The End of an Era
September 19, 2012It’s the end of an era. Sound ominous for a blog that reports on the Merchant Cash Advance (MCA) industry? It shouldn’t. In the last 10 years, MCA firms played in the minor leagues. No one was really paying attention to them and truthfully, a lot of critics didn’t think this business model would still be around. But today it still stands, funders are still funding, and this blog is practically struggling to keep up with the incredible amount of action that is taking place. Coincidentally, 2012 marks the end of the Mayan Calendar. Yes, it’s the end of an era.
MCA Goes From 0 to 60
There were a few big firms in the Mid-2000s (RapidAdvance, Merchant Cash and Capital, Strategic Funding Source, AdvanceMe, etc.) and they’ve all experienced modest success. It was “modest” in the sense that it is nothing compared to today’s standards. The level of play is changing. Wining and dining an Independent Sales Office (ISO) that could bring in $300,000 a month in deal flow used to be all the rage. 300k for one company was 300k less for a competitor. An extra point of commission here or a freebie approval there was enough to make you the big dog in town, at least for awhile. Despite all the supposed innovation and growth, the talent pool remained the same. Lead generators became agents, agents became ISOs, ISOs became syndication partners, syndication partners became funders, and funders became technology companies that were basically clearing houses for groups of funders. If the industry was Sally, Joe, and Tom in 2005, it was still Sally, Joe, and Tom in early 2011, just with new company names or titles. Then everything changed…
Money poured in:
Merchant Cash and Capital Announces $25 Million in new financing 10/4/11
Snap Advances raises $3 Million from TAB bank 11/21/11
Capital Access Network raises $30 Million 2/7/12
RapidAdvance Receives new financing facility through Wells Fargo 4/2/12
1st Merchant Funding | $5 Million re-discount line of credit from TAB bank 6/12
Strategic Funding Source secures $27 million 6/27/12
On Deck Capital raises $100 Million 8/23/12
Kabbage raises $30 Million 9/17/12
Industry insiders loosely redefined what a Merchant Cash Advance was:
Merchant Cash Advance Redefined Merchant Processing Resource 3/25/12
Big companies entered the market:
American Express Announces Their Own Merchant Cash Advance Program 9/22/11
PayPal Pilots Merchant Cash Advance Program in the U.K. 7/13/12
Some funders became licensed lenders in major states such as California:
A New Chapter Opens for Merchant Cash Advance The Green Sheet 6/25/12
Search the California licensed lender registry
New products formed:
FundersCloud creates platform to raise capital and find syndicate partners faster 8/29/12
A charity announces a new way to make subsidized business loans using the split-funding method 9/6/12
These barely scratch the surface of industry events. What used to be a competition to score the local neighborhood ISO has morphed into a race to be the first to partner up with Facebook, twitter, Groupon, and Square. Anyone not moving full speed ahead to integrate technology and social media will be gone in the next 24 months.
May 18, 2012 was the first time we noticed and commented on what was happening. In How The Facebook IPO Affects the Merchant Cash Advance Industry, venture capitalists and Silicon Valley had finally found MCA and there’s no hiding from them. Now it seems all of our far-fetched predictions are not only coming true, they’re happening moments after we predict them. In our last article we instructed everyone to keep their eyes on Kabbage. Six days later they announced they had raised $30 million in new financing and would be expanding overseas. For a company that makes wild claims about the correlation of facebook fans with account performance, all while humorously being named after a boring vegetable, they sure seem perfectly able to threaten the status quo. Nobody dared touch Ebay or Amazon businesses until they came around.
Price
On the cost basis front, the middle ground is eroding even further. We first discussed this phenomenon on April 25, 2011 in The Fork in the Merchant Cash Advance Road. In it, we explained that the combination of competition and defaults were placing downward pressure and upward pressure on price at the same time. Today, there is surging demand for “starter deals” at 1.49 factors that are payable over 3 months at the same time that more and more new lenders are offering 1 year loans at 10%. The low rate, 12-18 month term deals are nothing new. A few funders tried them in the past and most suffered irrecoverable consequences. This is history that the new players didn’t witness.
