Industry News
What Debit Card Interchange Reform?!
August 1, 2013
After years of debating over the law to cap debit card interchange fees and its eventual enactment, a federal court has struck it down. The 21 cent cap is gone but not because it was deemed unfair to banks but because the court thinks the cap should be even lower.
I wrote about the law several times over the last couple years. In the beginning, it was unclear as to what a debit card fee cap really meant, as I myself even explained it incorrectly the first time or two. The majority of folks believed the cap applied to the end user, the merchant, which helped to encourage small businesses,journalists, and even consumers to rally around it.
But when the law actually went into place, not much really changed because it didn’t have much to do with small businesses at all. The debit card reform law capped the amount of interchange fees that an acquiring bank pays a card issuing bank. The merchant wasn’t even involved although the acquirer can pass their new savings on to the merchant, but they don’t have to.
Many acquirers did pass some of the savings on but merchants went and did the opposite of what they promised. Their call to have their swipe fees lowered initially was so that they could lower their retail prices and and pass the savings on to consumers. Consumers believed this logic and supported small businesses to get this law implemented. A study by the Electronic Payments Coalition however, found that 67% of small businesses kept their prices the same or raised them.
There was clearly a lot of misinformation around this law and now it’s been struck down.
Two big misconceptions:
merchants will pay a maximum 21 cent debit swipe fee: Wrong
small businesses will turn their debit card fee savings into lower prices for consumers: wrong
My previous articles about debit card reform:
- The Debit Interchange Fee Battle Continues 2/7/12
- Law to Reduce Debit Card Fees to Retailers has Opposite Effect 12/12/11
- Where’s the Debit Discount? 12/11/11
- Don’t Make Us Pay is Back at it Again 10/21/11
- Revenge for the Durbin Amendment 10/3/11
- Don’t Make Us Pay Goes Quiet 7/11/11
- 15,000 Exempt From the Debit Card Interchange Fee Standards 7/14/11
- And the Misinformation Continues 7/12/11
- Blackjack! 21 Cent Debit Card Interchange Fee Plus 5 Basis Points 6/30/11
- Debit Card Feed Reform to be Finalized June 29 6/28/11
- Save My Debit Card Video Finalists 5/9/11
- Debit Card Reform is Gaining Steam in Canada 4/18/11
- Interchange Regulation and Reduction 4/16/11
- Wells Fargo, Chase, SunTrust Cancel Debit Rewards Program 3/28/11
- https://debanked.com/2011/08/6497526-the-merchant-processing-resource-is-not-hiring/ 3/23/11
- A Few Good Senators Try to Stop the Madness 3/17/11
- Say Goodbye to Debit Cards 3/11/11
- Congressman Steve Israel Replies to Us 2/22/11
- Debit Card Costs May Be Put on the Consumer 2/18/11
- Electronic Payments Industry Changing Forever 12/17/10
The Alternative Business Lending Worker Shortage
July 1, 2013“You open 40 accounts, you start working for yourself. Sky’s the limit.“
Is the dream getting harder to sell? The alternative business lending industry is booming and so much so that many job openings are going unfilled. I am asked on almost a daily basis if I know any experienced sales people that are looking for work. There really aren’t that many people out there with a strong merchant cash advance background and I think it’s impacting how fast this industry can grow. On the one hand, the industry is a lot less sophisticated than it used to be. Hold on for a second and allow me to explain myself. There was a good chunk of time in this business where saying the word, loan could get you fired. Loan?! Are you kidding? We buy future receivables at a discount!
Anyone could sell a prospect on working capital but only a select group of people could explain the purchase of future sales properly all while justifying the relatively high cost. And an even smaller group of people could take the deal to the next step and discuss the merchant’s current 3 tiered or interchange based rates, pick out the junk costs, and sell them on a better deal with a new payment processor. And an even smaller group of people could sell the merchant on the idea of using a new terminal due to PCI compliance issues or acquirer compatibility. And an even smaller group of people could sell or lease the merchant a new terminal instead of swapping out their current one or lending one for free with a multi-year contract. And still an even smaller group of people could convince the underwriter to approve their file in order for the 5 closed sales to even go through. Merchant cash advance in the traditional manner was and is a highly complicated multi-layered sale. The men and women that churn(ed) these deals out month after month on a consistent basis are nothing short of pros. Let’s not forget that payment processors have underwriters too so even after 6 closes, the payment processor could decline the approval of a merchant account, nuking the entire deal from start to finish.
