Will You be at Lend360?
August 20, 2015This year’s Lend360 conference in Atlanta, GA is shaping up to be one of the industry’s biggest events. A welcome respite for some from the typical trek out to New York, San Francisco, and Las Vegas, the show is being hosted in the same neighborhood as industry leaders CAN Capital and Kabbage.
Just take a look at the speaker lineup so far:
You can register here. Hope to see you there!
OnDeck vs. IOU Financial: Are one of these lenders mispriced?
August 12, 2015
Has OnDeck’s stock price dropped so much that it’s now a buying opportunity? You’ll probably want to read this before you decide.
OnDeck’s IPO market cap was $1.3 billion. They funded $1.2 billion worth of loans in 2014. OnDeck’s stock has since dropped though, bringing its market cap down to around $650 million. The company is often compared to Lending Club despite their business models being completely different. But since there has been seemingly no one else to make comparisons with, the two have become star crossed lovers in a new FinTech Lending category of the market.
Everyone seems to have ignored the fact that one of OnDeck’s direct competitors is also a public company and I don’t mean a subsidiary of a giant conglomerate for which no individual comparison would be logical, but a standalone entity that is a serious player.
Kennesaw, GA-based IOU Financial (formerly IOU Central) is actually a public company in Canada, even though its only operational activities are small business loans in the U.S. The company is not a fly-by-night me-too business lender, as they funded more than $100 million in 2014 and earned a spot on the AltFinanceDaily leaderboard for being one of the biggest in the industry.
OnDeck out-loaned IOU in 2014 at a ratio of 12 to 1, but here’s the kicker, OnDeck’s market cap is more than 34x the size of IOU. When converting to USD, IOU’s market cap is only slightly above $18 million.
$18 million…
That for a company that loaned $100 million last year. It’s no wonder that the perceived low market value has invited a hostile takeover bid from Russian venture capitalists. The tender offer of $15 million, presumably in Canadian dollars, would’ve acquired 55.9% of the company’s outstanding shares. The company is currently waiting for its shareholders to vote on the offer.
Meanwhile, another competitor, Kabbage, was recently valued at $875 million on loan volume last year of $400 million.
Ignoring all other factors that comprise a lender’s worth
- Kabbage was valued at more than twice its annual loan volume
- OnDeck’s IPO value was about equal to its annual loan volume, but their current market cap is almost half its annual loan volume
- IOU Financial’s current market cap is less than 20% its annual loan volume.
On these stats alone, IOU Financial seems to be incredibly undervalued, especially for a company whose spokesperson is celebrity investor and TV personality Kevin O’Leary.
OnDeck touts OnDeck marketplace as a way to sell off loans and generate income but IOU also regularly sells off its loan receivables while retaining the servicing rights just like OnDeck does.
Kabbage out-loaned IOU last year by a ratio of only 4 to 1, yet is valued almost 50x higher than IOU.
Every company has strengths, weaknesses, and reasons why they stand apart from their peers even if they look very much like them. However, given the mind blowing disparity in valuations for lenders that compete for the same customer with similar products, there surely has to be a buying or selling opportunity in here somewhere.
I think the Russian nuclear scientists are on to something…
Do Borrowers of a Feather Flock Together?
August 6, 2015Facebook believes that you might be the company you keep, at least according to a patent it has.
“When an individual applies for a loan, the lender examines the credit ratings of members of the individual’s social network who are connected to the individual through authorized nodes,” reads an explanation of the technology. “If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.”
Diagram below:
This is one of those concepts that if ever used, is likely to end up prohibited under an amendment to the Equal Credit Opportunity Act or similar.
What are your thoughts on this?
And also, you might want to check out similar patents that Kabbage has in its arsenal.
Manual Underwriting Still Dominates in Tech-based Lending Environment
July 21, 2015For all the talk that technology is changing the way people lend and borrow, the commercial side appears stubbornly reluctant to relinquish control to algorithms. At the AltLend conference in NYC, business lenders and merchant cash advance companies alike were mostly united on the idea that somebody needs to be double checking the computers.
“I like eyes on a deal,” said Orion First Financial CEO David Schaefer. He discussed why an entirely manual underwriting process had weaknesses however through an experiment he conducted years ago when he sent the same deal to six underwriters. “Three said yes and three said no,” he explained.
Like most of the others that spoke on the topic, Schaefer was in favor of a scoring model and he believes an automated underwriting system creates consistency when assessing risk. He was steadfast in his assertion though that humans had to be the last line of defense in fraud detection.