Some outsiders view the MCA industry as a bunch of Wall Street guys that got fat, happy, and disincentivized to lower costs. On the contrary, one only needs to take a single look at this chart to realize that undercutting the entire market isn’t so genius after all. How can a funder survive with extremely low margins when 15% – 71% of their target market is likely to experience problems repaying their loans? These aren’t our stats, these are FICO’s:
Veteran industry insiders know this and acknowledge that the coming tide of low rate financing is a bubble that has burst before. On the DailyFunder, a few folks have offered this insight:
The mca/unsecured loan biz is very risky. It’s all fun and games till deals start going south. My guess is they either adjust rates to match defaults or go out of business. I know first hand that this is not a get rich quick business. It may look like it is from the outside but once you are inside you see the world differently pretty quickly.
[these new low rate deals are] just like On Deck did. When they first came out, they offered 12 month 1.09’s. Then it dropped to 6 month 1.12’s, then 1.18’s. Now you see 1.25’s to 1.35’s offered by them
Governance
On the other side of the cost war is potential federal regulation. At least one D.C. consulting firm is prodding the leaders of the MCA industry to take a proactive approach on self-governance. According to Magnolia Strategic Partners, MCA is on the radar of regulators and members of congress, especially in light of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new MCA playing field has invited media attention, and not all of it is positive.
The North American Merchant Advance Association is the only organization for industry cooperation but their ability to dictate policies and standards is weak. They receive very little press and their website has been down for weeks. Many argue that they have been effective in minimizing defaults by sharing data on fraudsters. While this does stand to serve the community, it is but a footnote in their orignal intended purpose.
New Barriers to Entry
For the first time ever, potential resellers are facing barriers to entry. Becoming an ISO has long been as simple as owning a phone and purchasing a list of businesses that have used MCA financing before. Today, it’s not that easy. These lists have been sold literally hundreds of times over and called tens of thousands of times over. Pay-Per-Click marketing is dominated by the million and billion dollar firms with money to burn. If John Doe ISO wants to advertise on Google, he better be prepared to compete with the likes of American Express and Wells Fargo. Good luck! Putting skin in the game has also become more of a prerequisite for ISOs to succeed. Funders want to know if a sales agent would put his or her own money into a deal… and then actually commit them to doing just that. The odds are becoming stacked against the undercapitalized and it isn’t likely to change.
In 2009, the most prevalent pitch used by sales agents was to inform prospects that they themselves were “a direct lender” and that anyone else the prospect might be talking to was a broker. “Cut out the middleman and go direct with us,” they’d convincingly argue. This line became less effective when prospects heard this from all five agents they spoke to. Name dropping strategic partnerships will be the new way to build credibility. “We’re partnered with Facebook, twitter, Groupon, and Square,” a sales agent will soon be saying. “Can our competitors make the same claims? Go with us.”
See You On the Other Side
2013 will kick off a single elimination tournament. Funders that didn’t realize 2012 was the end of an era will begin to fade. 2014 will eliminate the weaker firms that remain and by 2015, Merchant Cash Advance will no longer be a term that anyone uses. Big banks and billion dollar technology companies will go on to rebrand all that which the funding warriors of the last decade have worked so hard to establish. MCA will simply assimilate into other financial products. The metaphorical Sally, Joe, and Tom will probably still be in the business, but be working for companies like Capital One, Wells Fargo, and American Express. And as for us…well… we’re going to need something else to talk about. But we’ll keep you posted until that day. 🙂
– Merchant Processing Resource
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8 Advances Are Better Than 1
September 11, 2012Things just got interesting. Your merchant processing $20,000 a month got approved for $26,000 and it was hard fought. Bad credit and some other issues would normally have forced this deal to go the starter route, but not this time. This time you can reflect back on the past few weeks of sweet talking the underwriter and know that it’s starting to pay off. Maybe it was the fact that you obnoxiously concluded every e-mail to him or her with a <3 or 🙂 just to make them feel extra special even if it was in response to a deal of yours they moronically declined.
