The Green Sheet Online Edition
February 22, 2010 • Issue 10:02:02
Getting merchants to pay micro-ly
A partnership between processor Integrity Payment Systems and payment solution provider Quicksilver Payment Solutions LLC has resulted in a new service that uses a process modeled on merchant cash advance collection to facilitate merchant bill payments. The service, Payfast, is built, serviced and installed by IPS, while QPS is helping to market it.
According to the proprietors, the idea for Payfast came from the unique method of debt collection used in the merchant cash advance business, where providers take a fixed percentage - known as a "split" - of a merchant's credit card receivables daily or weekly until the advance is fully repaid.
Similarly, Payfast uses a software program - hosted on the IPS server and installed into a merchant's POS system - that diverts a fixed percentage of Visa Inc. and MasterCard Worldwide credit and debit card receivables to one or more bill collectors.
For example, rather than paying the landlord with a lump sum every month, a merchant makes automatic and incremental micropayments until the monthly bill is paid in full. Upon settlement, the split process is typically decommissioned until the following month when the process starts anew with that month's tab.
"Think about a landlord who owns a shopping mall and he's got 20 or 30 kiosks which are high risk," said Frank Capozza, Chief Executive Officer of QPS. "We would say to them, 'It's very simple. You'll dedicate 10 percent of your Visa/MasterCard sales until your $5,000 rent is paid.'
"This way, a landlord gets paid a small portion of the rent every day. Nobody's waiting 30, 60, 90 days for any kind of payment, only to find out he's got to take a guy to court because he's going to default."
Payfast's providers say the arrangement benefits both bill collectors, who automatically receive payments on money owed, and merchants, who pay off allowances incrementally and thus avoid being saddled with giant payments at the end of a billing period. It also spares merchants the logistical headache of conventional bill pay.
Furthermore, diverting a fixed percentage of merchant receivables means payments fluctuate with the volume of a merchant's transactions each day, making them more manageable, Capozza said.
The split arrangement depends on an agreement entered into by both the merchant and the bill collector(s). According to Capozza, the service can split a merchant's payments to as many as 50 parties - be they landlords, purveyors or tax collectors.
The arrangement is completely flexible, Paysafe's providers say. To avoid straining merchant clients, "I'd personally like to stay around a 10 percent split," Capozza said. He added that split sizes vary depending on the contractual terms. Each arrangement also dictates the frequency of collection, which can happen daily, every few days or weekly.
According to Mike Ponder, President and CEO of IPS, the size of the split is generally determined by a combination of human and computer calculations, based on factors like merchant sales volumes and size of debt. He added that the split process discontinues upon fulfillment of payment until the following pay period.
"We have to settle out before we move any money - strip out today's incoming file from the receivables from any collection efforts," Ponder said. "So once a bill is paid, that stops getting taken out."
Payfast also includes a Web portal that both merchants and collectors can visit to view the progress of bill payments. Ponder said the micropayment software that runs Payfast is installed in all IPS-issued terminals and can also be retrofitted to most existing POS systems.
Integrity Payment Systems
Quicksilver Payment Solutions LLC
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