“We’ve got guarantors that have nothing to do with the business,” he said, offering an example of an applicant that was more than 80-years old, yet was passing themselves off as a hands-on construction worker.
“I’m still a big believer in the review and subjectivity,” he concluded.
Funding Circle’s Rana Mookherje expressed similar views. “[Humans] pick up things that an algorithm really can’t do,” he told the crowd.
“We have an experienced underwriter sitting there and calling every borrower that we give money to,” he added.
Mookherje said that their borrower profile differs from those that tend to use merchant cash advances. For instance, their average client has been in business for 10 years, does $2.2 million in annual revenue, and has 700 FICO. They also offer 1-5 year loans, where as merchant cash advance transactions tend to be satisfied in under twelve months.
“If you need money in an hour, we’re not the right place for you,” Mookherje stated.
Funding Circle’s reliance on manual reviews may have to do with the loan terms being extended so long. Even Schaefer had said earlier, “I think it’s a lot easier to determine the behavior of a loan that’s less than twelve months as opposed to one that’s sixty months.”
But do other companies feel differently? Kabbage’s Alan Reeves said that 95% of their customers are 100% automated since there are merchants who get stuck trying to connect their bank account in the online application process.
When Kabbage was asked over a year ago how much of a role computers should play in the underwriting of a deal, COO Kathryn Petralia responded, “Huge.” She also went on to say then that, “it is not going to be like the “Matrix” where machines are making all the decisions. You won’t see an underwriting world without humans.”
It’s ironic however that while Alan Reeves was introduced at the conference as the Head of Risk Analytics, both the printed agenda and his LinkedIn profile cite his title as being the Head of Manual Underwriting. It’s a telling title for a company that is often heralded as the pinnacle of automation and computational decisioning.
But why can’t lenders simply give in entirely to the machines? Mookherje said at one point that, “those that live and die by their underwriting are going to be the ones that survive.” And if that’s the case, then relinquishing control to the computers perhaps risks the chance of death if things don’t work properly.
But humans, with all their natural flaws and imperfections pose the same risk. “Banks want to know that underwriting is consistent, that for any given customer, that you would underwrite them the same,” said Sam Graziano, CEO of Fundation. “And it’s not just having written policies and procedures,” he added. “But having programs in place to ensure these policies are upheld.”
The widespread dependence on humans to tie up loose ends in assessing risk may seem both practical and prudent, but to some traditional bankers, that system carries nightmarish implications.
Jim Salters, CEO of The Business Backer for example shared an experience his company went through years ago when trying to partner with a bank. Salters placed a high value on the manual review process, explaining that it was basically a strength of their core competency. The problem however, was that the bank said that would totally freak out their regulators.
The recurring message from the event’s panelists was that banks not only want, but may actually require a firm credit model to make decisions. They need to be able to explain to regulators why some loans got approved and others got declined in a perfectly uniform and consistent manner.
Schaefer and Reeves were aligned on the importance of consistency in underwriting. You basically can’t have a system where you arrive at three yeses and three nos on the same loan Schaefer explained.
But building an automated system and telling the humans to take a hike isn’t an easy process. There’s a high upfront cost associated with development and it can take years to generate statistically relevant conclusions. And a multivariate decline issued by an algorithm can potentially worsen the customer experience, especially if the customer asks for the specific reason they were declined. Reeves said it can be difficult to explain to the customer that their FICO score was too low relative to their sales volume but that their FICO score on its own was good enough.
And yet once an automated underwriting system is developed, the cost of underwriting should drop significantly according to panelists. With that comes a decision consistency that the company can rely on and a system that bankers can get comfortable with.
But despite it all, Credit Junction CEO Michael Finklestein bluntly stated, “We’re never going to approve a $2 million loan with an algorithm.”
The unifying concept that everyone seemed to agree on was that although credit models were undeniably important, human review would remain a complementary part of the process for the foreseeable future at least in the commercial finance space.
“At the end of the day, it all comes down to underwriting,” said Mookherjee.
Do Bank Statements Matter in Lending? Business Lenders and Consumer Lenders Disagree
July 16, 2015Bank statements. Those in consumer lending argue they’re all but irrelevant because FICO and credit reports do the job of predicting risk just fine, but over in today’s small business lending environment, there’s an entirely different sentiment; Reveal your recent banking history or be declined.
After having bought nearly $60,000 worth of consumer notes on Lending Club and Prosper combined, there’s something I’ve seen a lot of, bounced ACHs.