I understand why you had to decline my client with 720 credit. We’ll get the next one! <3 :-)
And now this time you’re chalking up a tally on the closer board for a deal that shouldn’t have gotten done…that is until your client claims to have received a contract for $50,000 from another source. “There’s no way that can be true,” you tell them while rolling your eyes in frustration. This always happens at the finish line. Someone comes in and shouts out wild figures just to steal their attention away for a minute. But what if there really was a company offering 250% of processing volume to merchants who teeter on the subprime/starter threshold?
Sure there are ACH funders out there who will step in and say “based on their gross sales we might be able to give this merchant 500% of their processing volume!” and the like, but very few people are doing this from a split processing perspective.
We’ve been speaking with Heather Francis at Merchant Cash Group (MCG) and they plan to formally announce the details of their Fast Funding Equity program in the next couple of weeks. Without going into all qualifying parameters merchants must meet to be eligible, we’ve learned that these advances will be disbursed in 8 fixed monthly installments rather than the entire lump sum upfront. And that’s the catch. Under this program the merchant might be contracted for $50,000 but only receive a deposit for $6,000 today. However, there would be no future “renewal agreements” to negotiate or sign. Additional funds would be sprinkled into the merchant’s bank account on a near constant basis of every 6 weeks.
MCG might not win the deal every time with this program but they’re going to give a lot of account reps a run for their money. We all know the pitch of verbally promising additional funds in 3-6 months from the date of the initial advance, which is based mainly on hope that the account will perform and that the funder won’t play games. Put that up against 7 renewals in writing and it’s fair to say we’ve got a good match on our hands. There are some other special incentives for MCG account reps on the Fast Funding Equity program that are being leaked on the DailyFunder Forum.
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G-Day
Today was G-Day in the Merchant Cash Advance arena. GoDaddy.com’s servers were taken down singlehandedly by a jerk (let’s be real here) in the hacker group known as Anonymous. But this time we couldn’t all point and laugh like when it happened to Sony, Yahoo, or LinkedIn. No, this time thousands of MCA agents, underwriters, and staffers wondered why they stopped receiving e-mails after 2pm EST. This time Internet leads stopped coming in, internal databases stopped responding, and websites stopped loading. This time we learned that almost everyone uses GoDaddy for something no matter how much they brag about their systems and technology.
We didn’t take a poll of which companies were affected (we couldn’t because our e-mail was down!), but we did participate in the mass hysteria with several other people that were affected. As this very website went down around 2pm today, we lost contact with our database and e-mail servers. One ISO reported that their website, e-mail, and even their VOIP phones were down (You can have GoDaddy phones?). Another reported that their system was so connected to their GoDaddy servers that they couldn’t even print, scan, or fax! If you’re not a fan of Mondays, today was certainly a good day to make up an excuse to leave early. With systems crashing nationwide, chances are your stapler may not have been stapling right and your boss would have had no choice but to send you home.
Strangely, we have run into the hacker group Anonymous before. Back when they hacked Sony in 2011, they sent a 5 page blistering explanation of why they did it to the U.S. Federal Government. They included a link to our site on page 4 to an area that is now deprecated. That area outlined the basics of PCI compliance. For a week, our analytics showed that most of our web traffic originated from the Department of Homeland Security, Department of Justice, and the FBI. Boy, that was fun. Read that report and see our citation below:
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Who To Beat in 2012
“How’s your month going?” we asked. “Pretty slow, but that’s because it’s August,” said a lot of companies we spoke to. August is typically a slow month in the world of MCA. Account reps go on vacation, small business owners hit the beach, and America subconsciously puts everything on the back burner until after Labor Day. That was quite the opposite for 2 New York based MCA firms, United Capital Source and YellowStone Capital, both of whom reportedly broke single month funding records.
According to YellowStone Capital’s posts on LinkedIn, they funded $11,125,000 in August alone. With that, they gave a special thanks to RapidAdvance, GBR Funding, The Business Backer, Max Advance, On Deck Capital, Promac and Snap Advances.
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Add This To Your Data Points!
