Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Articles by Sean Murray
The World is Going Mobile
January 28, 2013We noticed a lot of people sharing and retweeting a link today to a web campaign by Google to create mobile friendly sites. Coincidentally, we’ve been working on “mobile-izing” Merchant Processing Resource for the past couple weeks. We used Google’s GoMo tool to see how we’re doing so far:
2 Seconds and easy to use! Now it’s your turn to GoMo.
Get to our site easily on your phone by typing in MPR.mobi.
History of Merchant Cash Advance
January 24, 2013The History of Merchant Cash Advance
Before it was mainstream, it was kind of mainstream. Merchant Cash Advance (MCA) is not new or even relatively new and it definitely isn’t a byproduct of the 2008-09 financial crisis. In fact, in 2007 some people thought the best days of the industry were already behind it. In an August 2007 issue of the Green Sheet, Dee Karawadra expressed reluctance to write about MCA because he believed the subject was stale.
When a GS Online MLS Forum member suggested I write an article on cash advance, I explained my research and said, “I think that boat has come and gone, and I missed it.”
Dee’s article is an excellent snapshot of the feeling of 2007. Excitement was running wild and bold predictions were being made. A lot of the same questions being asked today were asked and answered back then. Those employed in the industry that do not take the time to read up on MCA history are at a disadvantage. And one thing this industry did a great job of, was chronicling all of the events that unfolded.
The Green Sheet
Prior to 2007, The Green Sheet’s forum was the only source for information. It is still filled with threads going back as far as 2003 on the subject. The discussion seems to begin by one user posing the question:
Who thinks a cash advance program, (a loan) on future credit card volume will help themselves get more deals and their merchants operate better?
March 2003
By 2004, MCA was all the rage. Competition began to nibble at AdvanceMe’s monopoly, a monopoly they were rightfully entitled to because they owned the patent on split-funding. Many chose AdvanceMe anyway simply because they had already established a name for themselves.
You might want to check out AdvanceMe. I think they have a superior product and service as well as more money too … that you will be better served by AdvanceMe than you would by any of the other Cash Advance companies of which their [sic] are not that many.
August 19, 2004
And many weren’t even sure what they were selling exactly. Merchant Cash Advance had not yet even been coined as a term:
quick show of hands as to what title you would place on this product… A) Factoring of receivables B) Cash Advance C) something else… Just for the record – I don’t know what to honestly call it.
August 20, 2004
Those that responded called it an unsecured loan, factoring, merchant funding, and cash advance. Some that weren’t even familiar with the concept appeared completely lost in the conversations. It was common to confuse cash advance as meaning to take a cash advance out on an actual credit card. The need for a universal term was badly needed. An industry couldn’t progress forward if no one even knew what the industry was.
A Way to Build and Strengthen Merchant Account Portfolios
But on the subject of giving money to merchants in exchange for more back, programs offered by AdvanceMe and Rewards Network were compared on the merit of the cost to the customer. Since reps viewed MCA as an acquisition tool to obtain merchant accounts or retain them, commissions and renewals were rarely discussed. They were basically a non-factor and some folks from this era carried this mentality straight into the financial crisis age of MCA. Funders advanced merchants not to make money on advances, but to build their own processing residual portfolios and to sell or lease more POS equipment. The loan, cash advance, merchant funding, or whatever it was of the day was a tool to drive business, not a business itself. Right before and during the financial crisis, funding companies began to streamline their focus and suddenly it became all about funding and nothing else.
The MCA industry has remained in that state for about 5 years and some are starting to think that it’s time to evolve. A poster on DailyFunder.com recently ranted that his company can’t grow unless it diversifies, coincidentally citing that MCA would be better served as an acquisition tool. If this happened, history would repeat itself.
This should be a lesson to the MCA industry which is trying to make a product out of something everyone else views as an acquisition tool. Are we just lenders or diversified businesses? We are the former. As such, prices will never come down, margins can only get slimmer.
1/19/2013
In 2004, when the MCA industry was joined at the hip with payment processing, becoming a dedicated funder was a way to stand out from the crowd. But perhaps now that the market is saturated with dedicated funders, it is getting more difficult to build a presence in the market.
