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
Did Somebody Say the End of the Credit Card Industry?
August 23, 2011
We check our site’s inbox once a day and usually receive some compliments, feedback, or industry secrets. But over the last two days, more than 15 people e-mailed us this link: The End of Credit Cards is Coming. This was followed by a barrage of comments such as “Does this mean the end of the Merchant Cash Advance industry as well?” or “It looks like your site topics are going to be obsolete.”
If any industry is poised to take a hit as a result of this “payment evolution”, it’s likely to be the manufacturers of plastic and magnetic strips. (The companies that make the cool shiny holograms on the back may also suffer.) If you actually READ through the article, it discusses an industry progression towards contactless payments. A contactless payment is still an electronic payment and it involves the same networks and banks. Saying the declined use of physical rectangular plastic cards will result in the end of the electronic payments industry as whole is like saying that the less frequent use of flutes and banjos will result in the end of music.
All sarcasm aside, this progression towards contactless payments indicates the merchant processing industry is on the verge of an explosive rebirth. Here’s why:
Equipment Sales and Leases
New technology to accept contactless payments will be required. If plastic cards are slowly phased out, retailers will have absolutely no choice but to purchase or lease equipment to accept contactless payments. (Sales and Leasing boom)
Increased Interchange profits for banks
The growth of contactless payments will likely cause Visa and MasterCard to increase certain interchange categories. They will rationalize this by providing proof that contactless security costs more.
New Payment Networks
Every merchant needs to accept both Visa and MasterCard branded cards in order to survive. In some regions of the country, it’s also important to accept American Express. Though American Express charges merchants more, they can’t afford not to have it. That being said, the above referenced article mentions the formation of a new super power payment network called ISIS to rival the current players. ISIS was formed by AT&T, T-Mobile, Verizon, Discover and Barclays Bank. Since ISIS is indepedent from the other payment networks, they will be able to create their own “interchange” and cost structure. I am inclined to believe that costs will not be lower than what’s commonplace in the current marketplace.
Increased Electronic Payments Usage
For the past 4 years, we’ve been lectured repeatedly by the government, teachers, and financial experts that credit cards are bad. During that same time period, we’ve also celebrated the importance and efficiency that phones/smart phones have brought into our lives. Blackberries, iPhones, Droids, texting, apps, skype, and wireless internet are the bread and butter of our daily lives. So what is the public inclined to infer with phones capable of making electronic payments?
- Credit Cards Payments Bad
- Smart Phone Payments Good
As long as Smart Phone is Good, consumers don’t need to feel guilty over their usage of credit. I’m sure we’ve all seen the debt counseling talk shows where they take an out of control spending housewife and force her to cut up her credit cards. She cries a little, acknowledges her problem, and then in a symbolic gesture of triumph, cuts up her cards. The entire charade portrays the plastic card as the perpetrator of the woman’s debt problems. One thing I don’t expect to see any time soon is a woman being lectured by a debt counselor to smash her iPhone with a hammer to stop her out of control spending. “In order to conquer your debt, I want you to go home and burn all 5 of the Droids on your family plan.”
BECOME DEBT FREE
Join the thousands of people who are breaking their scissors on their phones, buying new scissors, and then smashing their phones with a hammer. Say “Forget it to Credit” because there’s no app for your spending problems!
Those rectangular plastic cards may be on their way out but contactless payments are going to bring billions to the merchant processing industry. Happy processing!
-deBanked
Who is Really Getting a Merchant Cash Advance?
August 23, 2011
You’ve seen ads like it before: “Get up to $250,000 for your small business today!”
For the local corner deli, that kind of cash may seem too good to pass up. There’s just one catch, many Merchant Cash Advance(MCA) providers cap funding approvals at somewhere in the range of 125% of a business’s monthly credit card processing volume. That means a deli processing $10,000 would be eligible for up to $12,500. ‘Mom and pop’ shops are often left wondering if anyone could ever really get $250,000 or if that figure is just a deceptive marketing gimmick.
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The Merchant Cash Advance Resource would like business owners to know that $250,000 is not only possible, but deals of this size and larger are made often. The typical recipients are retail chains and restaurant franchises, but any business generating enough volume in credit/debit card sales is eligible. If there was any doubt about the popularity or legitimacy of the MCA financial product, take a look at some franchise names that have used it:
- Burger King
- Domino’s Pizza
- Hooters
- Subway
- Dunkin Donuts
- Taco Bell
- Denny’s
- Wendy’s
- Meineke Car Care
- Maaco
- Aamco Transmissions
- Curves Fitness
This data was confirmed by researching UCC filings on AdvanceMe, Strategic Funding Source, Merchant Cash and Capital, First Funds, and Business Financial Services.
Every funding provider is not created equal. Some of the oldest players such as AdvanceMe, Merchant Cash and Capital, and Strategic Funding Source are capitalized well enough to do deals up to $1,000,000. Other firms specifically seek out larger businesses such as Bankcard Funding in Long Island, New York. According to a representative there, their average funded deal is $100,000. Others have a comfort range of $5,000 to $75,000 but will bring in outside investors if they need to go beyond that.
