Explosive growth to continue

Direct Connect LLC was growing slowly and steadily until six years ago, when Matt Clyne joined the company as President. Since then, the Chantilly, Va.-based acquirer has been expanding by a prodigious 40 percent annually, the company reported.

That rapid rate should continue with the infusion of an undisclosed amount of cash in January 2015, mostly from Goldman Sachs through a recapitalization led by Beekman Investment Partners II LP, a private equity group, Clyne said.

The company plans to continue expanding the same way it has in recent years – by purchasing merchant portfolios, buying and running entire ISOs, investing capital in ISOs to help them grow, and forming partnerships to handle acquiring duties for independent banks. Direct Connect has purchased more than 20 portfolios, Clyne said. "We'll look at anything, and we'll be announcing more acquisitions soon," he added.

Making all of those varied investments requires plenty of research and thought, so Direct Connect has designated staff to the task and put them under the direction of Garima Shah, Senior Vice President of Partnerships and Acquisitions. "She runs all of our acquisitions and our third-party relationships," Clyne said.

Taking on functions

Besides growing through acquisition, the company plans to continue adding functions so that by the end of 2015, it will become a full-service transaction processor. At the same time, the company plans to maintain its relationships with other processors, Clyne noted.

Direct Connect even owns and operates a fleet of ATMs. "It was built in the '90s and the early 2000s, and we still support several hundred ATMs" Clyne said of the portfolio. "Truthfully, it's not a big, growing part of our business."

A sizeable entity

Clyne preferred not to say how many merchants the company has in its portfolio, but he did say they number in the tens of thousands. Not counting the companies in which Direct Connect has invested funds, it works with about 200 active ISOs and merchant level salespeople (MLSs), Clyne said. But in any given month, 50 account for the majority of the company's deals from that channel, he added.

An inside sales staff in Direct Connect's call center does much of the acquiring work for the community banks the company serves. In-house telemarketers schedule appointments for ISOs and agents. The call center includes 40 stations, but the company said that due to increased business demands, it plans to hire additional staff there.

Direct Connect handles acquiring tasks for 50 community banks with a total of 200 branches among them, Clyne said. The banks are located throughout the United States, he noted.

Direct Connect is contemplating deals in Canada and might soon move across the border for the first time, Clyne disclosed. Talks are underway now with a processor-acquirer there. "It's starting to become a little bit hotter market in the last few years," he said. "That's why I think we might eventually buy something up there."

Valuable value-adds

Acquisitions aside, when it comes to merchant retention, Clyne has an abiding respect for value-added products. Forty percent of the company's merchants have multiple products, and 45 percent of new accounts sign up for more than one service, he said. Attrition is about half when clients are using ancillary products, Clyne pointed out.

Popular offerings include checks, gift cards, software integration and merchant cash advances. A product called Tip Rebate eliminates interchange fees on tips for restaurant workers and has proven extremely popular, he noted. A "90 days same as cash," credit program for consumers has also worked well.

Noting the importance of forming partnerships with every entity that touches the organization, Clyne ended his conversation with The Green Sheet on a theme he has advanced in presentations to tradeshow audiences. "If you've been in this market for five years and you're not a millionaire, you've done something wrong."

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