Amex: Organic Growth of Small Businesses Has Slowed
July 25, 2023
“…when we look at small business, I think the biggest thing there from a small business perspective is really the organic growth. I think organic growth has slowed,” said Amex CEO Steve Squeri in the company’s Q2 earnings call. Squeri said that this wasn’t just something that Amex was seeing but more of an industry phenomenon.
“…what you saw through the pandemic, is you saw small businesses continue to add and add and add, and you got to remember small businesses use a card to run their entire business,” Squeri said, “and so, there was a lot of buying ahead from a goods and services perspective, from an inventory perspective.”
Delinquencies have been flat at Amex, however, and still remain below pre-covid levels, a feat attributed to the company having made proper adjustments from a risk management perspective.
Squeri said he believes the organic growth will eventually rebound.
“…after the slowdown comes the recovery,” he said.
Business Blueprint, the rebrand of the Kabbage business it acquired, was not mentioned by name in the company’s earnings presentation or 10-Q.
Impact of ChatGPT Era Already Being Felt
May 16, 2023
Anyone that’s ever faced a coding hurdle has inevitably ended up on Stack Overflow, the go-to platform for developers to solicit answers from more experienced professionals about their challenges. Users typically explain what they’re trying to accomplish and paste a copy of the code that’s not achieving the desired result. That’s where the community chimes in, coming forth with their own solutions while other users upvote the best answers. The end result is not just a grateful user but an ever growing public database of questions and solutions available for public consumption. The sheer scope of what’s been compiled has opened up the door for other users to simply find a similar enough question that’s already been asked and copy the answer. It’s a very valuable tool.
Stack Overflow has been around for 15 years but from March to April of this year, traffic plummeted by 17.7%, according to SimilarWeb. Tech blog Gizmodo has suggested that a contributing cause is ChatGPT-4, the OpenAI chatbot technology that can write its own code, edit a user’s code, and even converse about what a user is trying to accomplish. A spokesperson for Stack Overflow confirmed to Gizmodo that ChatGPT was partially responsible for its loss of users. “However, our vision for community and AI coming together means the rise of GenAI is a big opportunity for Stack,” the spokesperson added.
But what’s a coding forum for nerds and brainiacs got to do with the lending industry? Well, for one thing borrowers were already flirting with asking virtual assistants for help with financial services products before ChatGPT even entered the ring. According to the most recent Smarter Loans survey, 16% of loan applicants surveyed said that they had at some point used Alexa, Siri, or other voice search tools to find information about financial services. None of those come even remotely close to what ChatGPT-4 is able to do. And AI is popular, so popular in fact that ChatGPT became the fastest growing app in history, crushing even the likes of TikTok in pace of growth. ChatGPT already had 100 million monthly users as of February, before its signature ChatGPT-4 model was released.
Therein lies the threat because not only is ChatGPT-4 incredibly adept at making coherent conversation but it is also ready to explain a concept or make a recommendation, just like a very knowledgeable friend would. For example, when asking it to make a list of the top small business funding companies, these were among the names it spit out:
- OnDeck
- American Express (Kabbage)
- Funding Circle
- Credibly
- Square Capital
- National Funding
- PayPal Working Capital
It’s not a vomit of names. ChatGPT-4 was familiar with their areas of expertise. When pressed further it said that OnDeck would help get the cash fast but working with Square Capital might work better if one is processing a high volume of credit card transactions. For strong credit and a large loan, it suggested Funding Circle. After expressing an interest in OnDeck, the AI provided instructions on how to apply via the OnDeck website and a phone # to call with questions. In this real-world example, the AI replaced both the online search and the role of a broker all in one and all within minutes. It can also read the contracts and alert borrowers to certain clauses. When pressed about an unusually high APR, for example, the AI even offers an encouraging explanation for how moving forward could still make sense.
