In December 2007, I wrote a post entitled 2008 Merchant Cash Advance Industry Predictions and being that we are now just halfway through 2008, I wanted to follow up on this previous posting.
It looks like it's only 1/2 way through the year and I went 3 for 4 on my merchant cash advance industry predictions with 6 months to go for the fourth one to come true.
Here is a recap:
1) Underwriting will tighten up / approval rates will go down - this one I definitely hit on the head. Between a combination of a down economy, merchant cash advance providers working together to prevent fraud and many merchant cash advance providers that have either lost or in jeopardy of losing their credit lines, it's common knowledge that while merchant cash advance submissions are way up as a whole, the industry approval % is down double digits %s. This low approval rate has actually driven many large, high overhead MCA brokers to either lay off employees or completely shut down because some of the "junk paper" that was approved in 2007, simply no MCA provider will accept now.
2) Sales Agent Commissions will stabilize and/or decrease - in 2007 we saw some companies paying extravagant sales agent commissions that simply didn't make sense. One would think they were trying to buy marketshare. I would imagine after they reviewed their financials / profitability, they realized they couldn't make money paying out the type of commissions they were, hence the marketplace has adjusted accordingly. Some merchant cash advance providers / merchant cash advance agents have actually raised their cost to the customer to maintain some of these commissions.
3) Self Regulation - In December 2007, I had indicated that:
"The industry has grown to large and has too many providers to not have best practices / industry standards in place. In 2008, I believe you will see a group of the key merchant cash industry players come together to announce a set of best practices for not only the merchant, but practices to protect the merchant cash advance providers as well."
In April 2008, a merchant cash advance industry trade association called the The North American Merchant Advance Association was announced to promote best practices as well as allow the leading merchant cash advance providers to work together to introduce various risk tools to combat merchant fraud.
4) Mergers & Acquisitions - In 2008 I believe we will see the first major merger and/or aquisiton in the merchant cash advance industry.
While we haven't seen any significant US merchant cash advance provider merge with or acquire another US based provider, I still think we have some time to go. There is a huge upside in the merchant cash advance industry for private equity firms looking to enter this space. We did see a private equity firm make an investment in one leading merchant cash advance provider so far this year and I expect there will be some other deals done this year as well.
Showing posts with label merchant cash advance 2008 predictions. Show all posts
Showing posts with label merchant cash advance 2008 predictions. Show all posts
Tuesday, July 8, 2008
Wednesday, February 27, 2008
Accelerating Cash Advance
The latest issue of The Green Sheet has an updated article on the merchant cash advance industry entitled, Accelerating Cash Advance.
I think this is a very well written article with quotes from CEOs of such companies as yours truly from AmeriMerchant, American Microloan, Merchant Cash And Capital, North American Bancard and AdvanceMe.
The spirit of article is very similar in line to what many of my postings over the last few months have indicated, the days of merchant cash advance companies approving everything are over. There are some industries that may never qualify for a merchant cash advance again because simply the product doesn't work for it based on the payment flow of the industry / the ability for the customer to control the cash register.
The article also speaks to how agents / ISOs and resellers of this product should be concerned about who they are sending their deals to today. As soon as you hear a company can't fund, RUN! Better yet, don't even get to that place, a lesser, normal commission will be worth more in the long run then what seems like a too good to be true commission from a company that won't be around in the long term.
One positive aspect is that the merchant cash advance industry is coming together to establish best practices for selling the product as well as establishing risk tools to eliminate unscrupulous merchants.
I think this is a very well written article with quotes from CEOs of such companies as yours truly from AmeriMerchant, American Microloan, Merchant Cash And Capital, North American Bancard and AdvanceMe.
The spirit of article is very similar in line to what many of my postings over the last few months have indicated, the days of merchant cash advance companies approving everything are over. There are some industries that may never qualify for a merchant cash advance again because simply the product doesn't work for it based on the payment flow of the industry / the ability for the customer to control the cash register.
The article also speaks to how agents / ISOs and resellers of this product should be concerned about who they are sending their deals to today. As soon as you hear a company can't fund, RUN! Better yet, don't even get to that place, a lesser, normal commission will be worth more in the long run then what seems like a too good to be true commission from a company that won't be around in the long term.
One positive aspect is that the merchant cash advance industry is coming together to establish best practices for selling the product as well as establishing risk tools to eliminate unscrupulous merchants.
Friday, December 28, 2007
2008 Merchant Cash Advance Industry Predictions
As promised in my last article, the Merchant Cash Advance Year In Review, here are some predicitions for 2008.
1) Underwriting will tighten up / approval rates will go down - Many merchant cash advance providers have seen their share of bad debt this year. For a merchant funding company, it's no secret that no matter how much money you fund each month it's irrelevant if your bad debt eliminates all your profits (or even worse puts a merchant funding company into a loss). Too many companies tried to capture marketshare / attract new agents by funding deals whose industry doesn't work for this product, gave a merchant too much money then they should qualify for and were naive to identify merchant fraud. In 2008 you will see for the first time industries that NO merchant cash advance funding company will touch rather than the select few who were willing to take the risk in 2007 on high risk industries and they suffered the consequences.