Merchant Cash Advance is not just for smaller businesses, nor is it a last resort source of capital. It is an established alternative to bank lending that offers incredibly flexible repayment terms. Despite the benefits, a MCA still has a reputation for being expensive. While we don’t dispute that, we do recognize the need for it. Unlike SBA loans which can carry default guarantees up to 90%, MCA’s are completely backed by private investors. There are no billions of dollars to fall back on, government backed guarantees, or bailouts when things turn ugly.
Over the past few years, some MCA firms simply weren’t able to generate enough profit and closed as a result. In the case of Global Swift Funding(GSF), a MCA provider that dissolved back in 2009, the return on investment simply did not prepare them for the loss they would realize from a very important client.
http://www2.ocregister.com/articles/gantes-money-million-2399154-bankruptcy-restaurants
John Gantes, formerly one of the richest Men in Orange County, California owned 110 restaurants throughout the western part of the U.S. As the economy turned sour, he reportedly started loading up on Merchant Cash Advance funding for each location. In the end GSF cried foul, but they could not sustain operations further.
There is risk on both sides of the equation. A MCA is not for businesses on the fritz, but rather is a tool to acquire inventory, new locations, upgrade equipment, get through a slow season, and grow. While much hype surrounds the minimal paperwork requirements for MCA, businesses seeking in excess of $100,000 should expect a more intensive underwriting process.
“Have detailed financial statements handy and expect some scrutiny of the Balance Sheet,” was advice offered by one underwriter. “We’re going to want to make sure you are using these funds for the right reasons.”
And yet the MCA industry stands by their mantra of making capital accessible to all. With funding amounts reportedly as low as $1,000, and more than 21,000 individual advances made in 2010 alone, there is really no better time for a small business owner to apply.
The funds are there but it’s important to set your own expectations of how much you can access. The corner deli should be able to put $12,500 to good use. Our experience shows that positive sales activity will probably make the funding provider more comfortable to extend a larger amount to you down the road. I think we’d all like to get $250,000 today but in the absence of government backed guarantees, a tumultuous economy, and jittery investors, you’ll need to get your foot in the door first and work your way up.
-The Merchant Cash Advance Resource
http://www.merchantcashadvanceresource.com
Images Copyright (c) of 123RF Stock Photos
Summary of New 2010 Americans with Disabilities Act ATM Standards
August 23, 2011
Wondering when the local ATM machine would finally accomodate your needs? There is good news for you!
On July 26, 2010, on the 20th anniversary of the Americans with Disabilities Act (ADA), the Department of Justice announced rules updating the ADA standards governing the construction and alteration of facilities, including places of public accommodation, commercial facilities and state and local government facilities.
The new standards adopt guidelines established by the Access Board, an independent federal agency that develops and maintains design criteria to ensure access for people with disabilities.
New standards include new technical specifications for speech output guidance, keypad controls, display screens and Braille instructions for impaired consumers.
DOWNLOAD THE FULL 7 PAGE PDF FILE SUMMARY HERE
BY FIRST DATA AND STAR
Who Are You Really Dealing With?
August 23, 2011
A long time ago, I did what every man has to do at some point in their lives (hopefully only once), plan my own wedding. Once the reception hall was booked, I assumed the job was 90% complete. My wife proved that theory wrong and before I knew it, we found ourselves in a wedding vendor tornado. Which photographer was best?…which florist…which DJ…caterer, limo company, hotels, theme, invitations, and honeymoon? But finding the best was only the beginning. Not everyone was available for our special day, nor was everyone in our price range. Even worse, some of our top choices had reputations for being late or not showing up at all.
It was tough to determine who was genuine and dependable. Some of our phone calls would go unreturned for days and others would hide large fees in their contract that they hoped we wouldn’t find. As a consumer, it was an experience I’ll never forget. I was thankful to have most sales presentations face to face and can only imagine how much more difficult it would’ve been to choose over the phone.
And that’s just it… a very large percentage of financial transactions are conducted over the phone and internet. For the Merchant Cash Advance industry, it’s upwards of 90%. Rate shopping can be done at light speed but the warning signs of a bad vendor are harder to spot. Anyone can tell you what you want to hear, but consumers should use the internet to fill in the blanks.
Researching the company helps but it certainly can’t hurt to check up on your salesman too. Believe it or not, bad people can work for good companies. Inexperienced people can too. The Merchant Cash Advance Resource is offering some advice for business owners. Go on Google, Bing, or Yahoo and search any or all of the following:
- The company’s name
- The company’s name (followed by) reviews
- The 1-800 #
- Your salesman’s direct phone #
- Your salesman’s name
- Your saleman’s name (followed by) the company’s name
- Your salesman’s e-mail address
Some additional sites are:
- The Better Business Bureau (www.BBB.org)
- LinkedIn (www.LinkedIn.com) Find the professional profile of your salesman and view their experience
Need help interpreting the data? Here are some signs this vendor may not be for you:
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The salesman that tells you how much experience they have in the business comes up with this:
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Don’t take any of this the wrong way. The Merchant Cash Advance business has been around for a long time. Most firms perform background checks on their employees and provide them with the proper training. Regardless, any transaction that requires the handling of social security information and bank statements should warrant a little due diligence. This advice applies to banks, insurance companies, stock brokers, and investment funds.
My wedding vendors were fantastic and the time spent chasing the best overall deal (reliability, experience, reputation, price) rather than choosing on price alone was worth it. I hope business owners use the same approach when obtaining working capital.
-The Merchant Cash Advance Resource
By: One of our individual contributors