Lending Club doesn’t reveal borrower bank data to their investors. Sure, anyone can see the credit report, the income level, zip code, and job title, but the borrower could have negative $10,000 in the bank and be living off overdraft protection on day 1 and an investor would never know it.
For all the fanfare surrounding online marketplace consumer lending, access to borrower banking history is oddly absent.
“Welcome to consumer lending, where the rules are different because the game is too,” replied a user to my comment on a peer-to-peer lending forum.
Veteran consumer lenders assumed I was a lost newbie who knew nothing about lending. “I have a feeling if you ask to crawl someone’s bank account, they’ll just go elsewhere,” one user said. “Seems that’d only work on subprime borrowers who have limited bargaining power.”
“I’m assuming you may be new to lending,” he continued. “Making a loan based on deposit balances is rarely a good idea.”
My initial question to them was that without bank statements, how could they ascertain if a borrower’s finances were actually in order at least at the time the loan was issued? It’s really easy to access someone’s banking history for the last 90 days by using common tools like Yodlee or Microbilt, I argued.
Some people sympathized with my logic but others believed requesting bank data would be suicide in today’s competitive environment. And still more wondered if there might be consumer protection laws that prevented lenders from seeing a loan applicant’s banking records (which sounded ridiculous).
A Credit Card Issuer’s Take
Those questions led me to interview an underwriting manager at one of the nation’s largest credit card issuers who would only speak on the condition of total anonymity, including the bank’s name. There, he oversees a department of people that manually assess credit card applicants. There is no algorithmic approval process. In his department, humans underwrite each application, conduct phone interviews with the prospective borrowers, and request additional documents if they feel it’s warranted.
Requesting bank statements is a regular part of the job, explained the manager. “We require proof of income for any line over 25k,” he added. “It’s the main thing we ask for along with proof of address.”
Requesting these documents keeps them compliant with the Bank Secrecy Act, he explained, but the bank statements in particular are their first choice in verifying somebody’s income, even more than pay stubs. And their underwriters aren’t oblivious zombies, he noted. If an applicant has no money in the bank, they’ll decline it.
“The Adverse Action reason [for that] would be ‘sufficiently obligated’,” he stated. “That’s when their bank account shows they can not take on any additional financial obligations.”
The manager shared however that he believed there is a very strong correlation between what’s on the credit report and what to expect in the bank statements. Generally speaking, good credit will show a healthy banking situation, he explained. They’re rarely taken by surprise. Overall, the credit reports and phone interviews are enough for them to feel comfortable and the bank statements are really just there to check off a compliance box.
Meanwhile, those that speculated requesting bank data would be a death knell competitively might want to talk to Kabbage’s sister company, Karrot. Karrot already crawls bank accounts as part of their consumer loan application program and competes with Lending Club, Prosper, and Avant. Considering Kabbage has funded more than half a billion dollars worth of business loans using this very methodology, it’s safe to say that applicants aren’t flocking to competitors in droves over the perceived injustice or inconvenience of filling out three additional fields on a web application to share their transaction history.
Bounced Payments
Kabbage CEO Rob Frohwein offered these comments last year about their underwriting, “A critical aspect of consumer lending is determining the appropriate amount of a payment to collect so that an account doesn’t become overdrawn. Our intelligence accurately predicts how much of a payment to request via ACH so consumers avoid the cost and headache associated with non-sufficient funds.”
I thought about those statements when I noticed that thirty-six of my Lending Club notes carried a Grace Period status the other day. These are borrowers whose payments just recently bounced. Some are only three or four months into a five-year loan. Worse, there are those that are saying they have no money whatsoever to make a payment. How can this be when they just practically got approved?
To the consumer crowd it’s business as usual. “If you got their bank account, you still wouldn’t be able to predict who will default. You can’t predict defaults on any individual borrower,” argued one veteran on a forum.
But it’s not all about the lender’s tolerance for risk. ACH rejects can have consequences that affect a lender’s ability to debit accounts in the future.
“Ultimately, regulatory thresholds set by NACHA will continue to become more and more critical of returns,” said Moe Abusaad of ACH Processing Co, an ACH processor based in Plano, TX. “I think it’s safe to say that there is a positive correlation in considering statements as a component of the underwriting process to the rate of returns incurred,” he added.
And while it’s true that bank data can’t make predictions perfectly on its own, nobody in small business lending or merchant cash advance would consider an approval without it.
