[MCAVeteran]

So we have seen virtually all the funders from Advanceme down bring on loan products with fixed daily repays. After so many years of marketing "We are not a loan" and teaching ISO's not even dare mention the word, we have seen an onslaught of loan products enter the cash advance space with On Deck really showing the public this product was needed. What comments from folks caused this trend? Did the MCA industry really meet its maturity stage after 14 years? Is real growth taking place not with cash advances, but with loan/ach products? Most folks seem to say YES. What does this mean for the cash advance industry? Will funding simply migrate to short term loans vs advances in the next few years? (take revenue advances, fixed daily ach, bank only all to indicate the trend of growth)- Renewals- keep this data out of GROWTH trends and comment on new fundings per mo across the board-

[miked]

the trend seems to have come from the competitive advantage of allowing merchants to keep their credit card processing account. The only problem is that split-funding was invented because the original businesses being funded were so outside the box, that trying to retrieve funds from the bank account was way too risky. but now businesses with 600 and 700 credit are applying regularly and it is a lot safer to deal with their bank account directly, though monthly payments are completely out of the question.

[Sean Cash]

Financing via split funding will always have a place but there does seem to be no stopping the trend towards ACH repayments. mike d mentions the competitive aspect of it but that's really only part of it. The rapid change in payment technology makes it more difficult than ever to capture the merchant's card sales. I wrote something about this a year and a half ago:

And as if there already wasn’t a strain, changes in payment technology are quickly eroding the MCA industry’s turf. The credit/debit card sales of a business aren’t exactly limited to a single terminal:

Now there are options, lots of them. In today’s world you can accept electronic payments with almost anything, a conundrum for MCA providers aiming to collect a percentage of all of it. And how about those routine PCI compliance upgrades? There are countless businesses with a basement full of old credit card machines that could be plugged back in, put back into service, and freely used to circumvent their financial obligations.

Take this clothing retailer for example. She qualified for an advance of only $5,000 but when it came time to convert the merchant account, the process wasn’t so easy:

Nearly all of the transactions conducted inside the store happen through the touch screen POS. The merchant statements reflect consistent historical sales of nearly $4,800 per month, instilling the belief that the future won’t be much different. But when the customer lines get too long, there’s a backup credit card terminal that they pull out from under the counter that still has an active account with a previous processor. Around the holidays, they dig out the old Tranz model terminals from the basement and use them too. For street fairs and trade shows, they attach their Square to their iPhone and process on the go. And when it comes to their website and Ebay, PayPal is their preferred method of payment.

This doesn’t mean the touch screen POS won’t continue to see $4,800 worth of action per month, but the situation doesn’t inspire a lot of confidence if the goal is to collect a percentage of their credit/debit card sales. What if they occasionally use Square inside the store? What if phone orders are punched into PayPal? These things may happen inadvertently or simply because their customers demand it.

To firmly secure a purchase of future sales, the MCA provider would need to do the following:

• Convert the touch screen POS system (which will very likely come with a fee from the POS reseller)
• Reprogram their backup terminal
• Reprogram all the old terminals collecting dust in the basement
• Force the return of the Square and replace it with their own iPhone processing attachment
• Delete PayPal from the HTML of the business’s website
• Instruct them to stop conducting business on Ebay
• Cancel the PayPal account altogether and replace with an authorize.net virtual interface or something equivalent

With all of these challenges, it may actually be easier to just debit the merchant's bank account each day.

[MCNetwork]

I'm going to sell all my credit card residuals. The writing is on the wall.

[MCAVeteran]

MCNetwork- it may not be that bad. Split will have to continue for all those merchants who dont have the average daily bank balances to warrant a fixed daily pull. Take ODC for example, they are now working with Integrity payment systems and maybe other processors to enable split features on merchants who would have otherwise been declined for a fixed daily ACH. As above states, we should see a back and forth between both products, but, the real growth of new business does seem to be with loans with fixed daily or weekly achs- It also allows you to target much more than the 10 or so categories MCA's went after all these years as its based on bank statements vs cc sales. More and more merchants are also very reluctant to switch processors for an advance these days..

[Finance1]

Loan products are great. They serve and under-served market and there's a lot of growth there.

I will say this about loans vs advances. The product itself is not the deciding factor unless there is a large difference between the approved amounts. Most merchants simply want the better cost of the money. If you put two identical amounts with identical repayments in front of merchants, the majority will select the advance because the flexible payment "feels better". I know this from experience and not just guessing.

There is plenty of opportunity for the MCA space to grow but the loan products have the fastest and largest growth potential because of the under-served market. Premium priced advances are the key to capturing the A-B credit market and it's already happening.

[MCAVeteran]

the irony here is...the merchant cash advance industry has now embraced the very product they never wanted to offer or be known as- a loan- adapt or die as they say- and naturally, you will have hypergrowth of a new product vs one that has been around over 14+ years. im sure someone will come out with another creative product soon to continue to acquire more business- the good news is, this has and will bring in new life to resellers who were not having much luck w/mca's. rebranding of their marketing- as many smart businesses have done in this economy.

[admin]

http://www.transactionworld.net/articles/2012/march/legal.asp

the legal perspective Loan VS Advance

[Sean Cash]

im sure someone will come out with another creative product soon to continue to acquire more business.

at the end of the day, all of the products are still just an outlay of capital in return for more capital.