“Be sure to also consider the potential return on investment from using the loan funds,” it said. “If the growth or savings you anticipate from using the loan funds exceeds the cost of the loan, it may still be a good decision despite a high APR.”
Amex to Continue Extending Credit to Small Businesses, Not in Same Position as Smaller Banks
April 20, 2023
American Express plans to continue extending credit to small businesses despite some of the challenges in the economy, according to the company’s latest quarterly earnings call. CEO Steve Squeri said that the company isn’t in the same position as a lot of the other smaller banks right now.
“…for those credit worthy small businesses we will continue to extend credit and it could be an opportunity for us actually, provided the credit is good,” Squeri said. Part of that opportunity, Squeri explained, was in being able to service businesses that historically had not considered them a “lender of first resort.”
Amex’s business loan division was formerly known as Kabbage. It rebranded to Business Blueprint in January.
Broadly, times are good for Amex. The company experienced a record-setting first quarter with $14.3B in revenue and a healthy profit of $1.8B.
Fintech Layoffs Pile Up
December 9, 2022
2022 has been a rough year for many fintech employees. The year started out with just a few layoffs but had an exponential increase totaling in at 219,959 layoffs from 1,405 tech companies.
Financial services company Plaid, for example, recently announced plans to lay off 20% of employees, which is about 260 staff members.
“Today, I’m announcing the most difficult change we have had to make at Plaid to date,” wrote Plaid CEO Zachary Perret in a Dec. 7th website post. “I made the hard decision to reduce the size of our team, and in doing so, to say goodbye to approximately 260 talented Plaids.”
Perret alluded to over-hiring as a result of the surge in business during covid. They are not alone. Companies including Klarna, Coinbase, Kabbage, and Amazon have laid off substantial amounts of staff. January started off low with 631 employee layoffs and that later increased to over 6,000 in February. November tallied 59,785 layoffs, weighing in with the highest number of employees laid off compared to any other month this year.
National Funding is Venturing into Automated Lending
November 3, 2022
National Funding did more than just survive the pandemic. Already in 2022 the company upsized its credit facility, invested in Finova Capital, closed on a $125M ABS, and now more recently is going full force into automated lending.
The new initiative that aims to build off of National Funding’s 20 years of experience will be led by Rob Rosenblatt, a seasoned fintech veteran that previously worked for American Express, Chase, Citi, Kabbage, and Behalf.
National Funding will still do business as it has previously but Rosenblatt said that his separate division, formally organized as Business Loan Center, LLC, will differ in that it will be fully digital to the point that borrowers won’t have to engage with a human being if they don’t want to when accessing capital. The self-serve automated experience that takes a customer from application to approval in a matter of minutes is admittedly not a new concept in that of itself, Rosenblatt concedes, but he believes National Funding is equipped to do it better than the rest.
“…what we hope to do that’s unique is, first of all, leverage all of the learnings that National Funding has because they’ve been in business for over 20 years,” Rosenblatt said. “Number two is create a superior technological experience which will help with speed and user experience because we’re brand new, so we won’t in any way be beholden to systems of the past. Third is really be aggressive in our use of alternative data.”
Rosenblatt also emphasized that they will create a “world class user experience” and he expressed his belief that there is more than ample room for a new player to enter this market.
“Dave Gilbert, the founder of National Funding, and Joe Gaudio, who’s the president and COO, they became in the course of our conversations very firmly convinced that there’s a huge opportunity to better serve large swaths of the small business universe that maybe today aren’t quite being served fully by the suite of products that are out there,” Rosenblatt said.
As Layoffs Hit Fintech Lenders, It’s Not All Roses
August 1, 2022Underneath all the good news about hiring sprees, loan volume surges, and profitability, is ironically just the opposite. Some fintech lending darlings of Wall Street have abruptly changed gears over the past few months and are now in a state of self-preservation. Is this a normal business cycle or is something else going on here?
4/19/22 – Better.com lays off 3,900+ workers, a figure that includes a round that began in December 2021.