Do you have any idea how comical it was when the mortgage brokers invaded the industry as the housing market neared collapse? They had no idea what they were doing and some of them barely lasted for 90 days before saying “I give up, this makes no sense.”
In today’s market, there’s a faster learning curve. I’d estimate that 55-60% of all new deals being funded with daily repayment in this country are using direct debit ACH to collect. Some funders and brokers lean towards this model so much so that they report funding more than 90% of their deals on ACH. That’s good news for new account reps because there isn’t much to learn about the product. There’s the amount being funded, the cost, and a daily debit to pay it back. Pretty simple stuff. This isn’t to say it’s not a tough sell or that it’s not competitive, because it is both of those things. Companies that swear by the ACH product have a hiring advantage because they don’t necessarily need salespeople with MCA specific experience. Almost any financial sales background will work or even no experience at all.
The smaller part of the industry is a mishmash of the old school sophisticated reps and the newbies that rely on the old schoolers to help them out with anything technical. When companies post ads saying they are looking for MCA sales reps with experience, they’re implying that they want people that can handle the multi-layer sale. A good craigslist ad should say:
Are you hungry?!
Must be able to do the following in a single phone call while driving at least 65 MPH on the Brooklyn Queens Expressway regardless of whether or not traffic is backed up:
- Convert a Micros POS system
- Lease an additional wireless terminal for off-premise sales
- Shave 12 basis points off the non-qualified tier (but make it back up by adding a $15 monthly statement fee)
- Close a 150k deal on a 1.40 (but know that the reduced factor rate is coming out of YOUR end)
- Write in a 6% closing fee
- Cut off 47 cars in traffic without hitting them
- Eat a slice of greasy pizza with your left hand without getting a single drop on your lap
Oh and below it will be a note that says “THIS POSITION IS COMMISSION BASED ONLY, NO DRAW, SELF-STARTERS WANTED, HOURS ARE 7-7 Mon-Sat“. Don’t laugh. This was the MCA industry for a time and a lot of people did very well in it. If you wanted to make money, you had to be able to do it all. For some of you, it’s still this way.
And let’s face it, the split-funding market may shrink but it will never die. Split-funding’s advantage is the ability to finance businesses that have poor cash flow. The risk of a bounced check is removed when payments are diverted to the funder by the payment processor. You hear that kids? You should be brushing up on your payment processing-ology.
Even as the ACH market boom continues, there are whispers of woe as funders deal with ACH rejects and closed bank accounts. It’s no surprise then that some companies are looking for pros, not just bodies to put on the telephone. It seems as the product has become less sophisticated, merchants have become more sophisticated. In 2007, I’d be willing to bet that more than 90% of small businesses had never even heard of a merchant cash advance and that was basically the only alternative available. In 2012 I actually did a presentation to a large room of business owners about merchant cash advance and none of them had ever heard of it until I taught them about it. That’s astounding!
Now I don’t think that many more people know about the purchase of future credit card sales in 2013 specifically, but I am inclined to believe that 90% of merchants are at least aware that alternatives to bank loans exist. And when they encounter somebody offering an alternative, they do their homework and check these companies out online. They get 2nd opinions and question why they have to switch processing when four other account reps said they don’t have to. They ask for better deals, longer programs, and they look you up on facebook to see who you really are. This is a different sales environment than what there used to be. The lowest price, the fastest process, or the most charming personality won’t guarantee you’ll win anything. Seeing that you’re backed by Wells Fargo or learning that Peter Thiel is on your company’s board of directors might be the hook, line and sinker for a business with a full plate of options at their disposal. Yes, it’s a different world, a different sale, and even a different product.
