built its operation around telephone collections.

As the business grows, it may be worth examining whether more transactions can move from:

agent handles card details → MOTO payment

to:

agent sends secure link → customer enters card → online authenticated payment

This does not mean removing the call-centre relationship.

It changes how the payment itself is completed.

Potential benefits can include:

• Reduced handling of card details
• Better authentication
• More customer control
• Stronger payment evidence
• Easier digital receipts
• Better integration
• Reduced manual entry

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CRM and case-management integration

For debt collection, getting the payment is only half the job.

The business also needs to know which account the money belongs to.

A suitable gateway or payments platform may need to pass:

• Customer reference
• Case number
• Creditor
• Payment amount
• Payment type
• Transaction ID
• Collection date
• Settlement status

back to the debt-management or collections system.

Webhooks or API integrations can allow successful payments to automatically update the customer's account.

This can reduce:

• Manual reconciliation
• Misallocated payments
• Spreadsheet work
• Customer-service enquiries

For high-volume firms, this can be as important as the acquiring rate.

Reporting for large collection businesses

Useful reporting might include:

• Payments attempted
• Payments approved
• Payments declined
• Decline reasons
• One-off payments
• Recurring payments
• MOTO payments
• Online payments
• Payment-link success
• Refunds
• Chargebacks
• Settlement
• Fees

The business should be able to analyse payment performance at:

• Portfolio level
• Creditor level
• Agent level where appropriate
• Payment-method level

without relying entirely on manual spreadsheets.

Can debt collection businesses use more than one payment provider?

Potentially.

A larger collection business may use different payment services for:

• Cards
• Direct Debit
• Pay by Bank
• Telephone payments
• Online payments

There can also be legitimate resilience reasons for more than one acquiring route.

However, each provider should understand the activity.

Multiple merchant accounts should not be used to:

• Conceal debt collection
• Hide excessive chargebacks
• Avoid transaction limits
• Route transactions rejected by another provider
• Circumvent scheme or acquiring controls

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Switching debt collection merchant accounts

Established businesses may have more options than when they first obtained processing, so therefore switching accounts could be beneficial..

A review may be worthwhile where:

• Turnover has increased significantly
• The existing provider has increased rates
• MOTO costs are high
• Recurring payments perform poorly
• Settlement is slow
• Reporting is inadequate
• The business has added online payments
• The existing gateway does not integrate with the CRM
• The company has built several years of clean processing history

But do not cancel an existing debt collection merchant account simply because another provider has offered a cheaper quote.

The replacement provider should understand and approve:

• The business model
• Debt type
• FCA status
• Payment flow
• Customer countries
• Recurring-payment arrangements
• Third-party money flows

before the existing account is closed.

Why debt collection merchant account applications get declined

Common reasons can include:

Provider appetite

Some acquiring banks simply do not support debt collection.

FCA permissions are unclear

The application and FCA Register may not appear to match.

Business model is poorly explained

The provider cannot establish:

• Who owns the debt
• Who the customer owes
• Who receives the card payment
• Whether paying the collector discharges the debt

Third-party payment flow

The acquirer may have concerns about money being collected and remitted to another business.

Excessive MOTO

A heavily telephone-based payment profile may receive greater scrutiny.

Chargebacks

High levels of disputed or allegedly unauthorised repayments can make placement more difficult.

Recurring payments are unclear

The provider may not understand how customer authority is obtained or how later payments are collected.

Previous termination

A new provider will normally want to know why an earlier facility ended.

What should businesses compare between debt collection payment providers?

Sector acceptance

Does the acquirer knowingly support debt collection?

Regulatory fit

Does it understand the firm's FCA status and activity?

Payment methods

Can it support:

• Ecommerce
• Payment links
• MOTO
• Recurring cards
• Direct Debit
• Bank payments

Gateway

Does the technology integrate with the collection system?

