Merchant Processing

Square Makes Jeopardy’s Daily Double

September 17, 2020
Article by:

“What is Square?”

That was the right question to the answer read by Jeopardy host Alex Trebek during an episode that aired this week. Contestant “Beth” hit a Daily Double and waged $2,000 to try and take the lead over “David” and “Joe.”

Square employees reacted on twitter by pointing out that the quoted transaction cost was a little out of date, but mostly took the honorable mention in stride.

Square Beats Revenue Estimates with $439 Million; Lending Business Grows 70%

November 2, 2016
Article by:

Square Inc’s stock jumped 7 percent on Wednesday, thanks to upbeat earnings reported Tuesday.

The Jack Dorsey-led company recorded a loss of $32 million for the third quarter, compared to $52 million in the comparable period last year, and beat analysts’ revenue estimates of $430 million, with a 32 percent jump in revenue totaling $439 million.

Square processed $13.2 billion worth of transactions through its point of sale devices, up 39 percent since last year and the company’s lending business, Square Capital grew 70 percent annually, extending $208 million through 35,000 loans. With this, it has originated over $1 billion in two years.

Square's Jack Dorsey

Above, Square CEO Jack Dorsey, right, talked payments at Money2020

Square Capital loans are made by Celtic Bank and loan offers are presented using the Total Cost of Capital method, where cost is disclosed as a precise dollar amount so that potential borrowers will know exactly how much they will have to pay. By enforcing a fixed 18 month term, Square differentiates its loan product from a merchant cash advance or a purchase of future sales.

Square CFO Sarah Friar told CNBC that there is still a lot of room for growth in the Square ecosystem with existing merchants, even as the company extends credit to businesses that do not use Square for payments. Friar also said that the company is  “executing on all cylinders” to beat estimates for revenue and growth.

It’s Not About Replacing Banks, Square CEO Says

October 30, 2016
Article by:

Jack Dorsey at the 2016 Money2020 Conference in Las Vegas

Square CEO Jack Dorsey as he walked on stage at the 2016 Money2020 conference in Las Vegas

It’s not about replacing banks, it’s about making financial services more accessible, said Square CEO Jack Dorsey in regards to what his company and others in the fintech space are doing. During his fireside chat-style address at Money2020, he bemoaned chipped card transactions for being so slow while defending their decision to go public when they did.

“It took us a long time to get [transaction times] down to under five seconds,” Dorsey said. Their goal is to get it down to 3 seconds, which is 7 seconds faster than today’s industry average. The payments CEO who is also the CEO of twitter, appeared to empathize with consumers on long wait times with chipped cards. People aren’t happy,” he said. “It’s really, really, really slow.” While more security is good, he argued that it has to be complemented by a frictionless experience for consumers.

Square Capital, their lending division, was hardly mentioned during his time on stage, which seemed more a consequence of his time allotment than its relative importance. The company funded $189 million to their small business customers in the second quarter. “Our goal is to make sure we’re helping our sellers grow,” Dorsey said. “As they grow, we grow.”

When asked if the timing of their IPO last November was the right choice, Dorsey said that going public should be viewed as an enabler, not the goal. “It’s an investment vehicle,” he argued while standing by their decision. Notably, compared to OnDeck and Lending Club, Square is the only one of the bunch to be currently trading above its IPO price. The stock recently closed at $11.15, up 24% from their $9 IPO on November 19, 2015.

Square Sets Foot in UK with Squareup Europe

July 20, 2016

Square is making a jump across the pond to sell its service in the UK. 

The payments company incorporated Squareup Europe Ltd in London early last month.

The six year old company started by Twitter chief Jack Dorsey plans to provide payment services in Britain which it began testing last month, Reuters reported.

With a presence in the US, Canada, Japan and Australia, the company provides payment solutions to merchants through its mobile point of sale device on iPhones and iPads.

In the US, Square made the natural transition to offering loans to its customers. In Q2, Square reported a loss of $97 million but raised projections for 2016 revenues from $600 – $620 million to $615 – $635 million. With low customer acquisition costs, Square is well positioned to become an easy choice for merchants who already use the product. The company made 23,000 advances for $153 million in the first quarter before moving on to ditch the MCA program for business loans

Why You Shouldn’t Overlook Selling Merchant Processing

January 4, 2016
Article by:

merchant processingPrior to daily fixed payment business loans, there was the traditional merchant cash advance (MCA). The MCA, being the only option, required merchants to tie their need for working capital to that of their merchant accounts, either directly or indirectly, through the use of either split-funding or a lockbox account.

Split-funding is a direct method that requires the merchant to convert their merchant account over to a chosen Independent Sales Organization (ISO), you could also refer to the ISO as a Merchant Service Provider (MSP). The MCA company contracts with an ISO/MSP who then manages the flow of the merchant’s daily credit card processing volume. A percentage is withheld and forwarded to the buyer of those receivables.

The lockbox is an indirect method to manage the flow of funds. Rather than withhold funds from the ISO/MSP, a separate FDIC insured account is established on the side for all credit card processing receipts to settle into initially, with a percentage of that volume going to the buyer and the remaining amount “swept” into the merchant’s operating account.

Nevertheless, whether directly or indirectly, the merchant account of the business owner was the foundation of the MCA approval and facilitation. Because many MCA companies also offer alternative business loans today with fixed payments, a lot of the new broker entrants do not believe that learning about the field of merchant processing is as important today as it was years ago. However, I disagree with this notion, as the purpose of our industry is the long term relationship with the client, and in many ways the traditional MCA product provides more “benefits and value” to the merchant over time than today’s business loan. Just as new broker entrants get to know all about the MCA, they should also get to know all about merchant processing.