Behold! Merchant Cash Advance!
In May 2005, The Green Sheet was forced to label the product when it published a story about Merchant Cash Advances. We’re not claiming that this article coined the phrase, but it is a good approximation of when it started to be called such. A few sentences in, they actually disclaim their own term.
There isn’t even consensus on what to call the product, except that it is most definitely not a loan.
The three word term was not even used in the Green Sheet forums until October 2005, and then not again until March 2006. Soon after, that became the term of choice.
The One and Only MCA Blog
As MCA financing took on a life of its own outside of payment processing, the industry turned to a blog to learn about the unfolding events. From 2007 to 2010, David Goldin, the CEO of AmeriMerchant wrote weekly updates about his firm and experiences. He wrote about his harrowing battle with AdvanceMe. After invalidating their patent, he opened the floodgates for any funder interested in utilizing split-funding. He offered honest opinions and had excellent foresight, forever documenting what it was like for the MCA industry during the financial crisis. Anyone that didn’t get to experience that time firsthand should read it start to finish.
As Goldin’s company grew, he turned his focus to other matters. The North American Merchant Advance Association (NAMAA) was formed on April 29, 2010, a non-profit alliance designed to bring peace and order to an industry that had gone through tremendous turmoil in the last few years. He all but abandoned the blog afterwards.
Free Info for All
Where Goldin left off, I resumed by starting a credit card processing/MCA blog in July 2010 named Merchant Processing Resource (MPR). At that time, I was an MCAer that had toiled away as both the head of an underwriting department and as an account executive. The blog covered a lot of topics and was targeted towards business owners and ISOs simultaneously. I believed there was a vast amount of data that newcomers didn’t have about MCA and set off to share as much as I could without self-promoting a product or service.
By December, my web host (a very simple blog site named Webs.com) informed me that the website was using too much bandwidth for the current package. I upgraded it only to encounter the same problem again 9 months later. The site was forced to transfer to a real host in order to grow and be able to handle the surging stream of visitors. Webs.com’s format was not conducive to transfers and as a result, every article written prior to August 23, 2011 was time-stamped with that very date.
Three History Books
To recap, the Green Sheet and their forums were the places to follow MCA from 2003 to 2007. Goldin’s Blog narrated the story from 2007-2010 and MPR has carried the torch since then. If we go further back, and we believe everyone should, you’ll find that AdvanceMe kind of existed in a world of their own in the late 1990s. In 1999, they funded $9 million. What they were funding annually increased to $200 million by 2006, a time when they had already amassed more than 14,000 clients. These aren’t exactly the humble beginnings of a new industry. These are serious numbers that could arguably support the theory that MCA was already well into the mainstream.
MCA in Black and White
MCA information was publicly available nearly two decades ago via the U.S. patent office. Barbara S. Johnson is listed as the official inventor of split-funding AKA Automated Loan Repayment in documents filed in 1997. There were no forums or bloggers to explain how it worked. There was only this:
Systems and methods for automated loan repayment involve utilizing consumer payment authorization, clearing, and settlement systems to allow a merchant to reduce an outstanding loan amount. After a customer identifier (e.g., a credit, debit, smart, charge, payment, etc. card account number) is accepted as payment from the customer, information related to the payment is forwarded to a merchant processor. The merchant processor acquires the information related to the payment, processes that information, and forwards at least a portion of the payment to a loan repayment receiver as repayment of at least a portion of the outstanding loan amount owed by the merchant. The loan repayment receiver receives the portion of the payment forwarded by the merchant processor and applies that portion to the outstanding loan amount owed by the merchant to reduce that outstanding loan amount.
The Automated Loan Repayment kicked off an industry that would evolve significantly over the next 15 years and yet a payment processor was already doing this to fund merchants as far back as 1992. Litle & Company didn’t call it MCA. That name didn’t even come about until around 2005, but they were the first MCA funder in the country. The makes MCA more than 20 years old.