Funders and brokers need human resources to keep up with the fast pace of growth and there’s not too many of the old school guys looking for work. Not to mention that fewer people are willing to work on a 100% commission only basis these days. During and after the financial crisis, the herd of out-of-work financial service people flocked to whatever opportunity the could find. It was like you could throw a fishing net in front of the Lehman Brothers entrance and use it to scoop up 50 brokers as they all ran out the door for the last time. Newly minted graduates wanted to build their resumés instead of remaining unemployed. Some people were willing to work all 31 days of a month just for the opportunity even if they walked away with zero dollars at the end of it. Although the economy hasn’t recovered much, that hunger has relaxed and job seekers are being a bit more selective of the opportunities they choose. They want a base salary (even if small), benefits, and vacation time. Somewhere out there in another universe, Ben Affleck’s younger self is crying at the thought of this. “Vacation time?”
So when you put up an ad on LinkedIn or Craigslist and say you’re looking for 10 guys with MCA experience, just know that breed is in short supply and high demand. If you’re heavy on ACH, you can train new guys quick but they’re not going be equipped to take on the multi-layered sale if the tide turns back towards split-funding. There are tons of job openings out there for sales reps but those spots aren’t as easy to fill as they used to be.
“You become an employee of this firm, you will make your first million within three years. I’m gonna repeat that – you will make a million dollars.”
Happy hiring.
– Merchant Processing Resource.com
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
Merchant Cash Advance Competition
June 3, 2013
If I had a dollar for every time someone told me that Kabbage wasn’t a competitor in the Merchant Cash Advance space, I’d have my own funding company. It’s been argued that they only care about Ebay or Paypal and that their business model revolved around strengthening Ebay’s PowerSellers for the good of Ebay. I never really believed that was the case.
On September 11, 2012 I wrote this about Kabbage:
Some people feel that they are not a serious challenger to the status quo and that their tactics, methods, and headlines are merely shock value fodder for the rest of us to laugh at while we all rant and rave about ACH deals being the hottest thing since Square. We believe Kabbage is a company everyone should keep an eye on.
Kabbage analyzes many pieces of data in their underwriting including how many facebook fans a business has or added. And as of 2 weeks ago, what do you think happened?
Kabbage expanded their cash advance programs to brick and mortar businesses… (BusinessWeek)
And so here we are with yet another fierce well-capitalized competitor, a company that isn’t struggling to add technology but is rooted in it. Not only that, but last I heard they don’t work with brokers or agents. They cut out the middleman, much like Square did with ISOs.
Which brings me to the next few companies to keep an eye on:
Amazon: People say that their goal is to finance Amazon retailers for the good of Amazon. Sound familiar? I admit that Kabbage wasn’t owned by Paypal but there was a solid relationship there. Is it that ludicrous to think that Amazon will enter the brick and mortar cash advance business?
Groupon: They’ve been sniffing around this industry for quite a while. Keep an eye on them.
American Express: They already have their own cash advance program for premium merchants that accept a high volume of amex transactions. Every six months or so, their standards loosen. It’s only a matter of time until they have enough data to loosen their standards even more and compete head to head with the rest of the alternative business lending industry and cash advance industry.
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Scott Griest, the CEO of American Finance Solutions wrote in Disruption in the Alternative Business Lending Space that when all the dust settles in a couple years down the road, there will be only 4-5 large alternative business lenders. Consolidation and competitive pressure will thin out the herd and the strongest will prevail. The question is, will those 4-5 funding companies be the grass roots companies that propelled the industry to where it is today or will it be the big mega-corporations who are looking at our the industry like a delicious snack?
In one of the most read ever articles of MPR, I made this prediction in The End of an Era:
2014 will eliminate the weaker firms that remain and by 2015, Merchant Cash Advance will no longer be a term that anyone uses. Big banks and billion dollar technology companies will go on to rebrand all that which the funding warriors of the last decade have worked so hard to establish. MCA will simply assimilate into other financial products. The metaphorical Sally, Joe, and Tom will probably still be in the business, but be working for companies like Capital One, Wells Fargo, and American Express.
We weren’t kidding…
Merchant Cash Advance Industry is Busy at Work
May 16, 2013
After what was one of the wildest two weeks in Merchant (MCA) history, the game-changing news finally subsided, but no one is taking a deep breath. Instead, everyone is busy working their butts off trying to help small businesses grow.
UPDATE 5/16: RapidAdvance has acquired the operating assets of ProMAC. First Instance of consolidation that we’ve been predicting would happen this year. See news release detailing the acquisition HERE.