Companies that actively work to gain Facebook fans and Twitter followers are 20% less likely to be delinquent on their Merchant Cash Advance. Seriously. Kabbage, a company we mention in blurbs every so often operates independently from the rest of the industry by targeting e-bay sellers, independent Amazon stores, and social media retailers. Some people feel that they are not a serious challenger to the status quo and that their tactics, methods, and headlines are merely shock value fodder for the rest of us to laugh at while we all rant and rave about ACH deals being the hottest thing since Square. The founder of twitter (Jack Dorsey) started Square and it has completely disrupted the payments market that quite frankly was used to disruptions until Dorsey turned everything upside down. We believe Kabbage is a company everyone should keep an eye on.
On another note, our favorite part of Kabbage’s recent press release is actually the level of interest banks are expressing in their business model.
While the firm said it is open to establishing alliances with credit unions, banks have expressed more interest in seeing how they can leverage the technology platform to serve its customers.
-Kabbage
Fresh off our rant about John Tozzi’s recent article in BusinessWeek that concluded Wells Fargo was essentially evil for being involved with MCA companies, we’ve become suddenly self-conscious of what journalists might think. Little do they know that America’s big banks have been joined at the hip with the MCA industry for a while now. Banks are still lending to small businesses, we’re just all doing it on their behalves. TRUTH!
– Merchant Processing Resource
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Remember “Thinking Out of the Box?”
August 10, 2012
Remember when “thinking out of the box” was all the craze when it came to finding solutions and building business? Today most of us disregard thinking out of the box and much prefer being “creative” and “innovative.” We’re much more sophisticated in our approach. Thinking out of the box appears to be a metaphor that has outlived its use. In today’s business environment if you want to succeed you’re better off concentrating on coming up with creative, innovative solutions and products.
Not so fast say American and Chinese researchers who conducted some pretty interesting research into the psychology of creativity.
Here are a few examples of what they found out:
- An experiment was conducted where people were placed either in a five foot by five foot “box” or seated outside the box. The people outside the box were found to perform at higher levels when taking tests that required creative thinking.
- In another experiment it was found that being able to walk freely about stimulated more creative and effective thinking and problem solving than those who were instructed to walk in a straight line.
- In a particularly interesting experiment people were asked to put two things together. The group who received instructions to act out the metaphor of putting “two and two together” were more successful in developing different ways to approach the problem successfully.
Taking the Research Out of the Lab and into the Real World
It might appear that this research has very little, even nothing, to contribute to the growth and development of your small business. So let’s take a second look at the findings as they relate to your business and the workplace:
The first experiment found that most people work better in an open environment. How many of us and those who work for us do that work in square offices or cubicles? Not everyone would be comfortable working in a completely open space, but doing our best to provide work spaces that evoke creativity and innovative thinking would likely be good for business.
In the second experiment people were found to be better able to solve problems as well as think creatively when not required to walk in a straight line. Most small businesses owners see productive workers as workers sitting at their desk or station. For example, it could be that an employee might think better when solving a problem when speaking to a client or customer on the phone if standing and allowed to move about. This increase in innovative thinking may not apply to just physically walking in a straight line. Small business owners might want to consider examining policies and procedures to see if allowing employees to “walk more freely” might mean more effective and productive employees.
The last experiment where people were asked to put things together poses more of a challenge to apply in the real world your small business operates in. Perhaps the best way to look at this finding is to view to approaching what needs to be done in different ways to be an effective means to find the best way to do things. After all, what better metaphor is there for solving a problem correctly other than “put two and two together?”
The last thing these experiments demonstrate is that perhaps we’re wrong to believe “thinking out of the box” is a method to improve business that’s seen better days. As a matter-of-fact, thinking out of the box appears to be another term for creativity and innovation.
Guest Authored by Annie:
– Merchant Processing Resource
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Smart Small Business Owners Have After Sales Strategies
July 27, 2012
We all want to be successful small business owners. And that means being a Smart Small Business Owner. Part of being a Smart Small Business Owner (SBO) is understanding the importance of designing and implementing effective after sales strategies.
SBO’s know that it really isn’t about attracting customers. Keeping that pipeline of potential customers flowing is really just a basic cost of doing business. You can be pretty darn successful when it comes to attracting customers. You can be pretty darn successful converting those prospects into making a purchase. But what’s really going to grow your business isn’t only attracting and converting prospects into customers – it’s building strategies into your business model that pull another couple rabbits out of the customer hat: repeat and referral customers.