Been There, Done That
We may have closed a chapter in 2012 when it became evident the product had finally graduated from the minor leagues, but there is a forever long story that preceded it. MCA financing existed before some account reps were even born. Sadly some of these kids talk to prospects today without really even knowing what they’re selling. Then again, in 2004 no one knew what the heck they were selling either. There is still technically no formal name especially since split-funding is no longer the standard. If the poster in 2004 posed the same question today about what to label this product as, there would be just as much disagreement. Business cash advance, merchant financing, ach advance, cash flow loan, ach funding, merchant cash advance, unsecured loan, merchant loan. Nobody really agrees and nobody really even does it the same way as everyone else. It’s all MCA to me and I’ll keep reporting on it for as long as it lasts. And as long as it keeps reinventing itself, there will always be a chance to get in early. Those that read up on the past or were there and experienced it firsthand have a major advantage. History repeats itself in MCA.
You know those butterflies you’re getting about 2013? They were felt before in 1998, 2004, and 2007. MCA was kind of mainstream before it was mainstream. 2012 ignited a spark and some of us know what’s going to happen next. As for the rest of you, brace yourselves. It’s going to be more crazy than you can imagine.
– Merchant Processing Resource
https://debanked.com
If They Were in MCA
January 23, 2013
If Gordon Gekko (Wall Street) was in MCA, he would be that strict underwriter that everyone hates.
On Approvals: “I look at a hundred deals a day. I pick one.”
On making an exception: “I don’t throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought.”
On a phone call with the rep: “You stop sending me information, and you start getting me some.”
On ordering a site inspection: “I want to know where he goes, what he sees, I want you to fill in the missing pieces of the puzzle.”
If Agent Smith (The Matrix) was in MCA…
His thoughts on the underwriting department: “Never send a human to do a machine’s job.”
On a collections call: “As you can see, we’ve had our eye on you for some time now, Mr. Anderson.”
In regards to the secret terminals the merchant is using to avoid repayment: “Find them and destroy them.”
If Michael Scott (The Office) was in MCA…
On what type of merchants to target: “There are four kinds of business: tourism, food service, railroads, and sales. And hospitals/manufacturing. And air travel.”
In response to his ISOs wondering why there is no website to check balances for their merchants: “We can’t overestimate the value of computers. Yes, they are great for playing games and forwarding funny emails, but real business is done on paper.”
Just for fun
– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
A New Approach to Providing Employee Feedback for Small Business Owners
January 22, 2013
Sometimes you just can’t figure out how to deal with employees. Take Rebecca your receptionist. She’s excellent with clients, knows exactly what calls to put through and when to take a message, dresses professionally, and gets along with everyone in the office. She can juggle answering multiple phone lines while greeting multiple clients with ease, and is great in a crisis.
On the other hand, as far as performing her day-to-day duties, you can’t complain as to accuracy, but let’s just say prioritizing isn’t Rebecca’s strong suit. Take ordering office supplies. Sure, you never have to worry whether or not you’re going to run out of paper clips – but not when Rebecca somehow thinks getting the office supply order into the vendor is more important than the unfinished monthly report sitting on her desk – a report you need for this afternoon’s weekly sales meeting.
You’ve tried giving her positive feedback – you’ve tried giving her negative feedback, both to no avail.
Things aren’t always “either or” as in “either the employee’s behavior merits positive feedback OR the employee’s behavior merits negative feedback.” The world we operate in has a tendency not to be that straightforward – especially when we’re talking about human behavior, even more so when the subject is employee behavior. You may think you’re limited to one or the other of these approaches – but maybe what Rebecca needs isn’t feedback – maybe Rebecca needs feedforward.
Paying it Forward
You might have seen the movie “Pay It Forward” where the premise was that whenever anyone did a good deed for you that you should “pay if forward” to three other people. The idea is put forward by a little boy responding to a school assignment to “Think of an idea that could change the world.”
Now, that’s a pretty tall order – but Dr. Marshall Goldsmith professor of executive education at Dartmouth, prolific author, and well-known management thought leader has an idea that just might change the way small business owners approach managing employees. His idea? Instead of providing employees with feedback he proposes a process he calls feedforward.
