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  1. #1

    DRP MCA/Loan Processing Discussion

    Back in the day all MCA's were tied to having to be with a processor. One it helped with collecting, but the biggest advantage actually was the additional rev source that improved margins on a deal. I understood the launch of ACH to allow us all to enter markets that could not be touched before, such as, B2B, medical, etc., all as part of market expansion.

    What I do not understand is we all let it go into the traditional space. If you were the first, and had first mover advantage it made sense to try to grab market share, but today why do we all do it, just because everyone is, so you have to?

    Why have we all hurt our margins by walking away from the additional rev source?

    Back in the day, I never had anyone ever not switch their processing, when it was tied to funding, but today you almost always have to go ach and sell processing, when before you did not even have to sell the processing.

    Curious to see if anyone thinks we could ever turn back the clock for the traditional DRP space and go back to yes you get $50k and all you have to do is switch your processing account to us, thus, creating increased wallet share and longer life time value.

  2. #2
    Senior Member Reputation points: 3217 CO1's Avatar
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    My Company still forces every chance we get to get people to switch, we send out our application with a processing application, and the rates are sooooo much cheaper than everyone out there so its a lay-up.

  3. #3
    Thank you

    So out of 100 deals funded, what % end up taking the processing?

  4. #4
    Veteran Reputation points: 134971 Chambo's Avatar
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    Market forces at work. with today's competition and the general knowledge of cash advance by small businesses, it isn't as simple as it used to be. Thanks to folks who know very little if anything about processing, many merchants switched only to have rates sky rocket, or big ETF fees assessed, or major lease and terminal fees add up. Many merchants we speak to, one of the first questions is, "this isn't one of those credit card deals,m is it? Because I am NOT switching!" (though there are others are OK, or even prefer it that way).

    Basically, because of the practices of the past and experiences, the market has been pushed more and more away form the traditional split processing route. Now it is lokked at as the alternative, as opposed to when it was the preferred and ACH was the alternative

  5. #5
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by CO1 View Post
    My Company still forces every chance we get to get people to switch, we send out our application with a processing application, and the rates are sooooo much cheaper than everyone out there so its a lay-up.
    To take this comment and support part of Chambo's case, CO1, what leads you to believe that the processor(s) you work with have "soooooo much cheaper" rates?

    All processors basically have the same base rates (Interchange) and it's up to the super ISOs, ISOs, account reps to upsell a structure above and beyond those rates. You can literally do something like Interchange Plus or average out the few hundred rate categories into 3 or 4 simple tiers.

    It's not really possible for one processor to be "sooo much cheaper" as Interchange is Interchange is Interchange.

    Let me guess, you are focused on the Qual Rate or Debit Card Rate CO1...

  6. #6
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    20-30, its not as much as it used too. Most of the time once after the funding is over they get caught into the strainer of UCC's and than they switch again or sometimes they just stick to us because its personal now since they all call me at odd times.

  7. #7
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    Getting ACH loan merchants to switch their processing is usually an uphill battle. The rate game pitch is over saturated and most of the savvy merchants have interchange rates already so the amount you can really save them per month is insignificant. You have to be able to pitch added value services and that takes a different skill set than just selling cash.

  8. #8
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    Switching processing is hold hat, good luck with that. It used to be mandatory as said by the OP, now ach and LB make is so much easier.
    The smaller deals, under 5k, require the switch but otherwise 99% of the time we can get that done without switching.

  9. #9
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by skideeppow View Post
    Switching processing is hold hat, good luck with that. It used to be mandatory as said by the OP, now ach and LB make is so much easier.
    The smaller deals, under 5k, require the switch but otherwise 99% of the time we can get that done without switching.
    who is funding deals under 5k?

  10. #10
    Veteran Reputation points: 134971 Chambo's Avatar
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    Sean, didn't your partner at Cap Stk just come out with a program that'll fund deals doing as little as $5K a month in sales?

  11. #11
    Senior Member Reputation points: 3217 CO1's Avatar
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    Max, FirstUSFunding, but they requrie you to switch. And our program is called the 5,5,5. Its 0.50 etc.

  12. #12
    So Chambo - actual market forces or the market driven by us?
    Meaning if a merchant who is not bank-able could get $50k from me or you and both of us required the switch or no $'s, then would we not drive the market?

    I understand that some folks had no idea what they were or are doing and in that instance, the merchant finishes the advance, counts it as a learning experience and then switches to someone else to renew and get a real processing rate that is not jacked up.

    I still do not buy the fact that merchants drove this, I still think we did and we could find a way to drive it back or nudge it back and only offer ACH to those industries that do not take any credit cards or at least not much.

    My bet is only that not all funders would join that movement and try to grab market share by advertising that you do not have to switch, thus again giving away a valuable rev source - no different than making our product a commodity by dropping the rate, trying to grab market share, and then going out of business as a lot of the lower cost folks did.

    Just seems to me that we walked away from the processing rev source, continue to fight each other on rates by lowering them, extending the turns further and further out, which for all of us is less money and greater risk.

    There is an association, and I just wonder if that association talks about issues like this and tries to help the industry? I know why the association was originally formed, but I wonder what it is doing to help the industry funder's and its ISO's now?