There is just loads of capital available right now and the technology is catching up quick to support the mass deployment of it. A writer for the American Banker believes that the MCA industry is even beginning to threaten community banks.
Many community bankers would be open to using online applications and other technological tools to make faster loan decisions, says Trey Maust, co-president and chief executive at the $121 million-asset Lewis & Clark Bank in Oregon City, Ore. But most community banks use a business model that requires more hands-on interaction with borrowers, he says.
Hands-on is another term for driving back and forth to the bank for appointments, having the bankers visit your business, all the while they try to sign you up for other bank products, like checking accounts that incur a monthly fee.
Who’s at Work
We know some of the major industry players but it’s interesting to see who else is doing significantly large volume. Pearl Capital recently reported funding $7 million in a single month and United Capital source came in at a tad shy of $4 million in just this past April. These are firms you may have heard of already, but they’re now sitting at the big kids table.
What the Generals are Saying
If you haven’t been paying attention to the DailyFunder.com forum, 4 Chief Executives have contributed to the site in a very meaningful way by sharing their thoughts on the MCA industry at large. This is the kind of wisdom you would normally get in bits and pieces through occasional citation in the Green Sheet or other publications, but the full monty has materialized in the very exclusive CEO Corner. Some key highlights from what they’ve shared so far:
Excerpts from Jeremy Brown, CEO of RapidAdvance:
Those of us that have been in this business for 5 years or more – Rapid started in 2005 – are excited at the positive press we get today vs. several years ago and how we are becoming embraced and accepted as a mainstream product. More PE firms, banks, and others want to invest in or lend to the industry. Those groups have always been intrigued by the returns in this industry but the conversations are different today.One thing I think will be different next year are fewer deals offered over 12 months in payback period. When you look at the data over an extended period of time, 18 month term loans don’t make sense for the merchants that are funded. It’s not the most efficient use of funds, limits the ability for the merchant to renew and the longer term deals are far riskier. (See: Year in Review and What Next Year May Bring)
Isn’t that the point of a 6 month MCA – to meet a current need and have the merchant be able to draw again in 4-6 months for the next capital need? That is the problem with the 15 – 24 month deals that are being offered to merchants today. Our industry is based on providing working capital to merchants. By its very definition, working capital is less than 12 months. Longer term deals are permanent capital, even when they are repaid over 15-24 months.it was no surprise when the economy tanked in late 2008 that the merchants in our portfolios at that time took a major hit to sales and therefore the funding companies losses increased by 50% or more on their outstanding portfolios. So what happens when the next recession – big or small – hits and funders have portfolios out to 24 months? It doesn’t take an MBA from Harvard to figure out that answer. (See: Working Capital or Permanent Capital
Haven’t gotten into the industry myself in 2006, I can totally validate the complete 180 in press coverage. I’ve put all my energy into MCA and it’s gratifying to finally hear the praises so many years later.
Excerpts from Steve Sheinbaum, CEO of Merchant Cash and Capital:
The industry already services hundreds of thousands of small business merchants with cash advances for growth and other purposes based upon monthly credit card receipts. For years this has been the basic model of operation. But, what about the substantial number of businesses that require quick and easy access to capital who don’t accept credit cards or don’t produce enough in monthly credit card receipts to qualify under the normal MCA guidelines? Tens of thousands of businesses could use the capital infusions the industry provides daily but either don’t think they’ll qualify or, because of our lack of creativity, the industry hasn’t produced a means of addressing their needs. These businesses would make great customers but because of the rigid requirements we have in place to protect our livelihoods we’ve left money on the proverbial table.That’s not the case anymore. (See: Creativity in the C-Suite…Another way to Fund!)
In regards to advances on gross revenue instead of just credit card payments, he’s absolutely right.
