A federal appeals court has upheld a lower court's ruling that AdvanceMe Inc. holds no patent on merchant cash advances.
The U.S. Court of Appeals for the Federal Circuit in Washington, D.C., ruled Thursday, affirming a previous decision that an AdvanceMe-held patent for its method of providing merchant cash advances against future credit card receivables is invalid. The appeals court wrote no opinion to accompany its decision.
"This will promote fair competition," says David Goldin, president and CEO of AmeriMerchant LLC, a New York-based merchant cash advance company.
"Fair competition ultimately is better for providers and merchants," Goldin says.
If the court had upheld AdvanceMe's patent, "it would have shut down the entire industry," he says.
Atlanta-based AdvanceMe said in a statement it is disappointed with the appeals-court decision.
"However, just as the trial court's original patent decision did not, the appeal court's decision will not have any negative impact on our business or change our merchant-centric focus."
Lack Of Confusion
The appeals court ruling clears up confusion, says Don Headlund, senior payments associate at The Strawhecker Group, an Omaha, Neb.-based consultancy.
"This clarifies the issue once and for all," Headlund tells ISO&Agent Weekly. It allows companies to compete without having to fear patent litigation, he says.
With the patent issue settled, more cash-advance companies may start up, he says, and that means ISOs could find better deals as more competitors vie for their business. In turn, that could mean merchants pay lower rates for the advances, Headlund adds.
Carrollton, Texas-based JetPay LLC sells merchant cash-advance services through its ISO arm, JetPay Merchant Services, says Trent Voigt, company chairman.
"It's a great product [for] add-on sales," Voigt says, because it gives "an ISO the advantage of having another product line to sell."
Despite the financial payoff for JetPay, Voigt understands the unique nature of the product.
"This is the equivalent of a payday loan," he says. Yet, that does not mean the lenders of cash advances are malevolent. "I don't have a problem with it," Voigt says of the practice.
Many merchants cannot get a small loan from a bank, Voigt says, either because the bank declines to lend that amount or the merchant's financial standing is not solid enough.
Merchant cash advances come into play for those reasons, he says.
JetPay has sold cash advances for two years, and Voigt says the company had a hand in developing AdvanceMe's system of splitting transactions so that the correct portion is routed to the cash-advance provider to repay the money.
JetPay continues to use that system, which is built into the company's back-end processing, Voigt says. It handles transactions following approval by issuers.
Voigt says his salespeople like merchant cash advances because many merchants return for more following repayment of an earlier advance.
Salespeople get a residual from the funding company on top of their JetPay residual, Voigt says, "Which is good because a lot of them are making 20 basis points on credit card transactions and 100 basis points on their merchant cash advances." A basis point is a hundredth of a percentage point.
Overall, Voigt views advances favorably. "We're very comfortable in that business," he says.