Traditionally feedback has been “top down” meaning that a manager (top) provides feedback to an employee (down) regarding their performance. Fortunately the field of management has progressed to acknowledging that, while employees can learn from managers, it is also true that managers can learn from their employees. This has led to better communication between management and employees.
However, Goldsmith points out a fundamental flaw within both approaches: they focus on the past instead of the “infinite opportunities that can happen in the future.” Furthermore, Goldsmith asserts that focusing on the past is “limited and static” whereas focusing on the future can be “expansive and dynamic.”
True Balance
The notion that feedback should be “balanced” usually means the attempt to find some sort of balance between how many times you provide an employee with negative feedback versus how many times you provide an employee with positive feedback. It certainly doesn’t take a Ph.D. in psychology to realize that too much negative feedback will most likely be de-motivating whereas too much positive feedback certainly isn’t going to improve an employee’s performance outside whatever it is they are already doing well.
This is where Goldsmith’s approach shines. Instead of struggling to come up with some impossible ratio between negative and positive feedback, the focus shifts to making observations about the past within the context of positively changing the future.
A Feedforward Conversation
Feedforward is not some inapplicable academic approach to managing employees at your small business. Feedforward is a process versus a “reprimand” or “compliment” you give an employee. Feedforward is a two-way conversation. Let’s take a look at what that conversation might look like with Rebecca the receptionist:
Small Business Owner: “Rebecca, I’d like to take a few moments to discuss this month’s report with you.”
Rebecca: “Sure.” (Rebecca is thinking: I wonder what I did wrong?)
Small Business Owner: “Before we begin, I want you to know that the goal of this conversation is to focus on how we can better use this report in the future to help our sales team. What we’re talking about here is what you can do to help make that happen, as well as how I might be able to help you as we move forward. I’d like to use this week’s report as an example we can learn from. How does that sound to you?
Rebecca: “Great.” (Rebecca is thinking: This is weird, I think my boss wants my help, not just tell me what to do.”)
Small Business Owner: “OK, so tell me what you think about how things went this week.
Rebecca: “I guess it was so sort of hurried. I almost didn’t get it done in time.”
Small Business Owner: “Why do you think that was?”
Rebecca: “Well, I had to get the office supply order out which meant I had to take inventory and that took a while.”
Small Business Owner: “Making sure everyone has the supplies they need is important. How do you think you could make certain that those two responsibilities don’t come into conflict in the future?”
Rebecca: “Hmmm…maybe I should change the day I do supply ordering to Mondays. Sales meetings are always on Fridays. That would give me three complete days to devote to the report. We could even plan to go over the report on Thursday morning together to make sure there aren’t any problems or errors.”
Small Business Owner: “I think that’s an excellent idea. You definitely got that priority straight. I’d like you to take a look at your duties and provide me with a schedule that allows you to meet your priorities. Let’s meet at ten next Tuesday to do that.”
Rebecca: “OK, but…” (Rebecca is thinking: She wants ME to set priorities?) “Well, what if I don’t prioritize things correctly?”
Small Business Owner: “We’ll work together on that. You know, Rebecca, you’re the one doing the work. You know what happens in the front office. I’d like to get your take first before I make any decisions as to how we want to prioritize your duties. Does that make sense?”
Rebecca: “It does, and I’ll be sure to do my best.”
– Guest Authored
Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
Getting Permission
January 21, 2013
Numbers don’t lie.
77% of online consumers surveyed said they want to receive permission-based marketing messages via email. Sounds impressive – but even more impressive when you learn that direct mail came in a distant second with only 9% looking forward to opening their mail box. Interestingly, only 5% preferred text messages. (Source: ExactTarget 2012 Channel Preference Survey)
That’s the good news. After all, email is perhaps the most inexpensive means for small business owners to communicate with consumers. The bad news is – before you can communicate with consumers via email – you’ve got to get their permission (along with their email address.)
Permission-based marketing simply means that you have your customer’s permission to contact them. However, if you’re a small business owner just getting their feet wet it’s likely that 77% of your list isn’t exactly a large number.