Excerpts from Andy Reiser, CEO of Strategic Funding Source:
the most important part of any deal is the people. We rely heavily on the relationships we have with the client and most importantly with our ISO partners and ISO syndicate partners who invest side by side with us. Valuing these relationships is far more important than relying solely on the numbers and how sophisticated our technology is.Over our 8 year history, we have noticed that the performance of a deal has more to do with the relationship we have with our ISO partner and ISO syndicate partner, then with the deal itself. We have all kinds of tools available to help us analyze the potential success of a deal – FICO scores, due diligence checklists, signed affidavits, warranties and representations, scoring models, algorithms, etc. And yet, some of the ugliest deals on paper have been some of our best performers, while some of the most attractive deals on paper have been nothing but trouble. (See: Business and Baseball Fantasies)
During my time as a head underwriter, I witnessed the exact same thing. Solid referral partners had solid performing clients even if they didn’t look so good on paper. Likewise, the shakier resellers had clients that underperformed across the board, including the deals that looked cleanest.
Excerpts from Craig Hecker, CEO of Rapid Capital Funding
As each MCA company grows and creates a positive reputation, we all grow as an industry…together. But as our popularity grows, however, so does our competition. We already know that Amazon, eBay, and Google are stepping into the market, and AMEX is looking to expand their short term financing portfolio. These big business industry leaders will help build our brand of finance and benefit our portfolios, but I also think it is fundamental that we market ourselves as the alternative to big business finance and identify ourselves with the small business owner. (See: Small Business and How MCA Can Bridge the Gap to Success
We’ve got some big names in the industry now, whether they are financing the merchants directly or backing the funders that do the financing. I agree that you need not be intimidated by competing against these established brand names. Positioning yourself as the funder next door, people that have walked a mile in the merchant’s shoes (literally) can actually be a strong advantage.
What’s Next?
We’re pretty confident there will be more big headlines in the near future but for now we can’t confirm or say anything. DailyFunder.com is also lining up additional industry captains to participate in the CEO Corner and I’m sure there will be plenty of nuggets for us all to dissect. They’re probably the best source of MCA information that you can possibly get.
Stay tuned.
– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
ETA Expo Recap
May 3, 2013
Recap of the ETA Expo as it pertains to Merchant Cash Advance:
- Just about every funder has an ACH program or is working on implementing one.
- Many funders are licensed lenders or are working to become licensed in the states where it may be necessary. There actually seemed to be a lot of excitement about this. Funders are finding comfort in being subject to state mandated regulations as it probably raises their legitimacy and it will make their businesses easier to value when trying to raise money or sell.
- The ACH repayment market will be larger than the split-funding market this year. There’s no doubt in my mind about this. That means that ACH funding is now the primary protocol behind Merchant Cash Advance.
- Almost everyone is working hard to build up their technology. I got a personal demo of RetailCapital’s ISO/Agent system in addition to Capital Access Network’s new CapTap. Both are great. Capital Stack also has a beautiful platform.
- Stacking is the issue of 2013 as I heard that word uttered probably every 30 seconds for a whole week. I know the NAMAA folks are talking about it but I don’t know what the consensus is. It’s important to keep in mind that many funders aren’t NAMAA members and that affects NAMAA’s ability to dictate policy. Capital Access Network, the largest funder in the industry isn’t even a member.
- Speaking of NAMAA, they refaced their website and it looks A LOT better. I see only 14 members listed but it’s my understanding that there are closer to 20 of them.
- Factor rates are all over the place. Swift Capital has a new 1.099 program, which has got to be the first one to fall under the 10% threshold aside from Amex’s Merchant Financing. Higher risk deals however still operate in the 1.49 and up range. There is no one-size-fits-all product anymore.
- There were several direct lenders walking around that I had never heard of and they are apparently doing significant monthly volume. More and more people are getting into the funding business.
- It’s exhausting trying to keep up with the news surrounding On Deck Capital. They are on a very deliberate path and what we keeping seeing and hearing is them just checking things off on their to-do list. I bullet-pointed my theory on DailyFunder in response to a few posts.
- Discover and Priority Payments threw great parties.
- New Orleans has a lot of charm.
Make sure to check out my updates and photos that I’ve finally posted from the ETA Expo on DailyFunder and feel free to add your own if you were there.
