The Small Business Lender Rankings (A preliminary peek)
January 4, 2017
Here’s a peek at how some of the industry’s largest alternative small business lenders were doing for the year in originations as they headed into the last quarter of 2016. This data should be considered an estimate and is obviously not comprehensive. Still, this should give you a clue where some players will end up:
| Lender | Q1 – Q3 2016 | FY 2015 | FY 2014 |
| OnDeck | $1,772,000,000 | $1,900,000,000 | $1,200,000,000 |
| PayPal | $1,000,000,000 | $850,000,000 | |
| Square | $550,000,000 | $400,000,000 | $100,000,000 |
| IOU Financial | $87,500,000 | $146,400,000 | $100,000,000 |
Other small business finance companies do more than just loans, with many doing merchant cash advances. And some companies work to get customers funded through other platforms when prospective customers don’t fit their risk box. The numbers below are origination approximations regardless of whether the customer was ultimately placed on their balance sheet or someone else’s and whether or not the transaction was a loan or MCA.
| Funder | Q1 – Q3 2016 | FY 2015 | FY 2014 |
| Bizfi | $415,000,000 | $481,000,000 | $277,000,000 |
| Yellowstone Capital | $350,000,000 | $422,000,000 | $290,000,000 |
| Platinum Rapid Funding Group | $135,000,000 | $100,000,000 |
Kabbage Appoints Payments Industry Veterans as CTO and Data Officer
November 14, 2016
Small business lending marketplace Kabbage appointed a new CTO and chief data officer last week.
The Atlanta-based company that uses technology and data to underwrite loans hired Amala Duggirala as the new CTO. Duggirala is a two decade industry veteran and prior to this, was the executive vice president of global software development and implementations services at ACI Worldwide. There, she was responsible for developing end-to-end payment technology between consumers and retailers and accountable for the architecture, development and delivery of nearly 30 payments products. At Kabbage, she will lead the automation of the Kabbage platform and developing new products for growth.
The company also appointed the former head of analytics and insights at eBay, Rama Rao as the chief data officer. Rao also brings 20 years of experience in analytics, risk and payments. Rao holds a Ph.D. from MIT and built the risk analytics team at PayPal to manage its global risk policies. At Kabbage, he will lead the strategy for data, decision science, analytics and risk.
“We’re thrilled to have Amala and Rama join Kabbage to help us achieve our mission of sitting at the center of small business existence, both directly and through our partnerships globally,” said Rob Frohwein, co-founder and CEO of Kabbage.
This Startup Wants to Bring Realtime Payments to Medical Claims
November 14, 2016New York City-based fintech startup Liquid FSI unveiled its first product, Convert2Pay, a platform for claiming medical bills.
Liquid FSI was founded in 2014 and after two years of development and testing, the company launched its first white label solution, Convert2Pay, a platform where healthcare professionals can verify and claim medical invoices and get paid in real time.
Founder and CEO Frank Capozza wants to tend to the alternative finance opportunity in healthcare. “The SMB financing industry is reaching maturity with high cost of customer acquisition, declining renewal rates, ISO channel conflict, and stiff competition from new market entries like PayPal, Square, and American Express,” Capozza said.
“Since our strategy is to integrate our ‘View, Verify, Convert’ technology into the healthcare practice and lab management ecosystem, it’s a win-win for lenders and borrowers,” Capozza said in a statement. The Company will offer the product as a ‘white label’ solution to an alternative lending company.
The Art of The ‘Thiel’ – With Fintech Leader On Trump’s Transition Team, Alternative Lenders Could Benefit
November 13, 2016
Peter Thiel is famous for a lot of things, co-founding PayPal, backing Hulk Hogan’s lawsuit against Gawker and being a billionaire venture capitalist, just to name a few. Accustomed to shaking up Silicon Valley with his investments and antics, these days Thiel stands to impart his wisdom on another region, Washington DC. That’s because last week he became part of the Executive Committee of President-Elect Trump’s transition team.
