Why Debit-Card-Only Acceptance Makes Sense for Debt Repayment
Sometimes customers fall behind on payments. If you're a financial institution or lender, you know how challenging collections can be. You want to make the debt repayment process as easy as possible while reducing your operational costs and risks of non-payment. Also, it’s a process you want to get right from a compliance standpoint: For example, businesses may be restricted from accepting credit card payments for debt repayment.
If debt repayment isn’t already a high-priority customer journey for your business, it will be. The Federal Reserve reported that household debt balances continue to rise . By the beginning of 2024, the rate of credit card balances in serious delinquency hit their highest level since 2012. Young adults are particularly at risk; with their short credit history, they’re more likely to be maxed out on credit cards and miss payments, the Fed noted.
With these economic indicators, you’ll want to ensure your business has a strong strategy for facilitating debt repayment. One payment method, in particular, will take on new importance as part of the strategy: debit cards. Debit-card-only acceptance will enable you to accept this payment method without accepting credit cards, and you can always use it to complement your ACH payment acceptance .
Here are four reasons why you should consider a debit-card-only strategy for debt repayment.
REDUCE THE RISK OF RETURNED TRANSACTIONS
Other common payment methods, such as ACH payments, can take days to clear or even bounce due to insufficient funds or inaccurate account information. (If ACH returns are a costly issue for your business, recovery solutions can help. ) Debit card payments, however, are authorized in real time. This means you can instantly confirm payment approval and that the customer’s account has the available funds. By steering customers toward making repayments by debit card, you can minimize the risk of receiving a delayed return, which can disrupt your cash flow and cause additional operational costs.
LOWER YOUR COLLECTIONS AND CALL CENTER COSTS
When you reduce returned transactions by accepting debit cards, you also reduce the need to contact the customer to resolve the issue. Debit card payments will get responses to authorization requests while the transaction is taking place. If the request is declined, you will know on the spot and you can ask your customer to try another payment method instead of having to learn later that a payment is returned. This helps you save on costs and resources associated with collections and call center operations.