hen someone takes action to solve a problem, it's often a result of discontent. And when many "someones" join forces to work toward that solution, together they can move mountains. Or to put it in terms of the bankcard industry, together they can get paid a lot more money.

MLS Direct Network Inc. is one such group. It's a member-owned cooperative network designed specifically for the merchant level salesperson (MLS). The organization combines the transaction volumes of all of its members, or partners, and uses those volumes to negotiate better pricing and more secure contractual terms and to provide benefits.

MLS Direct seeks to accomplish this by using 20% of the profits its partners generate by providing the following services to merchants: credit and debit card processing; check conversion and guarantee; check re-presentment (RCK), automated clearing house (ACH) and accounts receivable conversion, gift card processing, cash advance, wholesale equipment and equipment leases.

It passes the other 80% of the profits back to its MLS partners.

Each member of MLS Direct is a stockholder and part owner of the company. Members receive full financial disclosure, 80% residual payout over true costs, legal representation from the organization's own in-house attorney, strategically negotiated vendor contracts, true lifetime residuals and inheritable residuals. Partners also earn 100% of the revenues on equipment leasing and sales.

MLS Direct pays residuals by the 27th of each month, and it does so via the ACH. Pitts said the organization generally only has residuals in possession for three days before distributing them.

Because MLS partners own stock in the company (with potential dividend payouts), they all have a broad level of input from other member partners, which in turn creates a high level of participation from each office.

Economies of Scale

MLS Direct is the result of the efforts of Andy Pitts, President of the company. Pitts founded it because a few years ago he decided that he had had enough.

He began his career in the bankcard business as an MLS. He loved the business, loved working for himself, and loved the product that he sold, but he didn't particularly love the organization he worked with, so he went out on his own.

He said he quickly learned the back-end part of the bankcard business, and within four months, he had his own office and two reps working for him.

"But throughout my career in this business, I'd been through the gamut," Pitts said. "I'd been the MLS; I'd been the registered 'ISO-MLS.' Every time I moved up to what I thought was a different level in the business, I never really got the residual protections that I needed.

"It just got to the point where every time I was taking two steps forward, I was taking two steps back. It got very frustrating. As a 25-deal-a-month entity, I felt I was always going to be stepped on by the larger players in the business."

Pitts said he thought a lot about the economies of scale an MLS cooperative network would provide, especially when having to go through any type of legal process to protect one's residuals.

"I always thought that pooling your resources was the way to go," he said. "If there was a group of us, a 200- to 400-deal-a-month entity instead of a 25-deal-a-month entity, then collectively we would be more powerful, especially in terms of dealing with contractual issues.

"It's expensive to see a contractual issue all the way through the legal system."

Pitts founded MLS Direct in January 2004 and incorporated it four months later. A Board of Directors, whose members prefer to remain anonymous, helps run the company.

A Select Group

MLS Direct is a Delaware S Corporation, and in order to maintain its "S Corp." status, it will only have 75 partner (stock-owned) offices. At its current rate of growth, Pitts said he expects to fill all of the slots by the end of 2005.

"At that point ends our external recruitment for ownership of offices," he said. "We'll then have our core of offices that can grow themselves and recruit more agents."

Pitts said that MLS Direct is not for every MLS. The organization is looking for partners with at least one to two years' experience in the industry, who sign seven to 45 deals a month, and, ideally, with their own established independent sales office.

"If they haven't made that real transition into being an independent office, then they're not really the best candidate for us," Pitts said. "In fact, our average tenure is over five years in the business. Most of our offices are very well developed."

For instance, candidates should already have direct relationships with leasing companies and equipment vendors in place; they should also know how to do terminal downloads. "We're assuming that by the time they come to us, they understand that part of the business," Pitts said. "We have a screening process that weeds out the tire kickers and the industry green peas."

Before candidates can join the network, they must provide proof of at least one year in the industry; they must pass a background check; and they must take an exam that tests their industry knowledge.

"Some inquirers are surprised when they realize that we don't just randomly send out a package to anyone who calls," Pitts said. "But our vendor partners know that when someone joins our network, they have passed some of the highest scrutiny in the industry. Our member partners also have the confidence of knowing their fellow partners are of the highest caliber."

The industry exam MLS Direct requires conjures up flashbacks of test-taking in school for some people. "We're finding that many people in the industry are not as secure in their industry knowledge, and when they're faced with the concept of having to be tested on it, it really scares them," Pitts said. "We have people more concerned about the exam than any other part of our process."

However, he said there's no need to worry about it too much. The exam consists mostly of true/false and multiple choice questions. It's not a pass/fail test. It's more of a way for the organization to discover how much someone really understands about how the industry works.

The Support Is There

Even though MLS Direct seeks more experienced MLSs as partners, this doesn't mean that plenty of support doesn't exist for them. The organization has several full time staff members dedicated to answering phones all day long.

"This is what distinguishes us from the one or two others out there doing this type of network," Pitts said. "We have a very strong central office; we're very centrally structured."

MLS Direct has its own terminal "control center," which assists in building terminal applications; it also has in-house legal representation. MLS Direct's attorney received a certain amount of company stock in exchange for services rendered. "He put together all the legal documents for the company, and his initial function is to help with residual issues," Pitts said.

The national help desks of the processing networks with which MLS Direct works provide the customer service. And they all provide 24/7/365 support.

"I've been in this business less than three years, and the issues that I have are usually related to customer service issues or someone not completing what they promised," said Ernie Crews of MLS Direct of Southern California.

"I reached a point where the majority of my time was spent chasing down solutions to those problems. I was looking for someone I could associate with who would alleviate some of those major issues.

"I was also looking for a company where I could get good pricing. By partnering with MLS Direct, I've been able to eliminate some of these issues."

As President of MLS Direct, Pitts said he wears many hats. He's been known to help build files for terminal downloads, and he spends a lot of time in contract negotiations and in getting new MLSs on board. He also takes miscellaneous calls from the members throughout the day.

"This type of organization is not an easy one to manage," he said. "You've got to have a really strong structure to pull it off. You are also working in an industry with a lot of skeptical people who have been burned over and over again, so you have to earn their trust and show them how you are different."

The company is a little over a year old, and things are going well. Beginning in its third month of operation, MLS Direct generated enough residual revenues to cover its operating overhead, and still while only working with 20% of the profits.

And it has already signed up 21 MLS partners without doing any real advertising. There are only 54 member slots left. Will you be one of them?