2) Sales Agent Commissions will stabilize and/or decrease - 2007 was a bidding war between merchant cash advance companies to attract new sales agents / ISOs to resell their product. Many cash advance companies were new to the industry and haven't had the experience yet to understand the full profitability of the business. After factoring in the bad debt associated with the product and the quality of deals submitted by certain agents / ISOs, many merchant cash advance companies have come to the conclusion they can't make money by paying the ISO commissions they were paying. Many have already started to lower commissions or changed the pricing to the merchant to offset the higher commission. Some merchant cash advance providers have even terminated relationships with various agents / ISOs because they couldn't make money on the relationship. All the above factors I believe will lead to stablizied / lower commissions in 2008.
3) Self Regulation - The industry has grown to large and has too many providers to not have best practices / industry standards in place. In 2008, I believe you will see a group of the key merchant cash industry players come together to announce a set of best practices for not only the merchant, but practices to protect the merchant cash advance providers as well. In my opinion, the amount of fraud committed against the merchant cash advance providers by unscrupulous merchants and sales agents far exceeds the amount of unethicial practices that may have taken place by certain sales agents to merchants (no different then the problem that has existed for years of sales agents taking advantage of merchants when selling credit card processing services).
4) Mergers & Acquisitions - In 2008 I believe we will see the first major merger and/or aquisiton in the merchant cash advance industry. It will most likely come in the following form: 1) Merchant cash advance providers who run out of money will most likely be swallowed up by another merchant funding company. 2) You will see larger financial institutions looking to enter the merchant cash advance space. I believe you will see an outright acquisition of a merchant cash advance provider or a strategic investment in one by a larger player. 3) Two mid-size merchant cash advance providers merging together to become a larger player in the space.
All in all, I think 2008 will be a very positive year for the merchant cash advance industry. Demand for the product will continue to grow, especially with the recent credit crunch. Everything I mentioned above in some cases may be short term hiccups (e.g., harder for agents to get deals approved), but in the long term it will be more beneficial for the sales agent / ISO and the merchant cash advance industry to ensure this is a viable, long term career for all.
I wish everyone a happy, healthy and prosperous 2008.
-David
1) Underwriting will tighten up / approval rates will go down - Many merchant cash advance providers have seen their share of bad debt this year. For a merchant funding company, it's no secret that no matter how much money you fund each month it's irrelevant if your bad debt eliminates all your profits (or even worse puts a merchant funding company into a loss). Too many companies tried to capture marketshare / attract new agents by funding deals whose industry doesn't work for this product, gave a merchant too much money then they should qualify for and were naive to identify merchant fraud. In 2008 you will see for the first time industries that NO merchant cash advance funding company will touch rather than the select few who were willing to take the risk in 2007 on high risk industries and they suffered the consequences.
2) Sales Agent Commissions will stabilize and/or decrease - 2007 was a bidding war between merchant cash advance companies to attract new sales agents / ISOs to resell their product. Many cash advance companies were new to the industry and haven't had the experience yet to understand the full profitability of the business. After factoring in the bad debt associated with the product and the quality of deals submitted by certain agents / ISOs, many merchant cash advance companies have come to the conclusion they can't make money by paying the ISO commissions they were paying. Many have already started to lower commissions or changed the pricing to the merchant to offset the higher commission. Some merchant cash advance providers have even terminated relationships with various agents / ISOs because they couldn't make money on the relationship. All the above factors I believe will lead to stablizied / lower commissions in 2008.
3) Self Regulation - The industry has grown to large and has too many providers to not have best practices / industry standards in place. In 2008, I believe you will see a group of the key merchant cash industry players come together to announce a set of best practices for not only the merchant, but practices to protect the merchant cash advance providers as well. In my opinion, the amount of fraud committed against the merchant cash advance providers by unscrupulous merchants and sales agents far exceeds the amount of unethicial practices that may have taken place by certain sales agents to merchants (no different then the problem that has existed for years of sales agents taking advantage of merchants when selling credit card processing services).
4) Mergers & Acquisitions - In 2008 I believe we will see the first major merger and/or aquisiton in the merchant cash advance industry. It will most likely come in the following form: 1) Merchant cash advance providers who run out of money will most likely be swallowed up by another merchant funding company. 2) You will see larger financial institutions looking to enter the merchant cash advance space. I believe you will see an outright acquisition of a merchant cash advance provider or a strategic investment in one by a larger player. 3) Two mid-size merchant cash advance providers merging together to become a larger player in the space.
All in all, I think 2008 will be a very positive year for the merchant cash advance industry. Demand for the product will continue to grow, especially with the recent credit crunch. Everything I mentioned above in some cases may be short term hiccups (e.g., harder for agents to get deals approved), but in the long term it will be more beneficial for the sales agent / ISO and the merchant cash advance industry to ensure this is a viable, long term career for all.
I wish everyone a happy, healthy and prosperous 2008.
-David
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