After speaking at the 2016 Republican National Convention and donating $1.25 million towards Trump’s election efforts, his allegiance to the campaign should come as no surprise. His support is said to be genuine too, and that’s perhaps because the two have relied on similar rhetoric to make their points.
“Competition is For Losers”
Who said that quote? If you thought Donald Trump, you’re wrong, but you wouldn’t be blamed for thinking that given that so much of Trump’s mantra was focused on America “winning.” Competition is For Losers is the title of a 2014 Wall Street Journal essay penned by Thiel, that argued a perfectly competitive marketplace, an economic utopia, is flawed. “In business, equilibrium means stasis, and stasis means death,” he wrote. Entrepreneurs should instead strive for a monopoly, to win, he explained.
Winning is certainly something Thiel has done a lot of, making him a role model of the Trump credo.
“I think they should be described as terrorists, not as writers or reporters.”
Who said that quote? If you thought Donald Trump, you’re wrong, but you wouldn’t be blamed for thinking that given Trump’s hostility towards the media. Thiel said that in 2009 about Gawker reporters, and he bottled up that disdain and unleashed it in the form of financial support for Hulk Hogan against Gawker in a lawsuit years later, the force of which crippled Gawker and put the company into bankruptcy. It’s a revenge narrative that sounds oddly Trumpesque.
While there are likely more contrasts between the two men than similarities like these, both share a special penchant for winning. And more to the point, in a Trump presidency, Thiel may have his ear.
That should be welcome news to fintech and alternative lenders, given Thiel’s strong financial interest in that sector. Small business lender OnDeck has already experienced a 43% increase in its stock price since Trump was announced the winner. Enova, which bought merchant cash advance firm The Business Backer, is up 13%. That’s no doubt in part a result of Trump’s campaign promises to put a moratorium on financial regulations and recent pledge to dismantle the Dodd-Frank Act.
But with Thiel, his ties to alternative lending and fintech were made evident when he gave the keynote speech at LendIt earlier this year in San Francisco, in which he colorfully reiterated his theory about competition being a losing endeavor. “If you want to compete like crazy, you should just leave the conference and try to open a restaurant in San Francisco,” he said.
Thiel participated in SoFi’s $80 Million Series C round and Avant’s $225 million Series D round. “There are a lot of banks in the United States, but not enough access to credit,” he said in an announcement for the latter at the time.
He also participated in ZestFinance’s Series C round and both OnDeck’s D and E rounds.
And more recently, his VC fund, Founder’s Fund, led the $100 million Series D round of Affirm. The fund has also invested in Able Lending, BitPay and Upstart.
Last month, Phin Upham, a principal of Thiel Capital, another of Thiel’s investment firms, dismissed Goldman Sachs’ recent attempt to cash in on tech-based lending. “I wonder if Goldman will actually be able to keep up, because this is not a mature industry, everything changes sometimes within months.”
The NY Times reported that Thiel will not be moving to Washington and may not have a formal role in the administration, but that he will have a voice.
“A page in the book of history has turned, and there is an opening to think about some of our problems from a new perspective,” the Times reported Thiel saying. “I’ll try to help the president in any way I can.”
If truly given the opportunity to do so, Thiel’s influence could be a boon to fintech and the larger economy as a whole.
At the Money2020 conference last month, Trump was largely and quite openly derided by industry leaders. They may soon be changing their tune.
Other members of the Executive Committee of the transition team include:
- Congressman Lou Barletta
- Congresswoman Marsha Blackburn
- Florida Attorney General Pam Bondi
- Congressman Chris Collins
- Jared Kushner
- Congressman Tom Marino
- Rebekah Mercer
- Steven Mnuchin
- Congressman Devin Nunesv
- Anthony Scaramucci
- Donald Trump Jr.
- Eric Trump
- Ivanka Trump
- RNC Chairman Reince Priebus
- Trump Campaign CEO Stephen K. Bannon
It is quite possible that we may soon be making fintech ‘Great Again’
Morgan Stanley Backs Online Lender Affirm with $100 Million in Debt
October 13, 2016Consumer lending startup Affirm aims to replace credit card purchases with personal loans and has found a backer in Morgan Stanley.