Bank Statements or Bust
“There is no substitute for banking information when reviewing a client for approval,” said Andrew Hernandez, a co-founder of Central Diligence Group, a risk management firm that allows business lenders and merchant cash advance companies to outsource their underwriting.
“Money moves fast through these businesses and every business is unique, so a lot more variables come into play than just having to account for the timely monthly payments of credit cards, cars, and mortgages as you find in the consumer world,” he added. “A FICO score along with other information presented in a credit report provide a detailed, historical snapshot of a client’s creditworthiness in consumer lending, and while these are great complementary tools for us to use in our underwriting process, I believe that banking data paints us a picture of its own which is absolutely essential in assessing the risk of a B2B transaction in our space.”
Those underwriting business loan deals have reported seeing applicants with open personal loans from Lending Club, which shows that the exact same borrowers are being underwritten in two different ways.
But Julio Izaguirre, another co-founder of Central Diligence Group added that, “banking transactions are essential in gauging the cash flow of the business by looking at recent and up-to-date bank volume, but it is even more important with businesses that lack historical data and cannot provide financials or other documentation to show and prove their track record.”
Translation: A lack of credit history and formal financial statements can be overcome thanks to in-depth analysis of bank account data.
“When our underwriters look at a bank statement you can get a better understanding of the business cash flow, operational cost and how the owner manages his business,” said Heather Francis, CEO of Gainesville, FL-based Elevate Funding. “The credit score is like a person’s blood pressure reading,” she continued. “It indicates there may be an issue but until lab work is pulled and analyzed you don’t know what that issue is. The bank statement is that lab work and it can tell you more about the issues behind the scenes than a credit score can.”
Greg DeMinco, a Managing Partner of Americas Business Capital based in Cherry Hill, NJ would probably agree. “FICO isn’t everything,” he shared. “Bank statements can tell a great story especially if there is upward momentum month after month, and more importantly a high ratio of deposits to requests for the advance.”
Meanwhile, the manager of the credit card issuer was surprised to hear about the high value placed on bank statements in business lending. I offered him the example of an applicant with good credit that was consistently negative in the bank because of a reliance on overdraft protection as a way to make sure all the bills were being paid. “That’s the craziest thing I ever heard,” he commented.
But over in the peer-to-peer lending forum it didn’t sound so crazy at all. “Plenty of Americans are ‘broke’, in the sense that they have negative net worth, yet they’ll continue servicing their debts for… a long time… no matter what it takes,” shared one user.
The argument seems to come full circle, that business lending and consumer lending are just different.
But to Isaac Stern, the CEO of New York-based Yellowstone Capital, the bank statements are not just about financial health. “We are literally underwriting against fraud,” said Stern, who said his office regularly receives applications with doctored statements. “Logging in [to the banks] and verifying those statements are probably the most important part of the process,” he noted.
His logic goes that a consumer that is paid a salary has a predictable stream of income and so that information along with a credit report might be enough for a consumer lender, but business revenue is less predictable and can vary practically day-to-day.
“You can’t just look at a FICO score and say, ‘this is a good a business’,” Stern explained. “The story is in the bank statements.”
Still Reviewing Paper Bank Statements? Stop
June 26, 2015
Are the bank statements you received legitimate? Underwriters in the business financing industry are scouring paper documents for abnormalities hoping to catch fraud in the inducement. And word on the street is that small business owners are doctoring statements and engaging in trickery in record numbers.
Technology has made it easier to create authentic looking documents and the rise in online lending seems to be bringing out the worst in people. Somebody in a desperate situation might not have the guts to look a banker in the eye and hand him a stack of fraudulent documents but they might roll the dice with somebody over the Internet they’ll never have to meet.
The fakes aren’t obvious anymore. Anyone can go online and buy doctored documents from professionals. The business is booming on Craigslist for example where fraudulent documents can be made to order in under an hour.
In the Miami area, fraud hucksters are even beginning to offer deals such as buy 2 fake documents, get 1 free.
Industry-wide, funding companies are complaining that attempted fraud is out of control. One broker recently took to the dailyfunder forum to share her frustration. “I can spot them a mile away!!! 2 different deals submitted this week with fraudulent statements!!!,” she vented.
Other brokers chimed in, sharing their stories such as a merchant whose doctored statements were only noticed because ATM withdrawals were listed with odd amounts like $90.83.