The alternative business loan requires no merchant account conversion as it doesn’t tie the merchant account to the facilitation of the working capital transaction. With these loans, a percentage of gross revenues are approved with fixed terms up to 36 months on daily or weekly payments. The main benefit of this product over the MCA is the awareness of payment frequency and quantity upfront, thus, enabling the merchant to better allocate their cash flow.

However, while the traditional merchant cash advance requires the tie-in of the merchant account, there’s no fixed terms nor fixed payments as it correlates with the merchant’s sales cycle, where they deliver more during busy times, less during slow times.

When selling the merchant the long term aspects of the MCA, why not seek to get their MCA funded using the split-funding method rather than a lockbox? Doing so would provide an additional revenue stream within your client portfolio. To properly seek out this opportunity and be able to consult, convince and convert the merchant over to your MCA firm’s ISO/MSP Partner, you want to fully understand what merchant processing is all about.


A merchant account is an unsecured line of credit provided to a business from a registered ISO/MSP. The credit line enables the business to benefit from accepting Visa and MasterCard (V/MC) along with other major bankcards from their customer base, to experience the benefits of acceptance which includes better fraud management, higher average tickets, customer loyalty due to convenience, and more. V/MC are just registered card brands that manage a group of banks called “member banks”, which are banks apart of a listing of V/MC bank associations. The member banks pay V/MC dues and assessments to market their brands. You have different types of member banks, you have the Issuing Banks and then you have the ISO/MSP along with the Sponsoring Banks.

The Issuing Banks issue credit cards with credit limits to consumers after they meet credit criteria. On the processing side, you have the registered ISO/MSP and Sponsor Banks, which approve a merchant for a merchant account and process payments through a front-end authorization network, then settles them through a back-end network.

During the processing of a credit card transaction, there’s a couple of different fees that are charged. Interchange is one of the fees charged, which is how the Issuing Banks are paid. These are wholesale prices for every type of card that a merchant could potentially run at the point of sale, with new interchange pricing charts released in April and October of every year. The ISO/MSPs are paid when they mark-up interchange as well as through fees such as an annual fee, statement fee and batch fee.


The merchant account is indeed an unsecured line of credit, because when a merchant’s customer runs an order on their credit card for $500, the merchant would rather have that entire $500 upfront rather than waiting for the customer to pay off their credit card balance in full, which could potentially take years. As a result, the ISO/MSP deposits the amount in their bank account within 48 hours rather than having the merchant wait until their customer pays their credit card balance in full.

Now, if the merchant’s customer initiates a chargeback of the $500 transaction and the merchant loses the case, the $500 would have to be refunded by the merchant plus the costs of the chargeback which includes a chargeback fee and retrieval fee. If the ISO/MSP goes to get the $500 from the merchant and there’s no money in their account (let’s say the merchant has gone out of business), then the ISO/MSP who underwrote the merchant account is on the hook for the charge.


When using split funding for a merchant cash advance deal, if you switch over their processing to an ISO/MSP that your MCA firm currently split funds with, you are looking at collecting the long term residuals from the processing and the compensation from future merchant cash advance renewals. In addition, split funding is much more efficient than using a lockbox, as a lockbox usually adds 1-2 business days to the settlement process for everyone involved. Withsplit funding, the merchant can continue to receive their processing deposits as normal.

There are different types of payment processing technologies depending on what the merchant needs, if they need a stand-alone solution then that’s available in the form of a landline terminal, wireless terminal, computer software or virtual terminal. If the merchant needs a comprehensive solution then that’s also available in the form of point-of-sale systems or operational management technologies, both of which integrate merchant processing into the system and other operational aspects such as accounting, payroll, human resources, etc.

Why not just have the merchant switch over their processing to an ISO/MSP that your MCA firm currently split funds with, and collect recurring merchant processing residuals along with recurring income from merchant cash advance renewals? After all, recurring income is the lifeblood of our business.

A Return to the Fundamentals? (At Transact 15)

April 3, 2015
Article by:

transact 15The Transact ’15 conference opened to a record crowd and there was no shortage of merchant cash advance players in attendance. Those facts were to be expected. And if you walked in and poked your head around, you might not have noticed anything to be different. Payment processors touted the latest mobile technology and at every turn security systems were being offered to prevent catastrophic breaches of cardholder data.

Everything looked normal… except the merchant cash advance companies.

Back to the fundamentals

Early on Wednesday, April 1st, CAN Capital kicked off a product announcement by raffling off free Apple watches. CAN’s new product is called TrakLoan, a revolutionary new loan program that allows merchants to repay via a split percentage of their credit card sales instead of fixed ACH.

April Fools?

The described advantage of TrackLoan is that there is no fixed term and that merchants only pay back at the pace that they generate card sales. Wait, Where have I heard of this before?

After slapping myself across the face a few times to make sure I hadn’t teleported to the year 2005, the rip in the space time continuum grew more apparent at the after parties.

Card processors Integrity Payment Systems, North American Bancard and Priority Payment systems are still among the hottest names in town for splits. The veteran MCA ISOs and funders are still boarding hoards of merchant accounts with them every month and are therefore building multi-million dollar residual portfolios in the process. It makes one wonder why so many people have turned their back on split-deals for the ACH methodology.