Founded by former PayPal CTO and entrepreneur Max Levchin, Affirm secured a $100 million credit line from Morgan Stanley to expand its lending capacity. This latest round of financing totals the company’s fundraising to about $525 million in cash and debt financing with a $800 million valuation.
Affirm’s consumers are typically immigrants and recent college grads who do not own credit cards and have no credit history, who take out loans for big dollar online purchases like high end furniture, jewelry and gym equipment.
Affirm partners with ecommerce and internet service companies like Expedia, Casper Sleep and Eventbrite to offer personal loans (10-30 percent APR to be paid back within 12 months) to buyers at checkout.
The San Francisco-based company’s loans are funded by Cross River Bank and its investors include marquee Silicon Valley names like Lightspeed Ventures, Khosla Ventures and Andreesen Horowitz.
“The financial industry has managed to avoid significant disruptive innovation since the mid-90s, and we are working hard to change that. Our first goal is to bring simplicity, transparency, and fair pricing to consumer credit,” says Levchin on the company website. Is replacing credit card debt with personal loans a way to go about it?
Square Capital Revs Up, Funds $189M to Small Biz in Q2
August 4, 2016
Square is proving that the business loan sector is still hot, especially since their payment processing ecosystem requires nearly no marketing budget to advertise Square Capital. With $189 million funded in Q2, a growth of 123% year-over-year, their shift from merchant cash advances to loans seems to have had the desired effect since they have attracted even more investors willing to buy them.
“We sell a majority of our loans to third-party investors for an upfront fee and a small ongoing servicing fee. In addition, we continue to have a strong continued pipeline of interested investors,” the company said in its earnings report.
The average loan size remains small, only $6,000, but ranges from $1,000 to $100,000. Square CFO Sarah Friar, said during the earnings call that their data shows an overall increase in the gross payment volume of merchants who use their loans, which indicates that borrowers are indeed using the funds to grow their businesses.
A typical Square Capital loan is close to 10% of a seller’s annual processing sales and the average repayment term is 9 months. Loss rates remained steady at 4%.
Friar also said that PayPal Working Capital and American Express Working Capital were not really competition since they are working directly with their own existing user base.
The company made about 34,000 loans in Q2.
Online Small Business Lending Task Force Initiated by the ETA
April 30, 2016
The Electronic Transactions Association (ETA) is now advocating on behalf of online small business lenders.
Though you might not have suspected it last week at Transact16, the ETA very much plans to involve themselves in the affairs of marketplace lending. That might not have been obvious from a Bloomberg article that reported that OnDeck, Kabbage and PayPal were forming a splinter organization as an “extension” of the ETA known as the Online Small Business Lending Task Force. Referred to as a new initiative in the announcement, the group’s mission is described as striving to “prevent hasty or overly restrictive regulations.”
But the group’s named lobbyist, Scott Talbott, is also the ETA’s lobbyist. And the three lenders named, were already members of the ETA. When Talbott was asked by AltFinanceDaily to clarify the relationship between the “task force” and the ETA, he said that the two weren’t separate. The “ETA organized its members to lobby on the issue. It’s what we do every day,” he wrote.
The “task force” merely highlights members in the trade group that share a common interest.
Formed in 1990 and comprising of over 550 companies across 7 countries, the ETA has served the payments industry well. OnDeck, Kabbage and PayPal therefore find themselves in good company and led by advocates with well-established government relationships.
Along with the ETA, the online small business lending industry has found support from the Marketplace Lending Association, the Small Business Finance Association, the Commercial Finance Coalition and the Coalition for Responsible Business Finance.
Splits Glitz or Fritz? – Transact 16 highlighted strange chapter in merchant cash advance history
April 21, 2016
It’s Opposite Day in the alternative business funding industry. Lenders are splitting card payments and merchant cash advance companies are doing ACH debits.
