Saying yes to portfolio, residual stream sellers

Cutter LLC founder and President David Daily began purchasing residual streams in 2006, when he perceived a growing need for alternative financing resources to help build ISO and merchant level salesperson (MLS) businesses. Combining his payments industry knowledge with asset-valuation expertise he had gained in the mergers and acquisitions sphere, Daily initially focused on acquiring portfolios with less than $5,000 in monthly residuals.

Since then, Cutter has broadened its scope by tackling larger acquisitions and targeting areas of emerging growth. "We have expanded our acquisition footprint to include residuals from all types of electronic payments," Daily said. "While most deals are still from credit card portfolios, we are seeing increased activity from gift/loyalty, ATM, check and ACH portfolios." He added that most of Cutter's business comes through referrals.

Flexible seller options

Recognizing the dedicated hard work that goes into building merchant relationships, Cutter's selling strategies are designed to help ensure the merchant portfolio transfer process is smooth. And an experienced relationship management team is involved to support each stage.

Many members of the Cutter team have been with the company from the beginning. Following the 2006 acquisition of a Pennsylvania-based ISO, Cutter retained a majority of the ISO's account services staff, including payments industry veteran Denise Shomo, who now manages Cutter's operations and acquisitions. As Chief Operating Officer, Shomo said, "We find that servicing the merchants in a purchased portfolio is crucial to maximizing the portfolio performance."

According to Shomo, building relationships with an ISO's support staff is critical to establishing trust, as is doing everything with a sense of urgency. "We can't be high maintenance and expect them to want to work with us," she said. "We want to be a 'partner with the ISO,' so they are assured that they are referring their agent to a trusted source for working capital."

One aspect sellers can determine is their level of participation with merchants during the process. "Since most purchases include an attrition guarantee followed by payments to the seller at milestones based on performance, we offer the seller an option for how much they want to be involved with the merchants after closing," Shomo said, noting that Cutter can offer minimum support or manage merchants upfront, so ISOs and MLSs can focus on generating new sales.

Because sellers have differing needs and objectives, Cutter provides flexible options for structuring payments to sellers as well. One example is the partial residual purchase as opposed to a full sale. "The multiple paid is based on a percentage of the residual stream up to 75 percent," Shomo said. "The seller receives a monthly residual on the portion that is over the purchased amount. This scenario allows the seller to receive a cash infusion and continue to collect a residual stream."

New funding programs

In December 2012, Cutter appointed Mark Wilson the company's Senior Vice President of Business Development. Tasked with engaging ISOs in the development of strategic funding options, Wilson has introduced programs that enable ISOs to fund signing bonuses and buyout programs.

"ISOs can use these programs to their advantage as a recruiting tool and enjoy a financial benefit by being able to focus their marketing dollars in other areas of their company, since they are not funding these upfront programs," Wilson said.

For ISOs that may have inactive agents, the company offers a solution. "Cutter offers buyout programs to ISOs with smaller residual streams being paid to inactive agents so they can streamline their residual payouts," Wilson said. "Residuals are paid to one source as opposed to hundreds of inactive agents. Typically, when an agent is no longer boarding accounts, their merchants are not getting the attention or are simply ignored." Cutter can step in and fill the gap, he noted.

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