Rejection!

It’s like my highschool love life all over again!

Well not really.

As some of you know, I’ve been working in ‘stealth mode’ on a dot-com project for a few months now. A week ago I applied to Westpac for merchant facilities — ie the ability to charge Visa and Mastercard — today they said it had been knocked back.

I was beginning to suspect that they would knock me back when my case manager at Westpac, Gina, began to quiz me closely about everything I owned. Did I own a computer? Worth how much? Books? How long at my previous job? Any cars? Insured? etc etc.

She was trying her level best to do me a favour by beefing up my resume as a director, because there’s not much else to hang a hat on. The business was incorporated a few weeks ago and has yet to turn a dime because it relies on credit cards to do so. I own, approximately, diddly and squat. My parents reckon it reminds them of the old days (and the new days, perhaps) when you practically had to beg bank managers for a loan.

I suspect I could improve my chances by bringing in a director or two with really impressive resumes and assets. But I’m open to other suggestions. I know that some Troppodillians are banking types. What can I do to improve my odds when I apply again?

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9 Responses to Rejection!

  1. Dave from Albury says:

    I know that it’s not a great solution, but using pay-pal to handle your credit card transactions is easy as pie. Once you have a trading record you can then apply for merchant facilities elsewhere.

    I realise that pay-pal increases your costs a little, but it shouldn’t be enough to make hamper the businesses viability.

  2. Jacques Chester says:

    The problem is that PayPal would require my users to have a PayPal account and a credit card as well. It’s not just a little more expensive, it’s substantially more so. Plus, PayPal is one company in a good position to develop into a direct competitor. I’d like as much as possible not to give them an inside view of my business.

  3. observa says:

    There are basically 2 questions you need to ask yourself here to determine what you need of any prospective investor.(ahem!) You have the expertise and bright idea to become the next Bill Gates and are ready to roll. Now do you actually need some hard-earned out of an investor or simply their capacity to let you use their Merchant Facility? They are very different questions for an investor. In the first instance they’re either going to want some security, or else the intimate details of what you propose, in order to take a punt on you and your idea. According to the bank you don’t have that security and by all accounts you’re not to keen on someone pinching your idea so that presumably leaves a silent partner and access to that Merchant Facility.

    That raises the next question for the MF provider. If you piggy back on their account, someone will have to be paid to identify and process your take each month. OTOH they could set up a totally separate MF to defray that administrative cost, albeit they are going to want some reasonable control and oversight of the account in order to prevent any sudden liability on their part. (ie joint signatories to transfer or withdraw funds.) Then it’s a question of what that’s worth to both parties? ie it could be a fixed percentage to the silent partner for a given term, or an agreed lump sum that’s paid off by a fixed percentage of the turnover. From an investor point of view the latter is more preferable because they won’t know what term to fix with the former, without some reasonable assessment of initial turnover. OTOH you can proffer that lump sum figure to entice that MF out of the marketplace, because you are the best one to judge what it’s worth at present. From your point of view perhaps you need to lay out that last proposal and conduct a Dutch Auction for prospective investors.

  4. observa says:

    My response to you was predicated upon the answer to your question-‘What can I do to improve my odds when I apply again?’ being ‘not much’ because now is the winter of banks’ discontent and you’ve already been on a fishing expedition to discover banks don’t hand out MFs to any Tom, Dick or Jacques that walk in off the street. You need business form or security. By all means shop around the banks but the answer will probably be the same. Hence my response, reading into your other comments. Essentially I conclude you need a silent partner/intermediary that can get you a MF, which presumably is the only thing standing between you and a good income or better(don’t waste anyone’s time with hobbies).