Years ago, merchant cash advance was a sideshow value-add that could be used to acquire what really mattered and what was reliably profitable, merchant accounts. Not everyone has forgotten that however.

the business strategistOver at Strategic Funding Source, Vice President Hellen McQuain is heading up a new merchant services division. In The Business Strategist, an SFS periodical, McQuain speaks the native tongue of the payments industry: EMV, PCI, NFC, etc.. Few, if any, of today’s new entrants in merchant cash advance could identify what those acronyms stand for, let alone explain the current climate of adoption.

So, is it time to get back to the basics?

Over the last six months, I have heard more gripes from funders about how to align a broker’s interest with theirs, other than by offering the opportunity to syndicate of course. The question comes down to, how can you get a broker to care about the outcome of a deal?

The answer should be obvious. Pay half the commission upfront and the other half as part of an ongoing performance residual. That gives the broker a stake in the outcome without having to syndicate. This is not a novel idea. This was how the entire industry operated from 2005 to 2011.

Might brokers resist such a compensation plan today in an upfront-only world? Maybe. But the greatest resistance I sense from funders, especially new ones, is that automated residual payments are too complicated for their current accounting systems.

That of course begs another question. How can this possibly be? Despite the rapid growth in technology, there is an entire segment of the industry that is ill-equipped to handle transactions that were commonplace and scalable five years ago.

While today’s systems are impressive, there are times when it seems like yesterday’s advanced technology was lost in a great flood, along with all the scientific texts documenting how to build the powerful machines.

To add to this, some of today’s edgy ideas are not new. A monthly payment loan for example is not an innovative idea. Weekly payments might acquire the merchant that wouldn’t do daily payments. And monthly payments might get the merchant that wouldn’t do weekly payments. These stretched out programs might make you popular with merchant cash advance brokers that are used to selling daily payment products, but they’re in no way new. It’s a return to the basics.

In 2015 we may apparently be going full circle.

we have to go back

Transact 15 in San Francisco

March 29, 2015
Article by:

I’ll be at Transact ’15 this week in San Francisco. It used to be the only national show that the entirety of the merchant cash advance industry attended. That’s not necessarily the case anymore but it’s still a must-attend event for funders.

Click here for my photo blog of last year’s Transact conference.

To view the events I’ll be at this year, check out our schedule.

I will of course be keeping a live blog of the conference on the website and collecting photos, news, and interviews for use in the next issue of deBanked magazine. If you’d like to arrange a meeting, email me at

See you in Cali!

Should Licensing and Accreditation Come to MCA?

August 13, 2014
Article by:

CertifiedIt’s not said often, but it has been suggested by some players in the merchant cash advance industry to introduce sales licensing requirements. Anybody can sell and broker MCAs or alternative business loans, even your mom.

That’s been a boon for growth but a bust for maintaining any kind of uniformity or standards. That’s a bad position to be in when influential political leaders are beginning to talk about oversight and regulation, even if it’s way too early to sound the alarm.

Earlier today, former SBA head Karen Mills published, Can Lending Technology Revive America’s Small Businesses? in which she states, “there is already concern that, if left unchecked, small business lending could become the next subprime lending crisis.”

One way to dispel future regulation is through self-licensing, much like the payments industry worked to pull off three years ago. For the first time ever, merchant account sales reps could take an official exam and become a CPP, a Certified Payment Professional. This originated when I was still directly selling merchant cash advances and along with it, merchant accounts.

Merchant accounts were the focus of my compensation strategy and I seriously considered taking the first ever CPP exam in 2011 even though it cost $350. I considered it solely on the basis of whether or not it would convince more people to change their merchant accounts. I finally decided to wait and see if it was helping others before jumping in myself. The question in my mind was, would merchants care? If not, then why busy myself with being accredited?

Now that three years have gone by, the Green Sheet is attempting to answer this question: Is the CPP Dead on Arrival? Members of their forum reported that accreditation had no teeth because the Electronic Transactions Association (ETA) which created it, lacks industry oversight authority. Others said it was a flawed idea from the beginning. And just as I expected to find, there is belief that merchants do not recognize it as meaningful, don’t know about it, or they don’t care.

The story concludes by saying there is hope since three years is too early to judge CPP adoption. Regardless of what will become of CPPs, today any person with access to a phone or the Internet can sell merchant accounts. If you don’t understand how interchange works or what it is, it doesn’t matter.

Ironically, in the very same Green Sheet issue there is a story that argues the secret to selling merchant accounts successfully is really just about having the right tone. Accreditation? What’s that? Interchange? Huh? Instead, ask the owner a few things about their business, “match your response as closely as possible to that of the merchant. Use similar words. Try to pause as the prospect paused.”

The advice touches upon an interesting aspect of sales, that your clients don’t necessarily care about how smart or knowledgeable you are about the subject matter. They’re buying YOU even if your product sucks. Compare that to say accounting where prepared financial statements need to be constructed in such a way to comply with IRS codes or law where a lawyer needs to be admitted to the Bar to practice. In those cases the clients can’t even receive the service unless the seller meets certain professional standards.

And that’s where accreditations become murky. As a business owner, you’re allowed to wildly overpay for printer ink and buy it from someone who doesn’t know anything about printers or ink. I’ve done it myself. I don’t care if they have a certificate in printing expertise or if they’re members of the National Ink Masters of America. Part of being a business owner means being automatically qualified to make transactional decisions.