The term “After Sales Strategies” should not be confused with selling extended service or product subscription programs. Not that these aren’t something to consider as they both represent excellent additional revenue streams. It’s great to sell a customer a jar of face cream – it is even better to sell them a pre-paid jar of face cream for a year. It’s wonderful to conduct a home inspection for a client before they purchase a home – it’s even better to sell them a pre-paid seasonal inspection service.
However, that’s not the kind of “after sales strategies” we’re talking about. What we’re going to address here are a category of after sales strategies that do some pretty important things when it comes to growing your small business:
• Improve Customer Satisfaction
• Improve Customer Retention
• Increase Positive Word of Mouth
It Pays to Act in The Best Interest of Your Customer
But first we need to talk a little bit about exactly what type of “After Sales Strategies” we’re talking about here. Simply put, these are strategies which, from the customer’s perspective, are “freebies.” They’ve already pulled out their wallets and handed over their cash and then receive a pleasant surprise: the business they’ve already handed their money over to does something in their best interest without trying to sell them something else in the process.
Here’s a really simple example of how powerful after sales strategies can be.
You decide to try out a Greek restaurant you’ve never been to before on date night with your spouse. You order your meals and they’re pretty good. No complaints. The server is friendly and attentive. The décor is nice. You’re in the process of signing your check. You’re not overly wowed, but you might come back. Maybe, if you happen to be hungry and in the area at the same time.
And then you get a nice little surprise. Your server approaches your table and places two small cups of Greek coffee accompanied by two small, yet perfect squares of baklava.
You say, “We didn’t order desert, I’ve already signed off on the check.”
Your server says, “Oh, this is just a little treat with our compliments to top off your meal. I can put it in a box if you’re ready to go.”
You don’t even like baklava (but your wife does) and you’re not sure how you’re going to feel about Greek coffee. But there is one thing you’re sure of now – you’ll be coming back. There were those rolled grape things on the menu you’ve always wanted to try. When you show up at work on Monday you tell your friends about the great Greek restaurant you took the wife to over the weekend. Hearing about the free dessert, a few of them ask for directions. On Friday, a group from the office runs over to catch lunch.
That coffee and dessert was a simple, low cost, yet effective, after sales service strategy. As a result you:
• Were more satisfied
• Planned on making another purchase
• Told others about your great experience
All three of the above are certainly responses you’d like from your customers after they’ve bought from you. Which leads us to a great question all you SBO’s out there should be asking yourselves right now:
“What are some simple, low cost, yet effective after sales service strategies I can put into place?”
Article By: Annie
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A Merchant Cash Advance Fad or Future?
May 11, 2012We were recently asked the following questions:
What do you think has caused this explosion of bank-only and loan products in the MCA space? Will they last?
It’s said that 50% of all marriages end in divorce. So after years of a happy marriage and several offspring (starter advance, premium advance, and lockbox), the Merchant Cash Advance industry is seemingly ready to part ways from merchant processing. Back in the Mid 2000’s, the two did everything together. But now it seems every time a funder receives an application, there’s a note attached to it from the reseller that says “this needs to be ACH.” What began as a temporary work around for POS equipment that couldn’t be converted, has turned into a full blown fixed debit ACH love affair. Will this product boom last? How did this even happen?
Here are several of our theories, some of which may even contradict each other:
1. The Merchant Cash Advance industry has grown uninhibited for so long, that some companies do not see any harm in collecting fixed payments. A projected 6 month advance could take 18 months to complete due to a slowdown in merchant account sales, a risk that some funders are no longer willing to take.
2. At least one state (::cough:: California ::cough::)has been nagging Merchant Cash Advance providers to obtain a lending license even if they’re truly purchasing future revenues. If you have a lending license, you might as well actually lend money. Hence, more fixed term and fixed payment deals are being done.
3. Sales agents are constantly talking about upfront commissions and closing fees. It seems like none of them are earning merchant account residuals anymore or don’t see the long term value in them. Should we be surprised if an agent pushes to get an account funded on ACH instead of waiting 6 weeks to convert a Micros POS?