Oddly, nobody seems to be reporting this fraud to the authorities. It all seems to get swept under the rug as business as usual. Orchard co-founder David Snitkoff for example, was asked just last month about the rate of marketplace lending fraud and he apparently said, “No worries, none to date.” He seemed to be implying that fraudulent applicants are getting screened out. But that doesn’t mean people aren’t trying.
Seven months ago, merchant cash advance underwriter Pierre Mena wrote in detail about the challenges he faces in detecting fraud. He said:
Some of the more well hidden fraud can usually be found by comparing the summary page and last page of the bank statement to other statements. Typically, most banks and some credit unions offer you a snapshot of the starting balance, which should generally match up with the ending balance of the previous month. If it doesn’t, you should look for any transactions from the previous month that did not settle until the current month. If there is none, this is usually a red flag indicating that the merchant forgot that statements are continual time series financial data whose totals carry on to the following month.
-Pierre Mena, Rapid Capital Funding
A lot of these issues can be easily overcome by simply disregarding paper statements altogether. Microbilt’s instant bank verification tool for example, will allow you to pull the most recent 90 days worth of transaction data directly from the banks themselves. Funders using these automated checks swear by their effectiveness and the capability is essential for any company that wants to scale.
But a recent conversation with the owners of a broker shop in NYC said this is easier said than done. Merchants are still using fax machines to send statements or claiming they don’t have access to computers or email accounts, they said. They added that their clients would suffer if approvals were completely contingent upon online verifications.
Cultural differences play a role in this according to Gil Zapata, the founder of Florida-based Lendinero. Zapata recently wrote that latino business owners over the age of 45 are not accustomed to doing business over the Internet, email, fax, or phone. “This group has a high level of distrust in doing business via the Internet,” he said.
So is there a middle ground? On the dailyfunder forum, Chad Otar, a managing partner of Excel Capital Management said that he tells merchants they can change their online banking passwords after a verification. And Andy McDonald of Yellowstone Capital wrote that verifying the bank data is beneficial for the merchants too. “It protects the merchant by allowing us to check their account to make sure our pulls aren’t going to bounce,” he wrote in a thread back in April. He also added that he comes across 2-3 applications PER DAY with altered statements.
Humans can only do so much. Pierre Mena actually wrote, “Some of these statements are doctored so well that you may have to zoom in upwards of 300% to find a comma that should actually be a period to separate dollars from cents.” At this point, an instant bank verification would probably work wonders.
Online business lender Kabbage might have the best model. On their website, applicants are instructed to enter their email address followed by their bank account username and password. Their system will analyze their bank transactions and if eligible, will then ask the applicant for their first and last name. It flies in the face of all the pushback that funders claim merchants give them over data privacy and security.
Four months ago Kabbage announced they were already up to funding $3 million per day. Obviously there is an entire segment of small business owners that are sucking up whatever concerns they had about bank verifications in order to get the capital they need.
The majority of the small business financing industry is still relying on paper statements and probably shouldn’t be. If you have to zoom in upwards of 300% to find a comma that should actually be a period and if con artists are offering discounts for bulk orders of fraudulent statements, it may be time to throw in the towel and join the rest of the world in using the Internet…
The Official Business Financing Leaderboard
June 20, 2015A handful of funders that were large enough to make this list preferred to keep their numbers private and thus were omitted.
| Funder | 2014 |
| SBA-guaranteed 7(a) loans < $150,000 | $1,860,000,000 |
| OnDeck* | $1,200,000,000 |
| CAN Capital | $1,000,000,000 |
| AMEX Merchant Financing | $1,000,000,000 |
| Funding Circle (including UK) | $600,000,000 |
| Kabbage | $400,000,000 |
| Yellowstone Capital | $290,000,000 |
| Strategic Funding Source | $280,000,000 |
| Merchant Cash and Capital | $277,000,000 |
| Square Capital | $100,000,000 |
| IOU Central | $100,000,000 |
*According to a recent Earnings Report, OnDeck had already funded $416 million in Q1 of 2015
| Funder | Lifetime |
| CAN Capital | $5,000,000,000 |
| OnDeck | $2,000,000,000 |
| Yellowstone Capital | $1,100,000,000 |
| Funding Circle (including UK) | $1,000,000,000 |
| Merchant Cash and Capital | $1,000,000,000 |
| Business Financial Services | $1,000,000,000 |
| RapidAdvance | $700,000,000 |
| Kabbage | $500,000,000 |
| PayPal Working Capital* | $500,000,000 |
| The Business Backer | $300,000,000 |
| Fora Financial | $300,000,000 |
| Capital For Merchants | $220,000,000 |
| IOU Central | $163,000,000 |
| Credibly | $140,000,000 |
| Expansion Capital Group | $50,000,000 |
*Many reputable sources had published PayPal’s Working Capital lifetime loan figures to be approximately $200 million in early 2015, but just a couple months later PayPal blogged that the number was more than twice that amount at $500 million since inception. The print version of AltFinanceDaily’s May/June magazine issue stated the smaller amount since it had already gone to print before PayPal’s announcement was made.