The same can be applied to merchant accounts. Need to accept cards? Find a rep you like that can articulate what’s important to you. You can make a deal based on no intellectual substance or one completely dependent on it. If it’s not legally required to be a CPP, then the target audience needs a lot of convincing as to why it should be important to them.

Merchant Cash Advance certificate

Tom Waters and Ben Abel of Bank Associates Merchant Services are the writers behind the CPP DOA piece in Green Sheet and they admit that success in mainstreaming accreditation can and has taken up to 25 years in other industries. That of course brings me full circle to MCA and business lending. The enormity of self-licensing could take years or perhaps even decades to nail down. And even if they were instituted, would the merchants care? That’s the question I ask myself.

With virtually no outcry from merchants over best practices currently, I think the dream some have of becoming a CMCAP (Certified Merchant Cash Advance Professional) will have to be put on hold. Of course you could always be proactive and become a Certified Lender Business Banker, though I predict it would do nothing to help you in this business.

The reality is that we should expect to live with the status quo at least for now. My advice is to be honest, fair, and a good example for everyone else. Do that and we’ll never have to worry.

Discuss your thoughts with industry insiders here

Square Bears Attack

April 21, 2014
Article by:

It was the PR nightmare that wouldn’t end. With Easter Sunday still warm on everyone’s minds, bloggers went for the jugular over Square’s acquisition rumors. Whether based on fact or fiction (nobody seemed to know for sure), Alistair Barr, Douglas Macmillan, and Evelyn Rusli of the Wall Street Journal single-handedly hit Jack Dorsey’s famous payment company with a fresh dose of healthy skepticism. With that came the revelation that Square had lost $100 million in 2013, a dangerously large figure for a company that is apparently plagued with shrinking margins, not growing ones.

square losing money

What was happening behind the scenes at Square differed in dramatic context depending on which news site you read. Some writers claimed Square executives were considering a well thought-out strategic acquisition in light of a liquidity shortfall, while others insinuated that Jack Dorsey had last been seen raging drunk at a Market Street Starbucks wearing nothing other than flip flops. He reportedly told spectators that a 2% swipe fee was impossible and then he fled out the back door as four Baristas tried to wrestle him down.

When an IPO was taken off the agenda in February, some analysts wondered if their historic rise had come at a cost. In the Wall Street Journal article, it was alleged that the company was potentially less than a year away from insolvency. The quote was, “During the first quarter of 2014, a Square executive told a potential acquirer that the company had nine months before it would hit a predetermined ‘cushion’ of funds set aside as a last resort.” Thanks to the new credit facility they landed this month of nearly $200 million, they should have no problem with cash flow.

Square BearsBut questions remain. People supposedly close to Square confirm that the company had practically begged Visa and Google to acquire them. Though there were stiff denials from all parties throughout the day, it made for some enticing headlines. Square Bears were out in droves today:

Square Is Losing Millions Of Dollars And Wants To Sell – Huffington Post
Why Square Needs To Sell Itself And Do It Quickly – Forbes
Mobile payment startup Square plans sale as losses widen – Reuters
Did Jack Dorsey Do the Math on Square – UpStart Business Journal
Square denies sell-out plans; all eyes on the dicey-looking financials – ZDNet

Mobile-Payments Startup Square Discusses Possible Sale
Company Faces Wider Loss, Less Cash; Google Considered Potential Acquisition
– Wall Street Journal

What should also be of note is Square’s recent venture into the merchant cash advance business, which in practice should be a major liquidity drain. One has to wonder if this is a good time to position themselves as a working capital provider when they’re hemorrhaging cash from their payments operations. Besides, providing funding to micro-merchants in return for a split of their future card sales is an incredibly risky business model. One thing the established players in that market have learned is that it’s really easy to lose money if you don’t know what you’re doing.

I sure hope they know what they’re in for. Otherwise Dorsey might really run off drunk to Starbucks.

Largest Merchant Acquirers of 2013

April 12, 2014
Article by:

According to the Nilson Report, the 10 largest merchant acquirers of 2013 were:

1. Bank of America
2. Chase Paymentech Solutions
3. First Data
4. Vantiv
5. Elavon
6. Wells Fargo Merchant Services
7. Citi Merchant Services
8. Global Payments
9. Heartland Payment Systems
10. WorldPay

The only 2 changes in the top 10 were:
First Data fell from 2 to 3
Citi Merchant Services fell from 6 to 7

Regulatory Paranoia and the Industry Civil War

April 11, 2014
Article by:

Stacking is on everyone’s minds in the merchant cash advance (MCA) industry but that war is little more than smoke compared to the fire burning in our own backyard. One of the major topics of debate at Transact 14 has been Operation Choke Point, a federal campaign against banks and payment processors to kill off the payday lending industry and protect consumer bank accounts. Caught in the mix are law abiding financial institutions, some of which if affected, could potentially disrupt the merchant cash advance and alternative lending industries. Both have become heavily dependent on ACH processing. Could their strength become their Achilles heel?

Indeed, there was a rumor circulating around the conference that a popular ACH processor in the MCA industry is no longer accepting new funding companies. I know the name but was not able to confirm it as fact. There is a two-fold threat on the horizon:

1. The probability that ACH processors in this industry are also processing payments for payday lenders or other high risk businesses.

2. The likelihood that a bank or ACH processor would take preemptive action and terminate relationships with merchant cash advance companies and alternative business lenders, not because it’s illegal but as a way to make their books squeaky clean.