  13. #13
    Veteran Reputation points: 134971 Chambo's Avatar
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    Quote Originally Posted by nwarshaw View Post
    So Chambo - actual market forces or the market driven by us?
    Meaning if a merchant who is not bank-able could get $50k from me or you and both of us required the switch or no $'s, then would we not drive the market?

    I understand that some folks had no idea what they were or are doing and in that instance, the merchant finishes the advance, counts it as a learning experience and then switches to someone else to renew and get a real processing rate that is not jacked up.

    I still do not buy the fact that merchants drove this, I still think we did and we could find a way to drive it back or nudge it back and only offer ACH to those industries that do not take any credit cards or at least not much.

    My bet is only that not all funders would join that movement and try to grab market share by advertising that you do not have to switch, thus again giving away a valuable rev source - no different than making our product a commodity by dropping the rate, trying to grab market share, and then going out of business as a lot of the lower cost folks did.

    Just seems to me that we walked away from the processing rev source, continue to fight each other on rates by lowering them, extending the turns further and further out, which for all of us is less money and greater risk.

    There is an association, and I just wonder if that association talks about issues like this and tries to help the industry? I know why the association was originally formed, but I wonder what it is doing to help the industry funder's and its ISO's now?
    If you and I both made an ultimatum...with today's competition, merchant would just go out and find someone who would do it without switching.

    I find these days on the deals over $10K, it is a selling process on the switching part as much as the cash advance part. However, if I see the merchant has decent rates and there isn't going to be much wiggle room, I don't bother. I'd rather have 100% of one revenue source.

  14. #14
    I think you misunderstood - that was just an example. I agree that is what they would do right now, but not if everyone was making it part of the process, just like back in the day.

    I guess my point is that the market is not driving it, we are driving it - even though it hurts us all
    Nathan Warshaw
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    Warshaw Consulting
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    nwarshaw@2warshaws.com

  15. #15
    Senior Member Reputation points: 3217 CO1's Avatar
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    When I worked there capital stack only did those deals.

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    I will say the easiest sale to be made is switching a merchant off of a LB. Yes there are deals that have to be done on them, but for the most part they dont have to.

    Also, I convert more merchant accounts selling them on next day deposits than I do on rate. Typically I wont even lower the rates, at that point its not worth it. But when given the opportunity (lack of competition) I will pull out all the stops knowing it will take an extra day or two just to get the account.

    The hardest but best accounts to get are POS systems, especially those where there is a cost to switch. But, if you can sell a merchant on paying a fee to switch their POS system to your processor, those have a much lower attrition rate on both the processing and the funding side.

  17. #17
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    Quote Originally Posted by nwarshaw View Post
    I think you misunderstood - that was just an example. I agree that is what they would do right now, but not if everyone was making it part of the process, just like back in the day.

    I guess my point is that the market is not driving it, we are driving it - even though it hurts us all
    The problem is everyone wont go along with you. This is an industry so unregulated that you have multiple companies/individuals stacking on their competitors loan despite the high risks of driving the business to default.

    ACH is pitched as an "innovative" service, and companies that struggle building their own brand depend on these advantages to lower or raise the bar (depending on each individuals opinion).

  18. #18
    Agreed, which brings me back to this Association

    Who is part of the association and outside of the original formation of it, what are they actually doing today for the industry? Are there monthly meetings, an advisory board, are they discussing issues, etc. or is it just a tag for them so the outside world thinks there is an association, but they are not really bringing anything to the current table to help the industry as a whole?

    I would think that if the association is real and active that the dailyfunder could have a section of the forum and web site to bring us up to speed on current events and open up some discussions, etc.
    Nathan Warshaw
    President
    Warshaw Consulting
    770-672-7177
    770-500-2437
    nwarshaw@2warshaws.com

  19. #19
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    I know they (NAMAA) meet annually at the ETA to discuss issues. This year's hot topic was stacking. At the end of the day, no one's doing anything about it.

    As for what they're doing now, that's a great question for Swift Capital, Strategic Funding Source, RapidAdvance, Principis Capital, Nextwave Funding, Merchant Cash Group, Merchant Cash and Capital, Merchant Capital Source, Merchants Capital Access, Merchant Advance Funding LP, GRP Funding, Capital For Merchants, Business Financial Services, AmeriMerchant and American Finance Solutions. I think even On Deck Capital is a member of it now too.

  20. #20
    Sean -thank you for the names. To be honest, I had no idea who was even a member. A once a year meeting with no action does not seem like much of an association. Will be interesting to see if it develops into a real association with real action.
    Nathan Warshaw
    President
    Warshaw Consulting
    770-672-7177
    770-500-2437
    nwarshaw@2warshaws.com

  21. #21
    Veteran Reputation points: 134971 Chambo's Avatar
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    Quote Originally Posted by nwarshaw View Post
    Agreed, which brings me back to this Association

    Who is part of the association and outside of the original formation of it, what are they actually doing today for the industry? Are there monthly meetings, an advisory board, are they discussing issues, etc. or is it just a tag for them so the outside world thinks there is an association, but they are not really bringing anything to the current table to help the industry as a whole?

    I would think that if the association is real and active that the dailyfunder could have a section of the forum and web site to bring us up to speed on current events and open up some discussions, etc.
    Are you referring to NAMBLA, er, um, I mean NAMAA?

  22. #22
    Exactly - them
    Nathan Warshaw
    President
    Warshaw Consulting
    770-672-7177
    770-500-2437
    nwarshaw@2warshaws.com



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