    How do you get that MF the cheapest way possible, assuming mum and dad, etc can’t play Father Xmas and in any case you should never mix business with blood or pleasure. Strictly arms length and win/win commercial trading only. Besides, you’re a big boy and need to stand on your own two feet now. The cheapest way to get that silent MF partner is for YOU to do all the legwork and present them with as riskless/costless a proposition as possible, bearing in mind the need for arms length protection for both parties. Essentially the best bait gets the best fish and make it as irresistible as possible. Do all the homework for them and show you know what you’re on about which means imagining you’re sitting in their chair across the trading table. You want a MF for 12 months with right of renewal say. Work out exactly which type and how much it costs to set up and run for that period(ie the fixed costs). Can you put that up front into the account? (even with your own credit card) Then you want a signed sealed agreement between the parties as to terms, right of renewal and termination, etc. Have a sketch of that ready to go and know the cost. Are you prepared to pay all the upfront cost of that too? You knock that up in a professional manner and you’ve got something to sell, rather than beg with at present. When you think about it you might even be able to present it on ebay as a business proposition for the lowest lump sum bidder as I outlined before. Come to think of it we might just have discovered a new business opportunity here Jacques. MFs for startups.

  5. Jacques,

    I recently researched an eCommerce facility for a client of mine, so I know a little about this.

    A few things – firstly, it’s possible to make payments via PayPal using a credit credit without the buyer signing up for a PayPal account. Essentially, it’s just the same as an online payment gateway but routed through PayPal. However, I don’t recommend this because PayPal has complete control over freezing your account if a buyer requests a fraudulent chargeback.

    Your second option which is much the same as the PayPal option is Paymate, an Australian competitor to Paymate.

    Both of these options have fairly high commission fees, but if you can’t get a merchant bank account they may be good options.

    Another option I have discussed, but not research in detail is FastSpring.
    *

  6. observa says:

    I agree with Stephen’s caution re Paypal Jacques as a few acquaintances and my own experience shows they often fail to live up to their advertising. However, that said you need to be aware that accepting credit card payments over the internet means all the power is with the consumer should they claim they didn’t authorise the transaction, or goods were not as described, not received, etc. Read any bank merchant facility terms and they’ll tell you they have the right to reverse a transaction at their total discretion and let you argue it out with the customer and that they do almost 100% of the time so be warned. The real smarties out there know it and will play on it as well as you copping the odd fraudulent user.

    Fastspring looks to have taken up the intermediary role you may be in need of, seeming to average out the cost of internet credit to that 8.9% figure. While that may seem high at first glance, it may represent the true cost of doing business via internet credit, all things like fraud, chargebacks and fees considered. They would have economies of scale and market power to get the bank merchant fees down and help amortise those other hidden costs. Big users (eg Coles, Woollies)would pay infinitesimal merchant fees compared to SMEs and sole traders in that regard but those fees are negotiable once you’re a reliable and valued merchant. Still Fastspring might have barriers to entry like the banks.

  7. observa says:

    For your info here’s why they don’t hand out MFs to just anybody-

    http://www.westpac.com.au/manage/pdf.nsf/21FDBA3F5C27D33DCA25716500098E35/$File/Merchant_fraud_tips.pdf?OpenElement

    In particular-

    “Laundering of sales (3rd Party Processing)
    The term laundering refers to the situation where a business with a valid merchant facility accepts transactions on behalf of another business. Disreputable individuals sometimes approach legitimate merchants to process their credit card transactions, generally paying the merchant a percentage of the amount processed. Apart from constituting a serious breach of Westpacs terms and conditions, this is an extremely dangerous practice opening up a merchants business to significant risk of loss.
    Merchants engaging in laundering/processing transactions on behalf of another
    business are liable for all chargebacks arising from these transactions. In many cases,the individual approaching the merchant to process their transactions is unable to obtain a merchant facility of their own, possibly due to previous improper merchantpractices. Consequently, the chance of fraudulent transactions being processed isextremely high.
    A merchant may not, under any circumstances, process transactions on behalf of
    someone else or in connection with a transaction that did not involve them directly selling goods or services to their customer.”

    and hence that market niche for the Fastsprings of the world or as we old hands say, ‘Business would be a snack without the customers and the paperwork.’

  8. Patrick says:

    I hate paypal – I never pay with it. That’s a reason not to use it!

  9. Jacques Chester says:

    Thanks everyone, you’ve all been a great help. One thing I’ll be doing is going back to Westpac with a document outlining why I am a good bet — how I have identified and managed the risks they’re worried about. I reckon that might help to swing it my way. I’ll also be looking at other institutions which may be more accommodating about merchant facilities.

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