4. Payment technology has evolved too much. There are tons of ways to circumvent a funder’s split. Anyone can whip out their smart phone and swipe a card through an attachable device. There’s also the ability to get terminals and POS technology for free from virtually ever merchant services provider in the country. Instead of worrying about whether or not the merchant is going to secretly use Square or PayPal to bypass the split, it’s beginning to make more sense to pull funds from the bank account instead. At least if they end up using Square, PayPal or 10 other processors, those sales will end up in the bank account anyway.
5. “I have to change my processor? Ugh!” How many times have sales agents heard that? It only takes 1 sales agent in a 5 way deal competition to ruin it for everyone else by offering a fixed debit repayment program. No one wants to be caught without the ability to present the same alternative.
6. There are so many businesses that don’t accept credit cards, accept them with such low frequency, or in such a small proportion to their cash sales. It may seem like everyone is doing fixed debit ACH deals now, but in reality a lot of these businesses would never have qualified for a Merchant Cash Advance previously. The merchant pool has grown to include anyone that owns a small business instead of anyone that owns a small business that does at least $5,000 a month in credit cards and batches out 15x times consistently.
We think #6 is the biggest part of it, but certainly this shift in the parameters of eligibility and the widespread ability to ACH is cannibalizing the sector that would normally qualify for split-funding. The rate at which the industry is doing ACH deals may slow down but it’s very unlikely it will ever go away. Is this is all a fad? We think not…
– AltFinanceDaily
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Cool Stuff | ISO Extinction | Ignorant Media
April 27, 2012What’s new in the Merchant Cash Advance arena?
Cool Stuff
FundersCloud is making waves in the industry with their Peer2Peer/Crowdfunding platform. We’ve finally gotten a chance to speak to their team, do a walkthrough, and aim to release an independent review of their cloud next week. However, for the moment we would like to take this time to gloat that another one of our predictions is being proven right.
On December 1, 2010, we explained that the Direct Funder model was quickly becoming a thing of the past. (The Direct Funder Model is Sooo 2009). How many of your friends and colleagues have at some point considered leaving their current job to go and start a funding company? Tired and worn down agents are all prone at some point to say “screw this! I want to be the funder so the agents can send the deals to ME instead!” Now it makes increasingly less sense to start a funding company. Why would you do that when you can just syndicate on your own deals or on the deals of other funders? You can earn the same return they enjoy but without having to pay the nasty overhead. In some aspects, being the funder has disadvantages, unless they’re making a hefty amount on management fees.
ISOs Facing Extinction
According to an article in ISO&Agent Magazine, it’s not practical to compete on just price anymore:
The internal threat lies in continuing to base the ISO business model solely on selling card services at the lowest price and failing to offer the latest payment technology, Helgeson cautioned the packed session room.
“They should be talking innovation,” Helgeson said of ISOs. “If they’re only talking rates, they’re already out of business”
Basically, if two merchant account representatives walk into the corner deli and one offers to lower the processing rates by 15 basis points and the other offers a state of the art POS cloud that can accept payments through the merchant’s smartphone, home computer, and in-store touch screen device, what’s going to happen? So many merchants have been tricked into higher rates under the guise that their rates would be lower that they’re beginning to tune out the low rate pitch already anyway. They want the technology now.
Could the same issue begin to plague the Merchant Cash Advance industry? In the last two years, new funders have popped up with the strategy to acquire marketshare by undercutting the competition. That works until the next guy undercuts the first guy, and the next guy undercuts the second guy. Pretty soon, we’ll have funders purposely operating in the red just to have a share of the market. Some are bleeding red ink already but not because they want to be. 🙁
They key is to give merchants added value with the financing program. This doesn’t mean trying to sell them insurance and warranties and trying to pass this off as some kind of value. Those are junk costs and extra fees for the funder, not value for the merchant. Anything you can contribute that would drive more customers to their business or make their business operate more efficiently is value.