Is Alternative Lending An Illusion? (LendIt 2015 Summary)
April 18, 2015More than 2,400 people packed into the LendIt conference last week in New York City and everywhere you turned, startups were boasting of their ability to lend billions of dollars to underserved consumers and businesses. Companies not even old enough to have attended last year’s LendIt conference had reportedly lent tens of millions or hundreds of millions of dollars already. Is it all an illusion?
Investors circled like hawks to try and grab an opportunity into this exploding market. Alternative lenders were practically being tackled by VCs, Private Equity firms, and specialty finance lenders:
Technological innovation is disrupting the status quo, attendees echoed. Surely banks can afford to develop new technology to compete, so why haven’t they? Lendio’s Brock Blake wasn’t afraid to challenge the Short Term Business Lending Panel on this. “Is there real innovation happening or is there regulatory arbitrage?” he asked.
The panelists mostly agreed that it was a combination of both. Stephen Sheinbaum, founder of Merchant Cash and Capital (MCC) and BizFi, said “regulation is not something that scares us in any way.” That’s not surprising considering MCC has survived more than ten years in business and fellow panelist CAN Capital has survived more than seventeen.
But for the newer players entirely reliant on third party brokers or dependent on a Reg D exemption to issue securities, their success may indeed be regulatory arbitrage. And time is on their side.
Karen Mills, the former head of the Small Business Administration asked several regulatory bodies who would stand up to oversee small business lending. “No one stood up,” she said.
It’s the brokers that worry some folks most, an issue that PayPal and Square Capital do not have to contend with at all. OnDeck CEO Noah Breslow stated, “there is always going to be a set of customers that want to shop and want to have help.”
Kabbage’s Kathryn Petralia explained that only 2% of their business comes from brokers and their fees are capped at 4%. CAN Capital’s Jason Rockman argued that it’s about working with brokers that share their values. MCC’s Sheinbaum said, “you have to be willing to not do business with some of the unscrupulous players out there.”
But while these industry captains minimized the role that brokers play, 2015 is already being dubbed the Year of the Broker.
The regulatory environment isn’t the only issue to be worried about, skeptics argued. There was cautious alarm about the market’s viability when interest rates rise or the economy takes a turn for the worse.
“I think there’s going to be a shakeout,” said Steve Allocca of PayPal. MCC’s Sheinbaum explained that when he sees other funders doing deals that don’t appear to make sense, to not feel pressured to do them as well. “Stick to your disciplines. Stick to your guns,” he preached.
Fundation CEO Sam Graziano argued that small business lending is already very risky. The lifetime default rate on 7(a) SBA Loans is 20%, he said. Graziano, who hates the term alternative lending prefers to refer to the industry as digitally enabled lending.
And digitally enabling is something that OnDeck has focused on. In Breslow’s presentation, he said that applying offline for a loan takes 33 hours of work on average. Banks are shuttering branches at a record rate, he added.
Banks are dead, said many in attendance. Kathryn Petralia of Kabbage disagreed. “The death of banks has been greatly exaggerated,” she argued on a panel.
Indeed, Mills’ report shows that total outstanding debt on business loans by banks dwarfs the alternatives by more than 50 to 1.
But former U.S. Treasury Secretary Larry Summers is convinced the tide is turning.”The conventional financial sector has, in important respects, let all of its main constituents down over the last generation, and technology-based businesses have the opportunity to transform finance over the next generation,” he said during the keynote speech.
With conference sessions looking and feeling like a cramped NYC subway during rush hour, the popularity of alternative lending is no illusion.
But healthy skepticism is at least creeping in while the industry marches forward. Changes in regulations, interest rates, and economic activity will separate those simply riding a wave from those that have created something real. Expect companies that exhibited at this year’s conference to be gone by 2016 or 2017, said several panelists.
The final count of LendIt attendees was 2,493 people. 150 people who tried to register at the last minute were turned away. More are expected to attend next year.
Objectively, alternative lending appears to be very real.
