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Ask any successful ISO “What is the key to a winning game?” You will hear one word – speed. Ambitious ISOs understand that the ability to quickly and efficiently obtain and execute deals determines the overall success of their business. The MCA space is literally a race for time, unlike the mainstream financial industry. The very instant a merchant is determined to be a hot lead, funders and ISOs race to be the first to extend an offer, to be the first with the “best” offer. Even after your offer has been accepted, you still must race to send docs and close the deal. Until the very last minute when the deal is actually closed you can lose your hard-earned lead to another company. Whether we admit it or not, this is how our space operates, and it’s a jungle.
What if there was a way for ISOs to gain an edge on their competitors? What if they could quickly obtain valuable intelligence about their leads, before they even decide which funders they will send the lead to? If an ISO can see that merchant X is pretty much okay but has some NSFs, the ISO can quickly decide to send the file to funders that are less sensitive to merchants with NSFs. This way you don’t lose time sending the file, only to receive a large number of declines. When you have more and better data at your fingertips, it results in greater efficiency, speed, and deals. Most importantly, your entire work process will more accurately target lead submissions that will result in closed deals. The OPV scorecard gives you that edge – so you can close more deals.
An Efficient Verification System
The new OPV state-of-the-art verification system has been under development for a long period of time, with a budget which has exceeded 1.5 million dollars. The system checks the ten most significant variables vital to determining the strength of a merchant for a funding offer. We call these the “OPV 10 Commandments,” and they establish a score for the merchant. Not every item carries the same risk value for the ultimate decision, and the algorithm of the overall OPV SCORE takes that into consideration.
We are mindful that no verification system is perfect. Even verification systems used by the IRS and the FBI are not absolute. However, we have a high degree of confidence in the effectiveness of our system. We began testing the verification system back in February and as of the writing of this blog post, this is the only system that our entire underwriting process relies upon. We admit that at times the system will make a mistake, but the percentages are so low that we will put our own money on our verification system – every time!
The OPV Ten Commandments
Merchant Industry: Thou shalt conduct commerce in an OPV approved industry
The system verifies whether the applicant’s business operates within a disqualified industry. For example, if ABC Transporting LLC has only one truck and one driver, they will fail. This part of the system is updated as industry guidelines change.
Suspected Fraud: Thou shalt not commit fraud
The OPV Verification system is built to utilize all types of fraud detection, regardless of its relation to the MCA funding industry.
Business Existence: Thy business shalt exist
The system verifies whether the business actually exists and is in operation after its formation.
Active Business: Thy business shalt be active
The OPV Verification system is designed to confirm if the business is active and ongoing, since not every business is actively conducting operations.
Demand for Product/Services: Thou shalt have a demand for the product or services that thou business offers
The OPV Verification system will give us the data to establish the local demand for the merchant’s product or service offered to the consumer by the applicant’s business. The viability of the applicant’s business is key to the determination of risk.
Applicant Credibleness: Thou person requesting funding shalt be credible
This part of the system is not a credit check. It is designed to verify simply whether the applicant is a credible individual.
Application Narrative: Thy story shalt be true and verifiable
The MCA application docs consist of an application plus three bank statements. Since the statements in every application tell a story, the OPV-Verification system investigates to determine if the story checks out.
Remittance Availability: Thou shalt have something to sell
An MCA is not a loan, it is a purchase of future business revenue. If the merchant already sold all or most of the future revenue, what is the funder actually purchasing?
MCA Payment Histories: Thou shalt keep their obligations
Just like any other MCA funder, OPV will fund struggling businesses, but the borrower does need to show the willingness to make the payments according to the arrangement established with OPV.
Suspected MCA Kiting: Thou shalt not float MCA positions in higher amounts than the genuine sales revenue of the business.
MCA kiting is a phrase coined by OPV. The term is derived from a similar practice in the banking industry known as check kiting. It is a form of fraud where a check is intentionally written for a value greater than the balance in the account. Then a second check is written on a different account, to cover the non-existent funds in the first account. This falsely inflates the balance of a checking account, to allow written checks to clear that would otherwise bounce.
Unfortunately for the MCA industry, merchants have become increasingly proficient at artificially bumping up their revenue in a manner similar to check kiting, and are selling more revenue than they actually accumulate. Funders who willfully participate in MCA kiting are equivalent to a bank cashing a kiter’s check knowing that there is no real coverage for it. The funder is basically playing the game of SORRY: rolling the dice and hoping that their four positions return before the game is over.
The OPV Scoring Process
Since money lending/advancing has been invented, an underwriting protocol has existed. Some periods in history required more stringent protocols to obtain financing than at other times. There was never a time in history where no underwriting protocol was utilized, until we reached the current MCA period. One may say, “speak for yourself, we do have an underwriting process.” Yes, every funder likely has an internal process, but here’s the key difference – the MCA space is completely unregulated, unlike the mainstream financial industry. The result of that absence of regulation is that to obtain funding, nothing is required beyond the risk appetite of any given funder.
The standard financing market relies heavily on credit scores. By contrast, the MCA space relies on a paper grading system ranked from A to E that lacks any intelligent data. At best this system is as good as the penny stock predictions. This puts the good ISOs and funders at a great disadvantage, because they are essentially playing in the dark. The OPV SCORE summarizes the values of an actual verification system according to the risk value for each variable. Some ISOs run small shops and know their merchants personally, while others run large shops where every merchant is a number. Most ISOs fall somewhere within that range. The OPV SCORE allows the largest shop to know their merchants “personally.”
The verification system starts with the most basic variables, like Business existence, and not all submissions will go through the entire OPV Verification process. The OPV SCORE is 0 to 999. The higher the score, the deeper the submission went into the verification process.
A Reliable Scoring Process
We do not claim to have a perfect system, but the OPV Verification system is reliable nonetheless. Prior to opening our scorecard to the ISOs, there wasn’t a way to easily reverse a decline. Now that we share exactly why we declined, an ISO can easily communicate if our scorecard is wrong and reverse the decline for an offer, in those rare cases where our system mistakenly returned the wrong data.
The OPV Verification system is designed to adjust itself constantly according to the real live results. As OPV grows, so does our database, which is automatically perfecting our system. The long-term goal is to make the system available as a platform for all funders who wish to participate. This means the MCA space will finally have a uniform intelligent scoring system.
We invite all ISOs to join OPV today and get the OPV-SCORE for your merchant right away!