The sentiment at the conference however was that MCA providers and alternative business lenders had little need to worry. While Operation Choke Point specifies online lenders, they are narrowly defined as businesses making loans to consumers. MCA and their counterparts do not fall under that scope, even if they themselves lend exclusively online.

Is regulation coming?
There seems to be both a call for and paranoia about regulation, especially in the context of stacking merchant cash advances and daily repayment business loans. On the popular online forum DailyFunder, several opponents of stacking are under the impression that regulators will be busting down doors any day now to put an end to businesses utilizing multiple sources of expensive capital simultaneously. Many insiders who have had their merchants stacked on view the issue as both a legal and a moral one. Opponents get worked up about it for many reasons. They believe any one or multiple of the following:

  • The merchant can’t sell something which has already been contractually sold to another party.
  • That the merchant ends up borrowing and selling their future revenues at their own peril, endangering their cash flow and their business.
  • That the stackers endanger the first lender or funder’s ability to collect.
  • That the merchant taking on stacks won’t be eligible for additional funds with the first company, hurting the retention rate.

Stacking is not illegal, but it may be tortious interference. That allegation is the one that gets thrown around the most, but it’s important to recognize that actual damages are an integral part of any such case. If I stack on your merchant and the deal performs as expected for you, then what damages would you have suffered? But if I stack on your deal and it defaults 3 weeks later, you might be able to allege that I was the cause of it.

Insiders on DailyFunder’s forum that wonder how they might be able to get stacking to stop, only need to follow the example of what a few select funders are already doing, going on the offensive. The first thing one west coast MCA company does when they have a merchant default is find out if there was a stack that came on top of them. If they find out who it was, they send the offending funder a bill for the outstanding balance. That may sound cheesy, but given their industry prowess and litigious nature, they said that some stackers quietly mail them a check, rather than risk things escalating to the next level. The threats only hold weight of course if you’re actually prepared to bring the case to court.

I’ve spoken with dozens of proponents for stacking, many of sound character, high intelligence, and business acumen. They buck the stereotype of stackers as sleazy wall street guys with pinky rings. Few of these proponents believe that future revenue is a precise asset. It’s been said that, “future revenues are unknowable and possibly infinite. A business should be able to sell infinite amounts of these future revenues if there are investors out there that will buy them.” The general consensus on this side of the aisle is that a 2nd position stack, or “seconds” are here to stay. There’s a sense of calm and conviction, as if seconds were a boring subject of little contention. Many are okay with thirds “if the math works” but discomfort sets in on fourths, fifths and beyond. If they believe it’ll be a good investment, they’ll do the deal. They scoff at the notion that they’d willingly chance putting a merchant out of business since that would jeopardize their own investment.

To date, I’ve seen no data to support that stacking causes merchants to go out of business. I would not be surprised if there was a correlation between defaults and stacks, but that would not imply causation. A business that is on its way towards bankruptcy regardless may be able to obtain a few stacks in the process as a last ditch effort to stave it off. When the business finally fails, it may appear to look like the stacks caused it, even if they didn’t.

For those that don’t want to play cat and mouse with threats and lawsuits, there’s a growing call for regulation, both self-regulation and federal. That call feeds off the paranoia that regulators are knocking at the industry’s door already anyway.

In regards to self-regulation, insiders have been looking to the North American Merchant Advance Association (NAMAA) to create rules and become an enforcer. It’s no secret that their members are opponents of stacking, but as a powerful body of industry leaders, they’re up against a threat of their own, antitrust laws. Creating rules and enforcing them could be construed as anti-competitive. In truth, a lot of the MCA industry’s growth over the last 2 years can be attributed to stacking. A private association of the largest players actively working to establish rules to squash the fast growing segment of new entrants could indeed be perceived as anti-competitive.

But that doesn’t mean NAMAA is powerless to promote their views. Following in the footsteps of the Electronic Transactions Association, they could create a set of best practices, host workshops, and offer courses and sessions to train newcomers on these best practices. Such benefits and opportunities are a standard in the payments industry, but nothing like it is available in MCA or alternative business lending.

But is it too late for self regulation?
With all the government enforcement occurring in the rest of the financial sphere, fears of imminent federal involvement in MCA and alternative business lending are not unfounded… or are they?

In the wake of the financial crisis, the Consumer Financial Protection Bureau (CFPB) was formed to protect consumers in financial markets. The CFPB was instrumental in Operation Choke Point and they would be the most likely federal agency to field complaints about stacking. Unlike the Office of the Comptroller of the Currency which has jurisdiction over banks, the CFPB’s oversight extends to non-bank financial institutions. They’re the wild card agency that has financial companies across the nation on their heels.

I had the opportunity to speak with a former lead attorney of the CFPB off the record today about the definition of consumer. Could a small business be construed as a consumer? The short answer was no. The long answer was that there is no specific definition of consumer at the CFPB but it was meant to represent individuals. Although businesses at the end of the day are run by individuals, I got a pretty confident response that the CFPB would not have jurisdiction over a business lending money to a business, even if it was a very small 1 or 2 man operation. If they were acting in a commercial capacity, then they’re no longer consumers.

The other side of her argument was that it would take up too much resources to take on a case where the victim class was basically outside of their scope. The CFPB already has enough on their plate.

Is the government busy?
I also spoke with a few lobbyists and payments industry attorneys off the record and the unilateral response was that MCA and alternative business lending were not on any agenda, nor does the government have the resources to juggle something that is basically…insignificant in their eyes.

