The Broker’s Future Part TwoDecember 16, 2015 | By: John Tucker
THE ROBOTS ARE COMING
Merriam-Webster and Dictionary.com both agree, that a “robot” is a machine that is created to do the work of a person, carrying out a complex series of actions automatically, all controlled by a computer. Sometimes a robot can resemble a human being in likeness, but often times a robot is simply a piece of software, a piece of hardware, a piece of machinery, or a cloud based infrastructure called the internet (online networks). Professor Kaku is a futurist from City College of New York, a futurist is someone who makes what one would consider “fairly accurate” predictions about what the future holds and how these future events might emerge from present day events. Professor Kaku believes the following:
The job market of the future will consist of those jobs that robots cannot perform. Our blue-collar work is pattern recognition, making sense of what you see. Gardeners will still have jobs because every garden is different. The same goes for construction workers. The losers are white-collar workers, low-level accountants, brokers, and agents.
A RECAP OF PART ONE
Back in June 2015, I did an article for deBanked about the Broker’s Future, speculating if the good times were indeed over for the brokers as it pertains to their level of profitability and survivability going forward.
- I examined the 2000 – 2007 and 2008 – 2013 time periods, speculating that the “Era of the Broker” was indeed between the 2000 – 2013 period.
- Then, I examined the current time period which begins around the middle of 2014, that is seeing so much of a mass new entrance of brokers into the space, that deBanked had to compose a cover story on the phenomenon for the March/April edition of deBanked Magazine. The only issue with this current time period is that, in my sole objective opinion, we are in the “Era of the Strategic Networks”, and no longer in the “Era of the Broker.”
- I concluded the article in June with the following: those just now trying to come in and ride the wave will soon discover that just like with the Stock Market, the real money has already been made and most of the future returns are already capitalized.
AN INTRODUCTION TO PART TWO
My analysis shows that the current time period is all about Strategic Networks, which are mainly three networks to be exact, which include the following, all designed to produce competitive market advantages, positioning, strategies, qualified leads, etc:
- The Center Of Influence Network: this includes entities such as banks, credit unions, processors, accountants, VCs, credit bureaus, etc., that allow access to exclusive leads, exclusive data, equity financing, debt financing, mergers, etc.
- The Mom and Pop Network of random independent agents across the country who resell on a 100% commission basis, providing free marketing in a way that collectively they produce a significant amount of volume (even though individually most of the agents cannot make a living from this activity).
- The Online Network with exclusivity on the growing online marketplace of merchants seeking financing, education and options via the internet.
For Part Two Of The Broker’s Future, I want to focus in on The Online Network, which in my opinion will be one of the main destroyers of opportunities in our space for the majority of brokers going forward.
DEATH OF A B2B SALESMAN
For about $499, you can read a very comprehensive report from Forrester on the death of B2B salespeople. Forrester predicts that by 2020, over 1 million B2B salespeople will lose their jobs to the growing force of IT/Robotics, which includes various forms of technology, automation and of course the internet in general through E-commerce.
In relation to our industry of merchant services, merchant cash advance and alternative business loans, I don’t believe that we have to wait until 2020 to see significant changes, I believe these changes are already in full effect and the major players within our space are the ones that are truly capitalizing on The Online Network, giving them major exclusivity on the growing online marketplace of merchants seeking financing, education and options via the internet.
MERCHANT SERVICES HAS BEEN AFFECTED
The Online Network phenomenon has totally destroyed the feet on the street MLS (merchant level salespeople) over on the merchant services side. Before the rise of the Online Network, MLS were valuable to merchants as information on merchant processing, interchange, how the bankcard transactional process worked, etc., were not readily available and most banks did not handle direct sales of the service. So the MLS would park their car down the street, randomly walk into merchant locations, and provide the education via brochures, terminal samples, etc.
They would explain how the merchant processing process works, how accepting credit cards could boost sales through more impulse purchases and consumer convenience, and more. The MLS would then go over the different options of payment processing technology, commit the merchant to a 24 – 48 month lease of the technology, and make his/her commission off the leasing sales and eventually also off the residuals. However, the rise of the Online Network completely shattered this business model:
- The Online Network now allows the merchant to comprehend merchant services on his own, without the help of the MLS, by researching interchange and conducting his own “rate analysis”. The merchant can also now see the true cost of the processing equipment, thus to no longer sign up for leases for $100 a month for 24 months ($2,400) for a $350 terminal at best.
As a result, the MLS can no longer prospect on “rate savings” nor prospect based on the equipment such as through leases or even through free terminals anymore, due to the merchant’s knowledge that the terminal is worth $350 at best. As a result, the direct sales of merchant services has become a value-add to other services, requiring yesterday’s MLS to transform into something totally different such as a financing or payroll specialist, trying to convert merchant accounts over on the side, as part of the sale.
ALTERNATIVE LENDING HAS BEEN AFFECTED
The merchant cash advance and alternative business loan products are more popular today than they have ever been before, due mainly to the massive media attention that they have received with companies going public, CEOs landing interviews on major media outlets, talking heads debating the products across a number of media mediums, and more. 7 – 15 years ago (2000 – 2008), if you were to look up a product online called “merchant cash advance”, you would not have produced many search results. As a result, to inform and educate the merchant on the product, you needed an actual human being (a broker) to sit down and explain the nuances of said services referred to as “split funding”, “revenue purchases”, and “holdback percentages.”
Compare this to today, where a simple search for “merchant cash advances” gives you pages upon pages of articles, promotional ads that follow you across the internet, company websites, press releases, and more. The merchant can easily learn about the merchant cash advance as well as other new forms of alternative financing by going online and scrolling through the vast amount of information. They can educate themselves on the products, companies, and payback procedures. They can fill out a form and get 10 quotes from 10 companies within a couple of hours and in a lot of cases, receive funding from one of the companies by the next business day. The phenomenon is so big that companies in our space are now just referred to as “Online Lenders,” totally shunning the fact that many operate with traditional brick and mortar locations and still employ brokers to still resell the products like they did “in the old days”.
Based on my sole objective analysis, The Future is going to be all about the three networks of Strategic Partnerships, which includes The Online Network. Without a shadow of a doubt, those that control these networks will be the major players going forward, as they will have the leveraged resources, knowledge, experience, financing, and connections that the newer market entrants just do not have.
The 80/20 dynamic will continue, where 20% of the players produce 80% (or more) of the production, and the other 80% of the players will fight over the remaining 20% (or less) of the production, which just will not be enough to sustain profitability going forward.
As fast as these new entrants rush in, will be as fast as they burn out. Burning through their savings and retirement funds, and/or running up the utilization rate on their credit cards, trying to take advantage of a “market opportunity” that they “heard about”, but is pretty much already capitalized on, by those who have been here long before they came on the scene.Last modified: December 16, 2015
John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in Accounting, Business Management and Journalism. Tucker has nearly 9 years of professional experience in Commercial Finance and B2B Sales. Connect with Tucker on LinkedIn by clicking (here), or contact Tucker at Tucker@1stCapitalLoans.com or at 586-480-2140.