Collecting email addresses from customers and clients who have given you permission to contact them is the “Catch 22” and “between a rock and a hard place” of small business email marketing. Obviously purchasing lists of email addresses of consumers who fit the demographic of your customer doesn’t cut it. Emailing someone without their permission to ask for permission to email them just doesn’t make sense – not to mention today’s consumer tends to be totally turned off by businesses that make the attempt. Not too many fans of spam out there.
So, if you don’t have a list – how do you create one?
The Usual Suspects
It would be hard to find anyone with even a smidgen of experience searching the Internet who hasn’t encountered an “opt-in” when visiting a website. An opt-in is nothing more than a form that serves to ask permission to contact the consumer as well as collect their information. Visitors to your businesses’ website can opt-in to receive a variety of marketing messages from you – for example a newsletter, blog posts, or special announcements (such as a sale.) It makes sense to have opt-in opportunities on every page of your website.
Sounds great but, once again, if you’ve got very little traffic on your website, that translates into very little opportunity to build a Mondo email list. If the obvious tactic of including opt-in opportunities on your small business website doesn’t help that much when it comes to building your list – what other tactics can you employ?
Plenty – here are a few:
If you’re a retailer, make it a practice to ask for (and collect) every customer’s opt-in at the point of purchase. The same goes for B2B small business owners. For example, train your receptionist to ask for opt-in when taking calls.
Display an “opt-in sign up” book where customers and visitors to your office will easily find it. Be sure to include information that motivates people to provide you with their permission (i.e. a description of your newsletter, let them know you routinely email discount offers, etc.)
Do it the old fashioned way. It’s likely you’ve got the phone number of most of your customers and clients. Pick up the phone and call to ask for their permission to be contacted via email.
Contact customers and clients who’ve already subscribed. Let them know you’re running a “forwarding contest” and tell them they will be entered into a raffle for each person they forward your email to. Include a link that says something like “Forward to a Friend” (there are email marketing services that can identify which subscribers actually forwarded their email.)
Ask in-person. We are so “virtually” oriented that the obvious can escape us: ask people to opt-in when you meet them in person. This can be at professional and business networking events – even with that person you struck up a conversation with in line at the grocery store.
Partner with a related, non-compete business. Are you a web designer? Partner with a public relations firm and send out each other’s messages.
Include an invitation to opt-in on all printed marketing material. This includes everything from promotional brochures, stationary, and your business card. It also includes printed advertising.
Last, but definitely not least (and perhaps the most obvious) include a link to an opt-in underneath your email signature.
– Guest Authored
Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
Like a Rolling Stone
January 16, 2013
There’s an old story still making the rounds on the Internet about a woman calling into a computer company extremely frustrated because her new computer wouldn’t start up. The customer service technician, of course, first made sure the machine was plugged in (there’s a good chance that question made his customer even more angry and frustrated, but we all know it had to be asked.) The woman responded that YES, it was plugged in.
The technician then asked her what happened when she pushed the power button. Power button? The woman told him she wasn’t aware of any power button, but she was certain that the foot peddle was broken. She’s pushed and pushed on it and the computer refused to come on.
She thought the mouse was a foot peddle.
It’s pretty much a certainty that all small business owners and their employees have their own customer complaint stories –and we’re sure thousands and thousands of them are pretty funny. We’re also sure that untold numbers of customer complaint stories small business owners and their employees have aren’t funny at all.
We’ve all had days when we’ve been so used and abused by a customer we wish could just fire them. Which begs the question – is it OK to fire a customer? If so, when?
I Can’t Get No
Wise small business owners know that the customer is always right. However, this doesn’t mean that a customer has a right to be abusive to you or to your employees. On the other hand, things happen – things that customers are justified in making a complaint. Some of those things are going to be the “fault” (even though unintentional) of your business. Some of those things are going to be outside the control of your business. Whether your company is at fault or not isn’t the issue. The issue is making the honest attempt to resolve the complaint to your customer’s satisfaction.
The problem, as the song says, is that there are going to be customers who, no matter how hard you try, “Can’t get no satisfaction.”