5/24/22 – Klarna lays off 10% of workforce.
6/15/22 – Coinbase announced plans to layoff 18% of its workforce.
6/21/22 – NextPoint announces end of LoanMe business, citing “market conditions.”
6/27/22 – Amount lays off 18% of workforce.
7/13/22 – Kabbage confirms it is facing two DOJ investigations over its handling of PPP loans.
7/27/22 – Shopify Capital grew originations but Shopify’s parent company announced it was laying off 10% of employees due to lower than expected post-pandemic e-commerce sales.
7/29/22 – Clearco announces major layoffs (125 employees), citing inflation, interest rates, European challenges, and a slowdown in e-commerce growth.
7/29/22 – Amazon shrank its staff by 100,000 employees.
Small Business Finance Industry Mulls What’s in The Rearview, Is Optimistic For Rest of 2022
April 14, 2022
The small business finance industry is looking ahead to anticipated growth for the remainder of the year, despite new challenges ahead. With massive government aid fading in the rearview, some industry players now have had the time to consider what the impact of it was as they move onward into the future.
Bob Squiers of Meridian Leads expressed his view on the topic, “a lot of our customers, mostly the ISO shops, many of them converted and started selling and pitching the government programs. So in that sense it kind of helped keep those guys afloat, helped keep our business going. A lot of what we do in the marketing side, translated for those government programs. But then it did also squash the demand for the cash advance.”
In some cases, government funding has helped merchants pay off pre-existing obligations in a timely manner. Matthew Washington, founder and CEO of Moneywell GRP, noted, “An educated business owner is using the financing options available as they see fit for the timing. Someone that is waiting to get an SBA or an EIDL is more susceptible to take a bridge product to get them through that time gap,” he said. “As long as you’re working with the merchant and pushing out good products and you know what is on the rise, I think it has done nothing but help in some cases.”
Trucking became one of the number one fields that made up a large percentage of submissions during the pandemic, industry insiders say. However, with gas prices increasing, business with trucking could go down. Other businesses such as restaurants, where only a third received funding last year from the government, are desperate for funding.
“There’s tons of restaurants left that haven’t yet received their funding. So we could be seeing a lot of exposure in that industry,” stated Michael Yunatan of Specialty Capital. “But overall, I definitely do feel that we’ll be seeing an uptrend in our numbers across the board.”
“We definitely do think the industry is growing as a whole,” said Yunatan. “Even though we are a new player in the space we have been growing.”
Chad Otar, founder and CEO of Lending Valley, said, “We need to keep monitoring the interest rates that are coming up from the Federal Reserve, we need to make sure we’re not heading towards a recession, we need to make sure that we’re able to fully have the capital ready, in order to be able to deploy at a reasonable rate.”
Otar acclaimed the indirect benefit of large tech companies operating in the space with a competing product, arguing that the presence of PayPal and Amazon are helping to bring exposure to the industry overall.
“And now that Kabbage is back as well, since they partnered up with American Express, it’s gonna help us out to be able to push the product more into the mainstream,” said Otar. “So I believe there will be a growth in the industry.”
Aquila Services Inc. Has Ceased Operations
September 9, 2021Aquila Services Inc, a data-driven small business cash flow management platform, ceased operations sometime early last year, AltFinanceDaily has learned. The company had been trying to pivot even before the pandemic began. CEO and Founder Taariq Lewis, who had spoken about AI and machine learning at some length to us in 2018, updated the company’s website with the bad news.
Aquila is now closed for business and we have shut down our servers after a three year run. Thanks to all our 9,688 customers and our many investors for allowing us to provide cash flow analysis for small businesses.
If you are seeking business funding, please be sure to check our partners at Rapid Finance, Credibly, Kabbage, and others for access to capital and please check with Home Depot for discounts on construction equipment.
Lewis is now listed as a co-founder of UniFi DAO, according to LinkedIn.