Dozens of photos from the show
Also read: Soul Mates: Merchant Cash Advance and Silicon Valley VCs
Soul Mates: Merchant Cash Advance and Silicon Valley VCs
May 1, 2013
Almost 1 year ago to the day, I wrote a piece titled How the Facebook IPO Affects the Merchant Cash Advance Industry. In a most fitting way to commemorate this anniversary, it was reported early this morning that Google Ventures and Peter Thiel are investing in On Deck Capital (“ODC”) through additional Series D Financing. Thiel is especially symbolic in this case as he was the first outside investor in Facebook back in 2004.
But don’t expect Jesse Eisenberg to be called upon to play Noah Breslow or Mitch Jacobs in a movie about small business lending just yet, as the ODC story is a tad less revolutionary than facebook. Or maybe it’s not. Google Ventures is not one of the usual backing suspects in the MCA industry, but their involvement in this case is a perfect validation of my prediction 1 year ago.
Merchant Cash Advance financing turns 15 this year and split-funding goes back more than two decades, but the best of times are just beginning. On September 19, 2012 I bid farewell to an era and made my case for the one I foresaw on the horizon. Facebook wasn’t the first social network on the Internet, nor was their concept original, but they changed how we interact with strangers, friends, and family members online forever. There is a familiar trend with ODC and even Kabbage, two names that every journalist appears obligated to mention these days when writing about Main Street. Perhaps their technology based approaches send a tingle up the leg of the mainstream media or maybe they’re just really changing the game. They definitely appeal to the Silicon Valley crowd in a way that the old guard of Merchant Cash Advance companies apparently do not.
“Old guard, did you just say old guard?!”
Contrary to urban myth, On Deck Capital and Kabbage are not taking on small businesses all by themselves. They are but a fraction of the overall alternative business lending market with the leaders being anything but old guard. Debt and Equity are pouring into these firms and there are no signs of it letting up any time soon. I can’t go a day without a fund, lender, or investor reaching out to me in some way with the hope that I can steer them to a funding provider in need of a capital raise. Their options to get in now are running low and my advice to them is to set your sights lower on ISOs. The big funders have got capital covered and the ISO market is the next gold rush.
The industry can’t grow without originations and most funders depend on some level of ISO business (a few entirely) to hit their benchmarks month after month. So the funders do their job well, but the lead generators are driving a large percentage of the growth.
In March, I attended the Search Marketing Expo in Silicon Valley. In a sheer twist of fate, at the same time a Merchant Cash Advance guy like myself was touring the campuses of Facebook and Google, it appears that Facebook and Google were busy touring the campuses of a Merchant Cash Advance company.
The connection between Silicon Valley and alternative business lending is beginning to run deep, very deep. I think we’re soulmates. Only time will tell.
Follow us at the ETA Expo
April 30, 2013May 3, 1:00am: I underestimated how easy it would be to make frequent updates. Wednesday was fantastic. I uploaded a couple dozen photos and updates all at once earlier today over on DailyFunder. As soon as the show was over, I found myself on Bourbon Street at the Discover party followed by the Priority Payments party. Both were a great time.
My Recap of the show is up now: ETA Expo Recap
Soul Mates: Merchant Cash Advance and Silicon Valley VCs
Original story about On Deck Capital’s investment from Google Ventures and Peter Thiel
My theory on why On Deck Capital took a paltry $17 million from Google Ventures and Peter Thiel
Photos and updates from the ETA
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May 1, 1:00am: Great start to the show this evening. Merchant Cash Advance providers and alternative business lenders continue to have a very strong presence in the payments industry. The booths I saw include: RetailCapital, NextWave Funding, Merchant Cash Group, On Deck Capital, Capital Access Network, Strategic Funding Source, American Finance Solutions, Swift Capital, MotherFund, and Principis Capital. GRP Funding and Paramount Merchant Funding are also on the exhibitor list but I didn’t spot their booths yet. That’s pretty substantial and it omits the major presence of Merchant Cash Advance companies that aren’t exhibiting. I bumped into Merchant Cash and Capital and walked the floor a bit with David Rubin of Capital Stack.
I met the guys behind Super G Funding which lends money against residuals. They’re great guys and they have such a unique role in the industry.
I think every funder I spoke with was quick to mention that they do 12 month deals and either offer direct debit repayment or will have it soon. The ACH train has disrupted the split-funding market pretty severely though many funders continue to do big numbers via split.