Jacqueline Reses was not an odd choice for Transact 16’s Wednesday morning keynote. Square, the company she works for, has continued to be a hot topic in the payments world for years. But what was striking is that Reses heads the lending division, the group that allows merchants to pay back loans through their future card sales. If that sounds very merchant-cash-advance-like, it’s because that’s exactly the product they used to offer before changing the legal structure behind them.
Split-payments, not ACH payments, have literally propelled Square and PayPal to the top of the charts of the alternative business funding industry. One individual on the exhibit hall floor posited that Square’s ability to originate loans through their payments ecosystem was the company’s real value; Payments itself was secondary. It’s a testament to the opportunities that split-payments affords to (as I argued 3 years ago on the ETA’s blog) a company well positioned to benefit from it.
Meanwhile, the companies at Transact that one would have historically described as merchant cash advance companies have mostly transitioned away from split-payments to ACH. Essentially, Square and PayPal embraced splits as an incredible strength while yesterday’s merchant cash advance companies viewed splits as a handcuff that limited scalability. The payment companies became merchant cash advance companies and the merchant cash advance companies became something else entirely, a diverse breed of loan and future receivable originators operating under a label people are now calling “marketplace lenders.” But even Square and PayPal, arguably the two companies at Transact doing the most split-payment transactions, claim to make loans, not advances.
Merchant Cash Advance as anyone knew it previously is dead
Ten years. That’s the average age of the small business funding companies that exhibited at Transact this week. They are but the last remaining players that probably considered the debit card interchange cap imposed by the Durbin Amendment of Dodd-Frank as being among the most significant legislation that affected their businesses.
A senior representative for one credit card processor told me at the conference that their biggest gripe with new merchant cash advance ISOs today is that they know almost absolutely nothing about merchant accounts. It’s not that they know less, they know nothing, he said.
One company was notably absent from the floor this year, OnDeck. They’ve since embraced the marketplace lending community as their home, just as many others have.
Nine years ago, I overheard a very influential person say that the first company to be able to split payments across the Global, First Data and Paymentech platforms would be crowned the “winner” of the merchant cash advance industry and by extension the wider nonbank small business financing space.
If one were to define the winner as the first company from that era to go public, well then those 3 platforms played no role. OnDeck was the first and they relied on ACH payments the entire way. They also refer to themselves these days as a nonbank commercial lender. If that doesn’t sound very payments-like, it’s because it’s not.
What cause is being Advanced?
At least four coalitions are currently advocating on the marketplace lending industry’s behalf, the Coalition for Responsible Business Finance, the Marketplace Lending Association, the Small Business Finance Association, and the Commercial Finance Coalition. The Transact conference is put on by the Electronic Transactions Association whose tagline is “Advancing Payments Technology.” In an age where new merchant cash advance ISOs know nothing about payments, it’s no wonder there’s a growing disconnect.
Could Transact now be one of the best kept secrets?
A few people from companies exhibiting say that they believed they stood a better chance to land referral relationships from payment companies by being there and that there was still a lot of value in landing those deals. Partnerships like these may be why the average exhibitor has been in business for 10 years while today’s new companies relying solely on pay-per-click, cold calling, or handshakes are falling on hard times.
Some payment processors acknowledged that merchant cash advance companies were still a good source to acquire merchant accounts, though the process by which that happens is not the same as it used to be. A lot of it is referral based now, according to one senior respresentative for a card processor. The funding company funds a deal via ACH and then refers them to the payment guy to try and convert that as an add-on. The residual earnings may not be as good as they used to be but that’s because they don’t have to do any work in this circumstance. In a sense, funders are still leading with cash but instead of the boarding process being mandatory, it’s an entirely separate sale that sometimes works and sometimes doesn’t. In that way, small business funding companies can be a good lead source for payments companies.
When I asked the senior representative if they really had success closing merchant accounts just off of a referral from a funding company, he looked at me incredulously, and said, “you used to do this, of course we do. that’s how this whole industry started.”
“What industry?” I asked.
What industry indeed…