Ways Merchant Cash Advance Companies Can Provide Additional Value to Their Clients:
- Provide them with POS software
- Provide them with SEO services to increase their exposure to customers in search engines
- Create a custom tailored marketing campaign for them to reach more customers
- Create and execute an e-mail marketing campaign for them that would be sent to either previous customers, potential customers, new customers, etc.
- Rent a few billboards and allow merchants to opt-in to have their business advertised on these billboards
- Copy Groupon
- Etc., etc., etc.
If you can’t come up with anymore ideas here on your own, you’ll probably be out of business by 2015. If the items you add to this list include ways to make yourself more money and not the merchant, you’ll probably be out of business by 2015.
Ignorant Media
In our own opinion, the petition set up to automatically e-mail the Huffington Post in response to their article about businesses having no choice but to pawn jewelry was a success. The Huffington Post may feel differently because they didn’t respond to us at all.
It figures that websites that receive millions of views daily really don’t bother to care about actual facts or information. They’re entertainment sites and for-hire PR mechanisms. Every time we see a friend’s company mentioned in the news, we shoot them an e-mail or call them up to offer them congratulations on getting noticed. They always respond with some version of, “Don’t congratulate me. I had to pay $30,000 to some PR company to try and buy placement.” Oh well… At least there’s the Merchant Processing Resource to fulfill all your Merchant Cash Advance information needs. 🙂
– AltFinanceDaily
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The SEO War Continues
April 4, 2012In the last few weeks, Google dropped a nuclear bomb on the SEO battlefield. Some of you may have noticed but no one really wants to talk about it. Who would want to publicize the fact that their website has plummeted from page 1 to page 25 after investing tens or hundreds of thousands of dollars a year to rank on page 1 for a hot keyword? To be the one holding the bag when the bubble bursts has obvious economical consequences but can also be emotionally damaging. So what happened?
In March, Google de-indexed and banned some of the major subscription-based blog networks and effectively wiped out thousands of backlinks for companies throughout the world. Many in the MCA space have secretly been using these networks to compliment their SEO strategy or worse, be the focal point of it. Blog networks such as BuildMyRank (which has been completely shut down) allowed their subscribers to submit up to ten articles per day. These articles are usually a minimum of 150 words and contain at least 1 link pointing to the subscriber’s website. At the rate of 10 articles per day, a company could build at least 300 highly contextual backlinks per month and easily jump in search results over the competition.
We could write 5 articles today with no problem but task us with 300 and we’ll run out of content after 20 and be mentally exhausted after 50. The quality of the content would likely suffer and there would eventually be a point where it was even too cumbersome to produce gibberish. Some of you may think the article you’re reading now is gibberish. 😉
And so the subscription fees were compounded by the cost of hiring writers internally or outsourcing the work. But when everyone in the industry was doing the same thing, the stakes were upped and MCA companies were forced to use new methods. One blog network subscription turned into four and paying for links and issuing PRWeb press releases became the cost of staying competitive, rather than being the recipe to rank the highest. The subscriptions, the labor, the link purchases, online releases, and other costs to stay visible on the Internet have become increasingly material line items on P&Ls in effort to get to Page 1.
But being listed on page 1 doesn’t guarantee clicks or conversions. In fact, if you’re not in the top 3 for a particular keyword there’s a good chance you won’t experience any clicks at all. According to a study performed by Slingshot SEO, humans just don’t like clicking anything but what’s on top.
While some of the MCA companies that relied heavily on the defunct blog networks have practically disappeared from the search results altogether, those that used them in moderation have fallen out of the top 3. Going from position 1 on page 1 to position 5 on page 1 can be practically the same as going out of business.
Internet marketing became exponentially popular in the MCA space just in the last twelve months mainly due to the seemingly low cost and reported success by online lead generation companies. For small to mid-sized ISOs, spending $100 on a website with Godaddy and trying to get the site ranked organically just seems so much easier and cost effective than surrendering to the expenses of hiring telemarketers, renting office space, running mailer campaigns, billboards, radio/tv ads, hiring multiple salespeople, and buying leads.
