Solomon "Sol" Lax, Chief Executive Officer of Pearl Capital LLC, believes the payment processing industry is approaching a point when only those who can adapt will survive. "Right now it's hypercompetitive; there's a lot of dollars chasing the same advertising target," he said. "More brokers are fishing in the same pool. Theoretically, there is a very large pool so that shouldn't happen, but it could be that there are too many people using the same exact methods of acquisition.
"You are going to have processors that really make it because they can grasp the technology, can offer multiple iterations, and provide value add. And then you have the old-school guys that are stuck in a commodity business with declining margins."
For ISOs seeking to increase their market share, providing payment processing and competing on price alone aren't enough. Lax said it's about adding value as well, "having the ability to say, 'Hey, I have money for you, or I have some other products for you' in addition to just pure processing. The ISO is then able to say, '10 percent of my merchants – I actually give them a line of credit, and on those guys, I am making more revenue than everything else I am doing combined.' At that point, giving away processing, or cutting it way below market as an acquisition strategy, makes a whole lot of sense."
Pearl Capital was founded in 2006 to provide financing to ISOs by selling merchant cash advance, which advances merchants funds based on the merchants' future credit card sales. The company focuses on using ISOs as brokers to finance underbanked merchant customers who typically would not be able to qualify for funding with other lenders.
"It's really a product for those who have personal FICO scores that are challenged but have robust or emerging businesses," Lax said. "In our case, we are willing to take a certain amount of risk on an emerging business that hasn't been around for five years."
Pearl Capital helps ISOs offer financing to their merchant customers through its white-label product, which allows ISOs to provide financing as if it is their own product, while Pearl Capital does all the behind the scenes work processing the loans. ISOs also receive commissions on top of their payment processing residual payments. And if an ISO wants to receive more than just a commission, Pearl Capital offers a syndication program that offers profit sharing. "The cost of acquisition for brokers has gone up and many of them are turning to the idea of syndication as a way to make additional economics that makes some money," Lox said.
Pearl Capital is able to make underwriting decisions to finance customers quickly. "I would say from the time that we have the information until we grant the offer is less than an hour," Lox said. "From that point on, most of the back and forth is if you aren't dealing with a direct situation where the merchant inputs all the data, gets the downloads and says they'll take the financing."
In the future, Pearl Capital plans to deepen its relationships with ISOs and partner with them to help them better achieve their goals. "At the end of the day, it's not about whiz bang technology," Lax said. "It's about the harnessing, adoption and utilization of technology."
He added that it's ultimately about being able to focus on the end customers and determining what they are trying to do and what they need to accomplish their goals. "Stop trying to think about providing just a commodity product," he said. "The future for Pearl is to evolve or die, fill your customer needs, and go home. Be the best partner and deliver the most value and that is what we are dedicated to."
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