[Sean Cash]

A lot of good info and points there Finance1. I have heard ISOs being put in ugly situations such as when their merchant goes out and applies with a stacking funder while they still have a balance. To defend themselves, the ISO brings the deal to the original funder for a renewal and it's denied. Now 2 things can happen. The ISO does nothing and lets his merchant stack with the competing funder, gets no commission out of it, and is screwed out of future renewals with the original funder because of the breach OR he does the stacking himself and brings the merchant to a stacking funder, thereby preserving the relationship, portfolio, and getting the commission.

The right thing to do may be to tell the merchant "you're not allowed to stack so wait until you're eligible for a renewal" but that doesn't work very often especially when the stacking funder is whispering in the merchant's ear saying "it doesn't matter. get funded today. it doesn't matter. get funded today. stack stack STACK STACK!!!"

[Finance1]

A lot of good info and points there Finance1. I have heard ISOs being put in ugly situations such as when their merchant goes out and applies with a stacking funder while they still have a balance. To defend themselves, the ISO brings the deal to the original funder for a renewal and it's denied. Now 2 things can happen. The ISO does nothing and lets his merchant stack with the competing funder, gets no commission out of it, and is screwed out of future renewals with the original funder because of the breach OR he does the stacking himself and brings the merchant to a stacking funder, thereby preserving the relationship, portfolio, and getting the commission.

The right thing to do may be to tell the merchant "you're not allowed to stack so wait until you're eligible for a renewal" but that doesn't work very often especially when the stacking funder is whispering in the merchant's ear saying "it doesn't matter. get funded today. it doesn't matter. get funded today. stack stack STACK STACK!!!"

Merchants really aren't the problem or the solution. We can tell them whatever we want until we are blue in the face. The bottom line is they need money and they are going to get it if its available. Every time I deny a renewal because it's too early I will hit the merchant up once a month for a new bank statement saying they "might" be eligible. Good way to keep an eye out for stacking early in the game. If I see a stack I don't even say anything. It's time to string along and get paid back in full or as much as possible. There are plenty of deals out there to not try to hold onto one that is willing to stack.

I can't stress enough how conventional thinking or conventional analogies do not apply in this industry. High risk / high returns come with many pitfalls. Courts and black and white is something that should be avoided. The last thing any of us should root for is court cases and defined practices. The next step would be regulation. Is that where any of us want to go? The current admin in the white house has made it point blank clear that they will regulate any industry related to lending with high returns if they feel it's necessary. And if we ever get scrutinized the merchants will be the ones who get the benefit of the doubt. No my company or anyone else.

What's happened to the mortgage, insurance, and banking world since 08 is horrifying from a free market viewpoint. I've been in lending/finance since 99. I started with residential mortgage, went to commercial underwriting and asset sales and then went back to mortgage. I had a great shop. We were a corr banker and a broker. We specialized in A paper and not all the crazy crap. Didn't matter in the end though. I got pushed right out of business. Costs from regulation soared at the same time that margins were trimmed. Just brutal.

My main concern of stacking really isn't from a few extra defaults on our books. It's more about the increasing prevalence and the disregard for affordability. Jam up enough merchants with bad business practices and the voice will eventually be loud enough to attract some attention. Right now the MCA space is completely off the radar from a regulatory standpoint. Hardly anybody knows what it is let alone how it works. It needs to stay that way. We need to police ourselves because if we don't we're going to have a bunch of morons deciding what's best for us.

I think the irony is that the industry did an awesome job policing itself after the AdvanceMe and Rewards Network lawsuits. Rapid's problems in 09 tried to get some attention but quickly went away. The CA ambulance chasing seems to have quieted down from what I can tell. So now we have an industry with mostly favorable press, competition rewarding low risk merchants, and competition in the sales space that keep commissions fair and fee raping at a minimum. The MCA/Loan space as a whole has moved away from scrutiny and is becoming "accepted". But now we have to deal with bottom feeding stackers. I would feel a lot better if they just went away on their own. Doesn't look like that's going to happen. Greed is too powerful of a motivator.

[AMLvet]

Stacking is only appropriate when a responsible lender goes behind an MCA and / or ACH product ,with a underwritten compliant loan. The merchant must demonstrate the ability to pay back and accomplish a tangible benefit from the transaction. The only outfit that does close to this is IOU. They take 2nd position with a 14.99 over 12months (yes there are fees ) would You rather have the other guys go behind with a 2M 1.50??

[Finance1]

Stacking is only appropriate when a responsible lender goes behind an MCA and / or ACH product ,with a underwritten compliant loan. The merchant must demonstrate the ability to pay back and accomplish a tangible benefit from the transaction. The only outfit that does close to this is IOU. They take 2nd position with a 14.99 over 12months (yes there are fees ) would You rather have the other guys go behind with a 2M 1.50??

I agree about IOU being "responsible" in regards to underwriting on top of an advance. I'm not sure anyone really knows the stats behind stacking and defaults. Still way too early in the game to have any reliable empirical evidence one way or another. I also think that TBB is "responsible" as well in making sure it's affordable.

And I also agree that I would feel better being behind a longer term deal than a 1.50/2. It gets muddy pretty quick though. The vast majority of merchants looking to stack have zero chance at qualifying for a "responsible" stack. So the IOU's and TBB's of the industry are in the serious minority in comparison to the you know who's out there hammering merchants.

Off topic but IMHO, IOU isn't going to make it in the US. I'm not sure how their Canadian parent is doing but from what I'm seeing with their underwriting and terms they are poised to fail. Once you figure in the fees on a 12/mo deal, their gross margin is about 23 cents on the dollar. Strip out the 6pt commission and they margin drops to 17 cents on the dollar. Their underwriting isn't THAT good. ISO's are going to load them up for the next 6-12 months and after that we'll see what happens to their portfolio and if they are still offering the same terms.