But diversifying your marketing strategy is key. Buy quality leads, mix it up with mailers or calls, or go door to door. Just don’t put all your eggs in one basket. As many companies learned in the last few weeks and more will learn in the ones upcoming as all the SEO penalties finally set in, Google runs the show. They can change their algorithm at any time and there’s nothing anyone can do about it. If you’re going to spend a million dollars for a Times Square billboard, make sure there’s no clause that allows them to move it to the middle of the Pacific Ocean. If you hadn’t figured out why your website is generating less leads lately, we’re sorry to be the bearer of bad news. Your billboard was lost at sea.
Read related article: The SEO War for Merchant Cash Advance
– AltFinanceDaily
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PCI Compliance Double Standard?
April 3, 2012Hey Small Business Owner! Get Compliant or You’ll Be Out of Business!
That’s the message being fed to businesses accepting credit cards by the payments industry. But the communication isn’t getting through. 60% of merchants are unaware of the costs they would incur for a data breach and 64% believe their businesses are not vulnerable to credit/debit card data theft. These statistics fuel the rhetoric by payment processors and ISOs to get compliant, pay highly monthly fees (most of them bogus), and to get serious about protecting customer data. The result is always the same… merchants continue to ignore the PCI Standards. And why should they care when the big companies like Sony and Global Payments aren’t even capable of securing themselves either?
We spoke with a business owner about PCI Standards, who requested to remain anonymous after we informed him about potential fines and termination for non-compliance. The owner of a small grocery store in Queens, NY said he had never heard of compliance standards, the requirement for annual self-assessments, or the necessity to use secure equipment. He’s using a 10 year old Nurit 2085 that was passed down to him by a relative’s failed business four years ago. The NOS has never been upgraded and he hasn’t considered doing it because he’d “rather not mess with the machine.” According to literature distributed by Verifone in 2009, the Nurit 2085 was no longer PCI compliant years ago (if it ever was at all) and the recommended replacement is a vx510. But the business in Queens never got that memo and the owner was very frank in his response to our warnings on the costs of a data breach. “If something ever gets breached, it’s not my fault or my problem. They can talk to my account rep. It’s his problem, his machine, and he’s the one responsible for this whole thing, not me. How can I be liable for the technology that they’re making me use?”
The truth is that a single data breach is likely to result in:
- A security audit (cost of $8,000 to $20,000)
- Replacing the card for every customer who was at risk for having their information stolen ($3 to $10 per card)
- Up to $50,000 in compliance fines
Source: http://www.pcicomplianceguide.org/merchants-20090416-cost-data-breach.php
The average merchant faced with a data breach in 2009 incurred $6.7 million in fees. That’s vastly more than the Queens grocery store is worth. So are merchants being ignorant or is this attitude cultivated by the payments industry? Talk to any merchant account rep and they’ll name a handful of processors that will sign up accounts with Non-PCI compliant technology. At the end of the day, some processors would rather book the account than educate, support, and protect their client from security breaches.
This isn’t to say that carelessness or ignorance is what caused the massive breach at Global Payments but allowing hackers to grab sensitive information on 1.5 million cardholders sends a bad signal to merchants. Experts are already predicting that the cost of this breach will be in the tens of millions of dollars. Visa has temporarily removed them from their “list” of compliant processors and Global expects to be reinstated very soon.
Already the payments industry is spinning this event as contained and Global continues to process card transactions as usual. In a few weeks, we’ll all forget about this and it will be no harm, no foul. Global will dip into whatever reserve fund they have for breaches and square it all away.
But the merchants will never forget. Instead it will serve to further justify their thought process that if something happens, it’s not their fault. 1.5 million stolen credit card numbers fits right in line with their account representative who has never mentioned PCI compliance and their processor who is willing to play ball and book their account with unsafe technology. Everyone’s looking the other way, so how can the end user be stuck with the blame if something goes wrong?
Plenty of ISOs apply PCI compliance fees to their clients’ statements but don’t actually help them become compliant. If the day ever comes that big processors can lead by example (no thefts) and each level of the payments industry gets serious about compliance, perhaps merchants will be more inclined to change their attitude. Until then, they’ll keep right on believing it’s not their fault or their problem. They’re probably right…
– AltFinanceDaily
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