Dean and David Caso sold their 12-year-old Homevest Mortgage Corp. in 2006 in a deal they say colleagues called the last profitable divestiture of a mortgage brokerage.
The brothers started Dedham, Mass.-based Velocity Funding LLC in September, with Dean Caso serving as president and David Caso as executive vice president and chief operating officer.
Velocity Funding offers products related to credit cards, debit cards, gift cards, electronic checks, loyalty programs and merchant cash advances. Dean Caso sat down with ISO&Agent Weekly to describe the new enterprise.
Within the next two weeks two sales agents will join the Casos, and the brothers plan to hire 15 outside salespeople for New England in the next 18 months to 24 months. All will join the company as employees instead of independent contractors, Caso says.
In March, Velocity Funding will introduce a plan for independent contractors that would provide agents a one-time payment worth 15 times the merchant's first month of card sales in exchange for signing over subsequent residuals to Velocity Funding.
"A lot of [agents] look at their residual stream and see they could use some extra money next month," he says, "but they don't want to sell all their accounts."
Velocity Funding also will buy merchant portfolios. The goal will be to add a minimum of 2,000 accounts per year through the next five years. Caso says.
In pursuing that objective, the brothers will put a wealth of experience into practice. Caso worked as a sales agent for PNT Services, selling payment card services in New England. In those days, the mid-1980s, terminals made the sale, he says.
"Everyone was using knuckle-busters then," Caso says, referring to the machines that made a physical imprint of the card when one part of the machine slid against the other with the card sandwiched between.
Merchants wanted something faster that could speed up the settlement. "I did 25 to 30 deals a month then," Caso says, adding that merchants did not ask about rates. "There was no mention of transaction fees or interchange."
Today, an agent may close no more than 20 deals per month after making 400 sales calls, Caso says.
In the years since Caso's first stint in the ISO business, selling has become more difficult because products, such as terminals, have become commodities, while rates—the prices merchants pay to accept credit and debit cards—have emerged as a primary issue on every sales call.
Selling A Commodity
"The way to differentiate in a commodity business is through outstanding customer service," Caso says. He learned that lesson in the consumer-oriented mortgage industry, where brokers get back to borrowers quickly.
If ISO salespeople took their usual slow-moving approach in the mortgage business, they "wouldn't last two minutes," Caso says.
Another method the Caso's are applying in the ISO business is close scrutiny of the discount rates Velocity Funding charges merchants, Caso says. Pressure from merchants to reduce rates may be the biggest challenge the ISO industry faces, he adds.
"At some point in time you have to look at the money you make on a merchant account," Caso notes. ISOs need to find the point where the cost of keeping a merchant in the portfolio outweighs the revenue generated, he says.
building a model
Even with the difficulties he has seen arise with commoditization and rate sensitivity during his absence from the ISO industry, Caso professes optimism.
That sense of hope springs partly from using the business model for Homevest, the mortgage banking company Caso and his brother operated, as the basis for Velocity Funding. Both businesses were based on finding skilled salespeople.
As Homevest grew, the firm took on all underwriting responsibilities and built relationships with banks to finance the home loans, which totaled $1.4 billion in 2004.
"We were taking on a tremendous amount of fraud and underwriting risk," Caso says. "That's no different from what super-ISOs do in this industry."
Though the Casos have yet to decide whether to take on the liability of merchant accounts because of the potential for losses, Velocity Funding will keep those options open by becoming a registered ISO with MasterCard World-wide and Visa Inc.
"One thing I've learned is to be real careful with the risk part of it," he says.
On the sales side, the Casos plan to tap into their experience of managing 80 salespeople at Homevest. "We have the ability to learn from some mistakes we made [and] some successes we had," Caso says. "The product may be different, but a lot of stuff we did from a sales perspective can be applied here."