STRATEGIC PARTNERS
Credit Card Center says it has obtained a source of funding, which improves the long-term outlook for the financially troubled Philadelphia-based ISO. Some in the industry think that's a good thing.
January 23, 2002
When it comes to Credit Card Center, the rumors are flying fast and furious.
At least one of them is true, according to Scott Vernick, the attorney representing the Philadelphia-based ISO.
"They've secured an additional source of funding," Vernick said, although he declined to reveal the benefactor or the amount involved. "We saw part of it last week, part of it this week, and we expect to see more next week."
A large chunk will be earmarked to settle debts with merchants who have not received their residual checks from CCC in recent months, Vernick said.
An infusion of new cash is an important step toward keeping CCC in business. The ISO is in debt to Tidel and NCR for $26.7 million and $42 million, respectively.
Pete Fagerlin, vice president of QL Capital, contends that the two manufacturers contributed to CCC's financial problems. "They loaded CCC with eight or nine months of inventory so they could make their year-end numbers," he said.
The problem was compounded, Fagerlin, said when Advanta, CCC's primary source of lease financing for its machines, abruptly decided to get out of the leasing business last January.
"Advanta cratered and left (CCC) hanging out with millions of dollars of equipment that couldn't be funded," he said.
In a written statement issued last month, Credit Card Center CEO Andy Kallok seemed to support that view. "Wholesale money to the small ticket leasing arena was reduced significantly, forcing several companies out of business and inflating our receivables," he said.
Fagerlin said the bulk of his Concord, Calif.-based company's funding is with CCC, although there are some 20 other ISOs in QL's ATM portfolio. He's worked with CCC for nearly two years, Fagerlin said, and its financial record is "better than average" when compared with other ISOs.
Larry Frazier, sales manager for Cincinnati-based Information Leasing Corporation, said that at least some of CCC's problems are fairly common in the independent ATM industry.
The industry employs a large number of independent sales reps, some of whom "tell the customer anything they want to hear to get the lease signed," Frazier said, adding that unscrupulous reps can be found at many companies.
He said, "Eighty percent of merchants don't read the lease agreement; they just listen to the sales rep. There's been misrepresentation, and that poor quality salesmanship is coming back to haunt the leasing companies."
Because ATMs generate a definitive cash stream, unlike most other business equipment, reps sell merchants on the potential for income rather than the machine itself, said Dennis Latora, a branch manager at Atlanta-based Popular Leasing USA. "The industry in many cases has over promised and overestimated potential revenue."
In a November interview with ATMmarketplace.com, CCC's Kallok acknowledged that it was difficult to keep tabs on his company's large sales force, including 900 or so independent reps. "It's hard to run a $180 million company and not have problems," he said, "but nobody is allowed to work here who doesn't at least try to do the right thing."
Like Fagerlin, Frazier said Advanta's exit from the leasing business damaged CCC. His company and others are willing to help fill the void – but only to a point.
Many, including Information Leasing, want ATMs to be no more than 5 percent or so of their total portfolio. Until CCC's financial problems are resolved, he said, his company isn't writing any new deals for the ISO's customers.
Negative publicity surrounding CCC's recent financial problems, as reported in several publications including ATMmarketplace.com, ATM/Debit News, the Wall Street Journal and the Philadelphia Inquirer, is discouraging potential new players, Frazier added.
He said his company has been satisfied with its relationship with CCC. "They've always paid us and taken care of us."
CCC's business model, of requiring merchants to pay a large amount of money upfront on an ATM sale, helped the ISO go from being a small player to the biggest player in three years, Frazier said. "You can't be stupid and do that."
The model works as long as leasing companies are willing to provide the financing, he added.
Frazier said Information Leasing is watching CCC's situation closely and would like to see a prominent player, perhaps NCR, kick in additional funding. He believes that many other leasing companies feel the same way.
"We'd like to see a bigger piece of NCR in the game," he said. "If NCR is willing to be a player, we're willing to be a player."
NCR spokesperson Lorraine Russell said, "We can't comment on (CCC's) viability."
If additional funding isn't forthcoming and CCC doesn't survive, Frazier said, the entire industry will likely suffer. "If CCC doesn't make it, there may be a 'domino effect.' Not many leasing companies may want to step up to the plate and, without leasing companies, no one is going to be willing to buy ATMs."