Here is the short list of basic ways to respond to complaining customers seeking satisfaction:
Let them vent. Most of the time even the angriest customers just want to be heard. They want to know that you’re taking them, and their complaint, seriously and the way to let them know you are is to allow the customer to vent. It can be frustrating, but don’t break in or interrupt. Instead, let them tell you their whole story. When you do, you’ll be surprised at how many customers “calm themselves down” without your having to say a word.
Help them figure out what they’re complaining about. Many times customers and clients call in and seem to be complaining about a very specific aspect of your product or service (i.e. it didn’t arrive on time, the quality doesn’t meet their expectation) but, after that issue is resolved, are still frustrated and/or angry. The way to respond is by asking clarifying questions that help the both of your sort out what’s really going on. For instance, a client may think they’re complaining about the quality of the product, when what they’re upset about is the fact that the service technician who installed it did not take enough time to explain how to use the product.
Validate the customer’s experience. Right or wrong – what the customer experienced is what they experienced. Attempting to convince someone they really aren’t or shouldn’t be angry or frustrated isn’t productive. And apologizing can backfire. Certainly there are times when a sincere apology for a goof up on the part of your business is warranted. There are also times when doing so can create unrealistic expectations on the part of the customer – expectations that will ultimately lead to the customer complaining again when those unrealistic expectations aren’t met. For example, you might apologize for the technician not taking time to explain the product when they installed it and then discover the technician spent a couple hours doing just that when 15 minutes is the norm.
Use your best judgment when it comes to apologizing, but also understand that more often your customer will be more satisfied that their complaint is being handled when, instead of apologizing, you validate the customer’s feelings. For example, “I know how frustrating new technology can be. Do you have any questions regarding how to use Product A that I can help you with now?”
However, if you’ve listened to your customer, asked clarifying questions to make sure you’ve handled their full complaint, and attempted to sincerely validate their experience and that customer still becomes increasing abusive or unreasonable it can mean it is time to sever the relationship.
This can be done by explaining to the customer that you’re disappointed you haven’t been able to resolve their issue to their satisfaction, but you truly feel this is because their wants/needs aren’t a good match – and then refer them to a reliable competitor. However, you don’t have to take prolonged abuse. If the customer or client uses abusive language or becomes threatening, it is completely reasonable to inform that customer that your company has zero tolerance for that kind of behavior and end the conversation as well as sever the relationship.
– Guest Authored
Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
Not Science
January 14, 2013
We’ve published 2 articles recently about UK based lender, Wonga. In both, we expressed awe at their scientific algorithm that makes loans in 15 minutes without human interaction. Now we’re not sure that praise is deserved. A Guardian article recently revealed that their top secret super computer racked up 41% bad debt in 2011 as a percentage of annual revenue. 41%, a number that equates to 76.8 million pounds in write-offs. That’s apparently 4x higher than what it was in the previous year.
Is this science? Charge a high enough interest rate and you’re bound to find a balance between bad debt and profit. This isn’t science. This is what the average man calls rolling the dice. The problem with this strategy in the US is that most states cap the maximum interest rate so you can’t force a profit by charging an unlimited APR. Besides, there is proof that the worse the economy gets, the more their defaults pile up. Shouldn’t their algorithm factor in an economic downturn? What will their P&L look like in 2012 and 2013?
For years, we’ve made the case that aggressive lenders who make a point to grab market share while boasting of their dominance are the first to get smoked in the market. For some reason we let our guard down on this one. Maybe it had something to do with it being a British company. Believe it or not Wonga is still profitable, but to claim there is some kind of magic behind what they do is wishful thinking. To take a blogger’s words about this:
I’m sure Wonga would much rather it could know in advance who was going to default. Then it could charge its non-defaulting customers a lot less for its service.
Wonga apparently can’t do what it claims it is best at. Congrats on earning a profit Wonga, but here’s some words of advice about lending in the US. Technology is great, but don’t lend without humans. Trust us.
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Previous Wonga Posts:
Funding Down to a Science
Made For Each Other?
