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Guest Analysis: Preserving the Marriage Between Merchant Cash Advance and Payment Processing

Sean Murray
July 30, 2013 –  ACH payments have transformed the way many Merchant Cash Advance (MCA) companies operate. Once entirely dependent on payment processors to “split” card revenues to recoup their investments in small businesses, they discovered they can service more clients by debiting their bank accounts directly. Advocates have heralded this move as the beginning of the end of split-funding repayment and preach that the age of buying future card sales has run its course. In the eyes of many, the intimate decade and a half relationship between MCA and payment processors appears to be unraveling.

There is no doubt that a level of independence has been achieved. That is certain. Many MCA companies these days even provide real genuine business loans. There is a life outside of the payments industry. But let’s get one thing straight, as much as I am a cheerleader for the ACH age, I am a firm believer that split-funding repayment isn’t going away. Newcomers to the industry fail to realize that split-funding didn’t become popular because ACH payments hadn’t been considered or discovered, no it became popular because it was the most secure way to provide financing to a small business with average, weak, or unpredictable cash flow. By capturing a percentage of card revenues from the processor directly, there was virtually no chance that a small business could fail to make a payment. ACH payments carry the risk of rejects and NSFs, problems that are casting a shadow over the rapid growth of this method and its future, so don’t count split-funding out.

MCA companies need to do more than just keep split-funding in their back pocket though because time is working against them. Payment technology is evolving at an incredible pace and with that, all of its MCA protections. If their strength is the ability to collect from a payment processor directly, then their weakness is a business’s ability to utilize multiple payment processors. Transactions don’t just happen at the cash register or through the terminal anymore. They happen through independent mobile processors like Square, through companies like PayPal on the web, through third parties like Groupon, via ACH payments, and through countless other interfaces and methods This is good for the merchant but bad for the MCA company. They are forced to rely on the honor system that a business owner will not dilute their card payment sales through the terminal by diverting payments through other channels, a contractual breach known as “splitting,” which is not to be confused with “split-funding.”

Splitting has always been a thorn in MCA’s side and today’s technology makes it very difficult to prevent. There is no foreseeable cure. Much like a bank has to trust that a borrower will make monthly loan payments, there has to be a level of trust that a merchant will not divert payments to other processors. The idea that MCA companies will one day strike agreements with every financial institution in the country to grant them the immediate and unfettered ability to split-fund any and all such revenue a business earns regardless of who processes the transaction is never going to happen.

The reality is that the MCA industry must be proactive with technology, not reactive, nor in denial that things are changing. It’s a typical practice today to split-fund only the payments that come through a terminal or POS system. My advice is this: every single split-funding client should be provided with a mobile processing app for their smart phone along an attachable swiper. Whether or not they’ve ever accepted mobile payments previously is irrelevant. Limiting problems means limiting risk. Providing both this technology and the training on how to use it will do more than just reduce the risk of splitting, it will create a stickier client for both the processor and the MCA company. By providing merchants with other means to accept payments ahead of time, the risk of merchants going off and setting it up on their own elsewhere is reduced.

Today, underwriters and account managers would probably prefer to deal without all the fuss of technology. It may be an impediment to the speed demanded of them to close deals, but it is the only reason the industry came into existence in the first place. Split-funding affords protection to MCA companies in ways that ACH payments never will. Let us not forget that!

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Sean Murray is the founder of the official Merchant Cash Advance blog at http:// and a co-founder of the official forum for the Merchant Cash Advance industry at

The views expressed in the posts and comments of this blog do not necessarily reflect those of ETA.