In the grand scheme of financial issues, a few billion year in small business-to-business financing transactions isn’t worth anyone’s breath. “A business acting in a business capacity was unhappy with a business contract they entered into? Take it up in civil court,” I imagine a regulator might say.

Regulators aren’t completely in the dark about MCA. Just a month or two ago, several industry captains and myself included were contacted by the Federal Reserve as part of a research mission to basically find out what this industry even was. The feds appear to have stumbled upon the MCA industry as part of their research into peer-to-peer lending. Who would’ve thought a 16 year old industry could be so stealthy?

If the big PR machines like Kabbage, Lending Club, and OnDeck Capital didn’t exist, I’m inclined to believe no one in the government would’ve heard of MCA for at least another 10 years. In 2014, they’re just now discovering it.

My gut tells me we’re a long way from any kind of regulatory enforcement. In a session I attended at Transact 14 today, a former member of the Department of Justice and a current member of the Office of the Comptroller of the Currency both offered examples of cases that took 3-8 years before there was an enforcement action. In each scenario, they alerted the parties there was a problem and they were given time to correct it. They had to show progress along the way and eventually when no such progress was made after years of warnings, they acted.

In the conversation of regulation, alternative business lending and MCA are relatively tiny. Lending Club does more in loan volume each year than the entire MCA industry combined. So long as there’s no fraud involved, small business-to-business financing transactions are not likely to make it on the agenda for federal regulators for a long time. That doesn’t mean it won’t be there some day in the future.

I think it was Brian Mooney, the CEO of Bank America Merchant Services that said in the Transact 14 roundtable discussion that if something feels wrong in your gut, don’t do it. Debra Rossi, the head of Wells Fargo Merchant Services added that you can’t tell a regulator, “I didn’t know.” Keep those suggestions in the front of your mind.

No police
For the foreseeable future it’s on us as an industry to find a resolution to stacking. There’s no such thing as the cash advance police. On one side is tort law. On the other is creating best practices and actively educating newcomers. That’s where the blood boiling debates need to turn to. After all, there’s already a large crowd that yawns over seconds, a group that wholeheartedly believes a stack is just as legitimate as a first position deal.

Instead of waiting for a referee to call foul on somebody, I think 2014 is the year to realize that you might be stuck in the room with the person you hate. Could you bring yourself to tolerate them for years to come?

Blind spot
We should consider that the greatest threat to the industry may not come from within, but from outside. More than 50% of MCA/alternative business lending transactions are repaid via ACH. Government action on ACH providers or the banks that sponsor them could end up hitting this industry as collateral damage.

One metric that banks and regulators consider is the return rate of ACHs, namely the percentage of ACHs rejected for insufficient funds or rejected because the transactions weren’t authorized. Daily fixed debits run the risk of rejects and boost the return rate. Could the frequency of your rejects eventually scare the processor into terminating the relationship? With the pressure they’re getting from the Department of Justice, there’s always the possibility.

Data security is another sleeping giant to consider. Do you keep merchant data safe? Are you protected from hackers?

Know your merchant. The push towards automated underwriting seems dead set on eliminating humans from the analysis. But what if the algorithm misses something and loans get approved to facilitate a money laundering scheme? Or what if it approves a known terrorist?

If you’re paranoid you’re doing something wrong, then maybe you are doing something wrong even if there’s no current law against it. Follow your gut, create value, and work together. Who knows, maybe one day there will be an ETA-like organization for MCA and alternative business lending. Now is a good time to be proactive.

Join Me at Transact 14

April 1, 2014
Article by:

Electronic Transactions AssociationI’ll be at the ETA’s Transact 14 Conference in Las Vegas next week (Apr 8 – 10) wearing my journalist hat for DailyFunder. DailyFunder is currently the only publication dedicated to merchant cash advance and alternative lending and is a media sponsor of this year’s event. All attendees will be able to pick up a free copy of the latest issue of the magazine at designated distributions bins.

If you’re on the fence about going, allow me to convince you. The Annual ETA hosted conference is more than a social event or meet and greet. It’s a chance to ink deals, forge partnerships, and learn about opportunities that you’ll never hear about from the comfort of your office. Of course you’ll only get out of it what you put into it. The Who’s Who of payments and financing will be all in one place. Are you one of them?

CNBC will be broadcasting the event live. It’s been reported that this year’s show has enlisted a record amount of exhibitors.

I’ll be taking photos and jotting down notes for both the live blog and post show recap for the May/June issue of the magazine. So if you’ve got something cool to show off, email me at or and I’ll be happy to come pay you a visit.

pre-registration for the event closes in less than 5 hours but you’ll be to get tickets on site.

And of course if you’re planning to bring your wolf pack to Vegas, you might want to read DailyFunder’s helpful tips on how to keep your wolf pack in check. 😉

Hope to see you there.

Split Funding is Here to Stay

August 21, 2013
Article by:

split-fundingI’ll say it for the hundredth¹ time, the advantage of split-funding is the ability to collect payments back from a small business that has traditionally had average, weak, or poor cash flow. Let’s put that into perspective. There is a distinct difference between a working business with poor cash flow and a failing business. A failing business is typically not a candidate for merchant cash advance or similar loan alternatives.

Poor cash flow could be the result of paying cash up front for inventory that will take a while to turn over. A hardware store with a healthy 50% profit margin may be able to turn $10,000 worth of inventory into $15,000 in revenue over the course of the next 90 days. The only problem is that the full $10,000 must be paid in full to the supplier on delivery.

