Payday loans are already a big moneymaker in the United States, and our northern neighbor are learning how profitable they can be. In the past year, payday loans in British Columbia have risen a whopping 21%. This is leading the way for Canadian merchants to look into this industry as a new business venture. While payday loan merchants can make big profits, there are risks involved with the industry that can leave their quest for a payday loan merchant account long and hard.
Unlike a typical bank loan, a payday loan typically charges high fees. This is because the background of the borrower is not scrutinized; therefore, the lender is not certain whom he or she is dealing with. Much like a title pawn, where people place their car title up for cash, payday loan borrowers are usually in fast need of cash, regardless of the interest rates. And it is these interest rates that can come back and bite the borrower. With interest rates as high as 30%, it takes many years to pay off even a small loan. However, thanks to regulations, these gigantic interest rates are quashed, leaving some payday loan lenders without the big profits that they once had. Even so, this is still a lucrative business. It isn’t so much the cash flow that has merchant account processors unhappy about these companies – it is the lack of cash flow.
The default rate for payday loans is high in the United States, and there is no doubt that it will be high in Canada as well. Because of this, merchant account processors have placed payday loan merchants in the “high risk” category, meaning that it can be tough to find a merchant account. Even if a merchant can find a cooperative merchant account, chances are high that the processing fees will be high. This should not be the case, but it is if you do not look for the right payday loan merchant account processor. The right processor will allow you to accept these payments with an “industry standard” processing fee. It is possible, both for US-based and Canada-based merchants.