MCAs and ISOs: Call it splits not quits
There are times even in a good marriage when the grass may look greener on the other side. The growing use of ACH daily debit by the non-bank lenders is raising questions in the payments community about the future of split-funding and overall viability of MCA-ISO partnerships. We asked several leading acquirers for their thoughts on how the increase in independent funding by MCAs has affected recruitment and retention of MCA ISOs. What follows are their insights on the inherent advantages of the MCA / Acquirer partnership model.
Focus on your core and write more deals
John Priore, CEO of Priority Payment Systems, sees a bright future for the MCA and ISO partnership. “Split funding is a strong model for ISOs, MSPs, and MCAs that want to capture additional revenue streams,” Priore said. “Non-bank financing can be tailored to different markets. MCAs will tell you it’s a function of the credit worthiness of the merchant. There are segments where higher fee structures are justified. We have observed business owners who qualify for bank level loans prefer the flexibility and speed of non-bank funding. There’s no shortage of models for funding and revenue sharing that we provide to our partners and distributors, because we constantly adapt to help them differentiate and stay competitive.”
Duayne Haskett, Founding Member of Priority Payment Systems’ management team and Senior Vice President of Third Party Acquiring, added, “The influx of non-bank capital combined with market demand creates a tremendous opportunity for expansion, both for alternative lenders and any processing company touching small to midsize businesses.”
Matt Pohl, Director of Merchant Acquisition and Sales Support at Integrity Payment Systems, is committed to building sustainable relationships with MCA partners that enable them to focus on “what they do best, which is the funding piece, leaving the heavy lifting related to bankcard to us.
This can be helpful for MCA professionals who don’t have a bankcard background. “There are so many intricacies in credit card processing,” Pohl explained, “that when you try to do [both funding and boarding of merchant accounts] it potentially muddies the waters and convolutes the sales process.
We currently offer a special program for our MCA partners whereas we will close the bankcard sale on their behalf, and share the revenue. All we ask is for our sales partners to confirm appointments so their merchants know to expect our call.”
Relationships with Integrity can take many different forms, depending on a partner’s preferences. “A call center of 10 agents dialing for dollars may want to align with an ISO as a referral partner and share the revenue,” Pohl said. “A cash ISO that leads with cash deals as the quickest way to get funded may want to use us as a Plan B for merchants that don’t qualify for a bank loan.”
In addition to their tenured base of loyal MCA partners, Pohl noted that IPS is attracting new funding partners by referral and word-of-mouth, and has seen consistent growth in split-funding activity.
Decrease risk and increase income
MCAs and ISOs who work together are generally more adept at risk management. Additionally, their complimentary skill sets can be a catalyst for creativity and innovation.
“Split-funding is the most secure way to provide financing to a small business with weak or unpredictable cash flow,” Pohl said, in a comment that will resonate with anyone who has experienced the so-called snowball effect: “If your merchant is set up on a 200 dollar a day debit and that 200 is not there, the next day it becomes a 400 dollar debit, not to mention NSF fees. This snowball effect can get out of control pretty quickly. By contrast, the split-funding model gives peace of mind to every stakeholder in the payments value chain because the debit is always proportionate to the flow of credit card revenue coming into the business.”
Benny Silberstein, COO at Benchmark Merchant Solutions, has seen a boomerang effect of MCAs who return to Benchmark after a walk on the ACH wild side.
“I’ve seen a lot of MCAs who try to use ACH to open up new possibilities,” he said. “Some of their submissions may drop off a bit but they invariably return because they always feel more secure using the split-funding method with us. There are the obvious benefits of split-funding: Additional revenue streams on all transactions; merchants are locked in; it’s harder to stop paying; and split-funding is a smooth automated process.”
Use or be used by technology
We’re in the electronic trans-actions business; understanding the impact of emerging technologies is an industry imperative. Laggards who don’t keep up with the evolving payments ecosystem are going out of business. Alternatively, the more enterprising among us use technology as a competitive advantage.
“BMS is very technology focused,” Silberstein said. “We try to provide the best user experience to our merchants, ISOs, and cash advance companies. Our software development team is constantly enhancing our partner portal and adding features to MCATrack™ to create a leading edge. The system is a fully integrated tracking platform with software tools that enables our partners to manage their MCA business relationships and grow their businesses.
Our ability to capture PIN-based debit and EBT has been a real asset. We recently had a grocery store that factored only 5 thousand in bankcard and 40 thousand in EBT alone. One MID for all terminals, including mCommerce, helps our partners track revenue streams taking place outside the traditional countertop POS footprint.”
At Integrity Payment Systems, Pohl and team are committed to continuous process improvement that goes above and beyond boarding and funding. “The company’s affiliation with First Savings Bank means next-day deposits, seven days a week,” he said. “Our enhanced reporting helps MCA partners meet objectives, get funded quickly, and have access to raw settlement data that helps them monitor performance metrics.”
Appreciate the partners who have your back
Sometimes in their haste to close deals MCAs may overlook the advantages of working with processors and ISOs at every stage of a customer relationship. The same principle can apply to ISOs. “For merchant acquirers,” Haskett said, “the alternative lending space provides a valuable entry point to attract new merchant processing clients, and with the right funding partnership, retain those clients upon renewal.”
Who wouldn’t want the built-in security afforded by split-funding and all the associated benefits and protections of working with a processing partner? Let’s not underestimate the bright and profitable future of the MCA and ISO partnership.
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