Nobody seemed to have an appetite for low FICO score deals (500s and below) except for Merchant Cash Group and Capital Stack which target the higher risk market intentionally. And when I say “don’t have an appetite for,” I literally mean when asking a funder if they do below 500 credit, the answer is some version of “HECK NO!!”
Overall tone, and perhaps its because opening night included open bar, but it was very optimistic. Most funders seemed intent on expanding and are eager to service as much business as possible. I definitely get that sense that there is a real focus these days on the bigger fish ISOs ($1 million+ in referral business a month). When newbie brokers enter the space, funders spend an enormous amount of resources developing them and many times they just don’t pan out. Either the brokers don’t have the capacity to do more than a handful of deals, or they just don’t “get it.”
If you’re a mom and pop ISO and you have just 1 or 2 deals a month, it’s more difficult these days to get time and attention from a funder. Capital is flooding into the industry and everybody wants partners that can produce volume. From a resource standpoint, the “1 and done” reps are not an efficient use of time.
Big ISOs have a lot of negotiating power at their disposal these days. In the last 7 years, it was good to be an ISO, then hard to be an ISO and now it’s good again. Many things in MCA have a weird way of going full circle. Hope to see you on Wednesday.
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Apr 30, 1:00am: 
Merchant Processing Resource will be publishing updates as often as we can from the ETA Expo in New Orleans. I am very excited to be down here. Earlier today I had the opportunity to eat beignets at Cafe Du Monde, visit the French Market District, and take a ride on the Natchez Steamboat on the Mississippi River. But starting Tuesday, it’s all business. A schedule of events can be found on the ETA’s website.
You can follow along with everyone else in town on twitter using #ETAExpo2013 or #ETAExpo13
and of course via the DailyFunder Merchant Cash Advance iPhone App.
Some pre-conference tweets:
ETA Expo 2013 on Twitter
pre-conference tweets
Storified by Sean M· Mon, Apr 29 2013 22:21:50
Here’s to learning, networking, and having fun!
– Merchant Processing Resource
https://debanked.com
Merchant Cash Advance Default Rates
April 14, 2013
Here’s a question that every investor, lender, and underwriter asks at some point, “What is the default rate on a Merchant Cash Advance?” I personally don’t like when Merchant Cash Advance is overgeneralized since every funder offers their own variation of it, has a different tolerance for risk, and calculates under-performing or non-performing accounts in a unique way. Alas, I am not trying to avoid the question but want to make it clear that there is no one-size-fits-all financing model, nor a standard for defaults. I will quote publicly available information though…
On Deck Capital
10/9/12 – States their default rate was in the low single digits, but it was double that amount during the recession. Source: Upstart Business Journal
3/27/13 – States their default rate is around 5%. Source: Forbes
Capital Access Network
10/1/12 – Default rate stated to be in low single digits by their CEO, who adds that $275 million in accounts have underperformed but not all of those have been written off. Source: Digital Transactions
2/14/13 – Claims their loss rate (at least for a selection of their portfolio) was 3.2%. Source: Gigaom
Kabbage
11/13/12 – CEO claimed their default rates were below 2%. Source: USA Today
IOU Central
9/30/12 – Public financial statements reveal that more than 8% of their loan portfolio is impaired or past due. Source: IOU Financial Inc.
Outside opinion
10/1/12 – A senior manager at First Annapolis Consulting claimed that Merchant Cash Advance default rates averaged 12 to 13% in 2009, but that they are down to around 4 or 5% today. Source: Digital Transactions
SBA Community Express loans
12/15/2008 – An SBA program that guaranteed small business loans between $5,000 and $250,000 (this range sound familiar?). Default rate was 7% and the program was shut down on April 30, 2011. Source: LA Times
Borro
6/13/2013 – Borro CEO reports their bad debt in this video to be approximately 8-10%. They offer personal asset loans and their clients are primarily small business owners.
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Despite these figures, I still hear from account reps to this day who claim that up to 20% of their portfolios default. These defaults don’t necessarily all happen on the first advance or loan, as they may happen after additional rounds of capital. Perhaps more interesting is that these reps claim the funders don’t so much as bat an eye at these statistics.
So what’s the default rate of a Merchant Cash Advance? Well it depends on a lot of things…