Recurring payments

Can it support:

• Tokenisation
• Repeat collections
• Failed-payment reporting
• Appropriate retry controls
• Card updater where available

Pricing

Compare:

• Acquiring charges
• Fixed transaction costs
• Gateway fees
• MOTO pricing
• Refund fees
• Chargeback fees
• Monthly costs

Settlement

Check:

• Settlement period
• Weekend settlement
• Reserves
• Deductions

Reporting

Can payments be reconciled against individual customer accounts?

Support

Who helps when:

• Payment performance deteriorates
• Recurring transactions begin failing
• A customer disputes an authority
• A settlement is missing
• Transaction volumes increase significantly

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High-turnover debt collection business? Ask MAS to review the payment setup

For established debt collection or debt management businesses, MAS can look beyond finding a merchant account.

A useful payment review may consider:

• Current acquiring costs
• Gateway costs
• MOTO volume
• Online payment volume
• Monthly transaction numbers
• Recurring-payment volume
• Failed payment rates
• Authorisation rates
• Chargebacks
• Settlement
• Payment links
• Direct Debit
• Pay by Bank
• CRM integration
• Reconciliation

This can help establish whether the biggest opportunity is:

lower processing cost, higher payment success, reduced manual handling, improved recurring collections or better technology.

What should you send MAS for a high-volume review?

Where available, send:

• Three recent merchant statements
• Monthly card turnover
• Number of card transactions
• Average payment value
• MOTO/online split
• Recurring-payment volume
• Current payment gateway
• Current acquiring provider
• Approval/decline rate
• Main decline reasons
• Chargeback rate
• Direct Debit volumes
• Payment-link volumes
• Settlement terms
• Current CRM or collections system
• FCA number where applicable

This gives us a considerably better starting point than simply asking:

“What rate can you offer?”

How Merchant Advice Service helps debt collection and debt management firms

MAS helps businesses with more complex payment requirements understand their options and identify potential payment providers.

New debt collection merchant accounts

MAS can consider:

• Business model
• Debt type
• FCA status
• Monthly turnover
• Payment methods
• Technology

before identifying potentially suitable routes.

Online and telephone payments

We can consider whether payment links or online payments could complement or reduce reliance on MOTO processing.

Recurring payment plans

Requirements may include:

• Tokenisation
• Recurring cards
• Failed-payment handling
• Reporting

High-volume collection businesses

For larger operations, MAS can review the wider payment setup including:

• Cost
• Authorisation performance
• Recurring payments
• Payment links
• Reporting
• Settlement
• Integration

Declined applications

Where a provider has already declined the business, understanding the reason is useful before another application is submitted.

Terminated facilities

Where processing has been terminated, the reason should be established and accurately disclosed before replacement processing is sought.

Existing firms looking to switch

Processing history may help established firms compare their current payment arrangement with alternatives.

Approval and final commercial terms remain with the payment provider.

What should you include in a debt collection merchant account enquiry?

A useful initial enquiry includes:

• Company name
• Website
• FCA number where relevant
• Type of debts collected
• Consumer versus commercial debt
• Whether debts are owned or collected for another party
• Monthly payment volume
• Number of transactions
• Average payment value
• Payment methods
• MOTO percentage
• Recurring-payment requirements
• Current provider
• Current gateway
• Chargeback levels
• Previous declines or terminations

For debt management firms, also explain how customer money is received and distributed to creditors.

What happens after contacting MAS?

MAS will normally start by understanding:

1. What type of debt activity the business undertakes
2. Its regulatory position
3. Who owns the debt
4. How customers currently make payments
5. Whether repayments are one-off or recurring
6. Monthly processing volumes
7. Existing payment technology
8. Chargeback and processing history
9. Whether funds are subsequently remitted to another party
10. What the business wants to improve

For high-volume businesses, the review may also consider:

• Approval rates
• Decline reasons
• MOTO usage
• Failed recurring payments
• Reconciliation
• Payment links
• Integration

Where an appropriate route exists, MAS may introduce the merchant to a relevant acquiring or payment provider.

This article provides general payment information and is not regulatory, legal or debt-advice guidance. FCA permissions and consumer-credit requirements depend on the firm's precise activities. Businesses should confirm their regulatory obligations with the FCA and appropriate professional advisers.