February 11, 2013

Funding payment businesses to the next level

After he built a successful group of ISO startups and acquired multiple merchant portfolios, Darrin Ginsberg determined that loaning funds to ISOs and merchant level salespeople (MLSs) was the natural next step for him.

What started as a solo business gradually became three separate ISO enterprises, Ginsberg recalled. “I’ve been in the merchant services business for the last 23 years,” he said. “I’ve had everything from a small shop all the way up to a very large shop. After I sold my ISOs, I started buying portfolios in the business as opposed to organically writing the business.”

It was when the economic downturn began to negatively impact the value of merchant portfolios that Ginsberg took a different approach. “There was a lot more attrition than I’d ever seen in portfolios, and I was having a very hard time coming up with a multiple that would work for both the buyer and seller,” he said.

To help ISOs and MLSs overcome the attrition fallout without being forced to sell short on hard-earned portfolio income, Ginsberg developed a strategy. “Rather than an ISO selling their portfolio, I said, ‘Hey, what about if I loan you money against your portfolio? I’ll still get your residuals temporarily, take out my loan payment and send you the balance, but at the end of it you’ll still own your portfolio.'”

Response to his concept was favorable, and in 2008 Ginsberg founded Super G Funding LLC and assumed the helm as the new venture’s Chief Executive Officer. A number of ISOs and MLSs have since embraced the concept, he stated, noting that one reason for this is that a typical portfolio sale will require a two-year attrition guarantee.

For example, on a $100,000 portfolio with a 15 percent attrition guarantee, the ISO would need to guarantee to the buyer that the portfolio would retain $85,000 in value the first year, and $70,000 at the end of year two.

“So, if you’re guaranteeing that to a third party, why not guarantee that to yourself?” Ginsberg said. “But at the end of two years, instead of me owning your portfolio, you still own it.” This formula appears to be working. As of mid-2012, Super G had approximately 75 active loans, and was averaging five to 10 new loans per month. The company was also forming strategic partner alliances.

In June 2012, Harbortouch and Super G signed an agreement that permits Super G to provide business loans to the POS system provider’s ISO partners. “Putting capital into the hands of our ISO partners will help them produce more accounts and, in turn, help Harbortouch grow its business as well,” said Brian Jones, Harbortouch Executive Vice President of Sales and Marketing, at the time. “This is a great way for ISOs to obtain access to capital without having to sell their portfolios.”

In July 2012, Cynergy Data LLC entered into a similar agreement through which Super G provides funding as a service to Cynergy’s ISO and MLS partners.