Enter the merchant cash advance provider of old that discovers the hardware store has had a fair share of bounced checks in the past, mainly because of the timing of payments going in and out. Cash on hand is tight, the credit score is average, but the profit margin is there. Most lenders would take a pass on financing a transaction that carries legitimate risk such as this one does, that is until the ability to split-fund a payment stream became possible.

Advocates of the ACH method tout that it’s just so much easier to set up a daily debit and scratch their heads and wonder, “man, why didn’t we think of just doing ACH in the first place?”

The thing is, people did think of it and they concluded that for a large share of the merchants out there that needed capital, it didn’t make financial sense to try and debit out payments every day with the hope that there would always be cash available to cover them. Banks have had a hard enough time collecting just one payment a month, so what makes 22 payments in a month so much more likely to work?

I’m not inferring that there is something wrong with the daily ACH system that has taken the alternative business lending industry by storm. There’s plenty of situations for which that may be the best solution, especially for businesses that take little or no credit card payments. My point is that the split-funding method isn’t going to shrivel up and die. It’s here to stay. So long as businesses have electronic payment streams, they will be able to leverage them to obtain working capital.

When it comes to splitting card payments however, it’s important for a business to have faith in the payment processor. Reputation, compatibility with payment technology, and the assurance that the business will be able to conduct sales just as it always has are important. If you’re a funder, ISO, or account rep, it’s your responsibility to make sure that those three factors are addressed. A lot of processors are willing to split payments but they haven’t all made a name for themselves in the industry. Integrity Payment Systems (IPS) comes to mind as one that almost everyone works with and I’ve been in touch with Matt Pohl, the Director of Merchant Acquisition of IPS for some time. He’s been nice enough to share a little bit about what makes a split partner special, and what has made them particularly stand out in the merchant cash advance industry.

Clearly, the role of the credit card processor has diminished over the last couple years when it comes to merchant funding. ACH/Lockbox models have become more prevalent which created a sales mindset that switching a merchant account was more of a hindrance than a necessity. Some argue the decline in profit margin on residuals, due to price compression, made it no longer worth the time and effort to make an aggressive pitch to switch the merchants processing. ISOs also argue that too often merchants have reservations to switch processors because of previous bad experiences, cancellation fees, or because they simply know its not necessary in order to be funded. This is where it’s important to have the RIGHT split partner, not just any split partner

What makes Integrity Payment Systems a “special” split partner is the fact we control the settlement of the merchants funds, in house. IPS is partnered with First Savings Bank (FSB), which allows us a unique way of moving money. Because of our state-of-the-art settlement system and direct access to FSB’s Federal Reserve window, we eliminate the necessity of having layers of financial institutions behind the scenes that merchants funds typically filter through. This is a HUGE benefit to cash advance companies for several reasons. First, we implement the fixed split % when we receive the request, in real time. This allows the deal to be funded quicker. Secondly, since we handle the settlement process we have access to the raw authorization data which allows us to provide comprehensive reporting on a daily basis from the previous days activity. But also we can do true next day deposits, including Friday, Saturday, and Sunday funds available for the merchant on Monday morning. This is especially valuable when selling to restaurants/bars, or any other industry with a lot of weekend volume. Lastly, IPS makes outbound calls to merchants, on behalf of the sales agent and cash company, to download and train the merchant on their terminal. A confirmation email is sent to the agent which includes any batch activity so the deal can fund.

As an added example of this, on the last week of every month, the merchant boarding and sales support team fully understands that our MCA partners have monthly funding goals they need to reach. The IPS team goes above and beyond to ensure merchants get setup properly in time so those accounts can be funded before the month is over. We have a motto at IPS that the sales force are our #1 customers, and nowhere is that more apparent than by the way we take over all the heavy lifting once the agent gets the signatures on our contract. We firmly believe that by helping the agent by taking over the boarding process, that this will allow them to do what they do best, sell more deals!! A lot of competitors expect the agent to be involved in the boarding process, and that’s valuable time that takes them away from selling.

IPS has opened their doors to every MCA company that wishes to have an exceptional split funding partner/processor. We have all the necessary tools to provide this service the right way, and we want the opportunity to earn the business of every working capital provider out there. You don’t have to listen to a sales pitch from me, because I strongly believe that our reputation in the cash advance space speaks for itself. We would love the opportunity to talk to any MCA provider about a few additional services we offer utilizing our settlement system that will allow ISOs to fund more deals.

Matt Pohl
(847) 720-1129
Integrity Payment Systems

One thing I can personally attest to about Integrity is their human factor. You can actually meet some of their team and see inside their office in the fun youtube video below:

Getting deals done

Ultimately, the financing business is about getting deals done and there are countless small businesses that just won’t ever be a candidate for ACH repayment. Heck, for many years the merchant cash advance industry wasn’t even a financing industry of its own, but rather it was one of many acquisition tools for merchant account reps. (See: Before it Was Mainstream). Technically it still is. You don’t want to sign up a merchant for processing and then have to move the account because the processor doesn’t split or because there is no dedicated customer service. I’ve been in that situation before personally and it’s a nightmare.

There’s a reason this website which is dedicated mainly to merchant cash advance is called the Merchant Processing Resource. You can’t know everything about cash advance without knowing about merchant processing. Get acquainted!

If you’d like to read the lighter side of Merchant Cash Advance History, you just might want to check out MCA History in Honor of Thanksgiving. 😉

¹ I said it for the 99th time on the Electronic Transactions Association’s Blog in Preserving the Marriage Between Merchant Cash Advance and Payment Processing

What Debit Card Interchange Reform?!

August 1, 2013
Article by:

debit cardAfter 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.

Story about it on CNN

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 Winners and Losers of the Debit Card Fee Ruling

MCA Track – A Merchant Cash Advance Back End

July 6, 2013
Article by:

Running your funding business off of excel spreadsheets or clunky old software that wasn’t meant for the Merchant Cash Advance (MCA) market? You might want to consider using something that was both made and used by MCA people. A couple weeks ago, Benchmark Merchant Solutions gave me a private demo of their all-in-one back end system to manage incoming and outgoing payments for both split-funding and ACH deals.

It had a lot of nice features and certainly would make it possible to manage your books with ease. The reports are very easy to produce, read, and make sense of. Alerts can be set up for merchants that have not processed for any gap of time you set. ACH rejects are automatically recorded and flagged.

MCA Track dashboard

MCA Track Merchants - Benchmark Merchant Solutions

At the current moment, the only direct split-funding integration it has is with Benchmark Merchant Solutions. They will be directly integrating with other processors in the coming month. The system uses a proprietary ACH provider.

Contact: Michael Jaffe or Benny Silberstein for more information.
Phone: 877-382-6262 |

Benchmark Merchant Solutions is a registered ISO and MSP of Deutsche Bank AG, New York. This is not a paid ad or review. The Benchmark team is run by solid folks.

Having issues with your books? Make it easy with MCA Track.

– Merchant Processing Resource on iPad, iPhone, and Android

Penguin 2.0 Epic Fails

May 23, 2013
Article by:

Just as the Merchant Cash Advance industry is beginning to enjoy positive publicity, Google has the potential to set the momentum backwards by pushing terrible results. I’m going to post some Penguin 2.0 epic fails over the next couple days. So check in every now and then to see what’s new. You can also send screenshots of any epic fails you find to

Epic Fail #3: Page 1 for the search of Business Cash Advance Companies
penguin 2.0

Epic Fail #2: Page 3 for the search of Business Cash Advance
google penguin fail

Epic Fail #1:
google penguin fail

Google Penguin 2.0 Hits Search Rankings – Track The Responses

May 23, 2013
Article by:

According to Google’s Matt Cutts, Google Penguin 2.0 was fully implemented on Wednesday afternoon. Notice a difference in the search queries today? We’re noticing a lot of activity in the MCA industry. Using a nice little hack, we’ve created a way to track all the responses on Google+ that are specifically tied to Matt Cutt’s blog announcement. See what’s being said below:

ETA Expo Recap

May 3, 2013
Article by:

FUNDEDRecap 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

Follow us at the ETA Expo

April 30, 2013
Article by:

May 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

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.
Apr 30, 1:00am: new orleansMerchant 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

Heading out to #ETAEXPO2013 today. Look forward to seeing all our friends in #NewOrleansHeather
Setting up the @IngenicoNA booth at #ETAExpo13 Smith
COME MEET US IN NEW ORLEANS AT THE #ETAEXPO2013 *booth#1053* Looking forward to seeing everyone there! @ElecTranAssocMerchant Funding
Our team is in New Orleans for ETA 2013 #ETAExpo2013
At #ETAExpo13? Swing by our booths #816 and #1005. Demo #genius and enter to win up to $2500!Merchant Warehouse
Dave and Matt are waiting for their connecting flight, and Rob is in the air! #ETAExpo2013 here we come! #G2atETAG2 Web Services, LLC
We’re excited to attend tomorrow’s @ETA Meeting & Expo in NOLA | #ETAExpo2013Biz2Credit
#ETAExpo2013 R you ready to see cool new products, excellent service, and awesome video? Stop by booth 616 tomorrow-SEE the FAPS difference!First American Paymt
Hey folks! Nick and Dan just left the office for New Orleans! Be sure to visit us at the #ETAExpo2013 for your chance to win an iPad mini!Instabill
Hidden spots in NOLA, cant wait to discover them #ETAExpo2013. Mobile meetup at Bachannal or Antique or Hidden Art Gallery? who’s in?Kevin Colaco
Some great #NOLA restaurants from our man in the know, @gregleos: @BrennansNOLA @CochonDining @Commanders_NOLA @arnaudsnola #ETAExpo2013ControlScan
Setting up the booth at @ElecTranAssoc. Come check us out tomorrow at booth 456. #ETAExpo13
Let’s meet up at #ETAExpo13 this week! Contact our BD Team here > Link
@NewOrleans one of my favorite cities. Good food and even better people. Great choice @ElecTranAssoc #NOLA #ETAEXPO2013 @controlscanGreg Leos
#ETAExpo13 Join David Talach, others from @Groupon, @PayPal. Tues. 10a.m. Investment Comm. Forum Rms 206/207.VeriFone
Finishing up setup at #ETAexpo13. Excited for the show tomorrow, stop by our booth #702 for an overview of our services! @ElecTranAssocTranzlogic

Here’s to learning, networking, and having fun!

– Merchant Processing Resource

It Got Said – Merchant Cash Advance – Friday Fun

April 26, 2013
Article by:

In honor of Friday, we’re having some fun…

automate underwriting

18 month offer

See the rest of the Merchant Cash Advance memes on DailyFunder

Caught on twitter