Lead Generators Facing Rougher Road
October 13, 2017
Lead generators for alternative funders are facing stronger headwinds these days. The business has gotten tougher for a whole host of reasons. A pullback in alternative lending necessitates fewer leads. On top of that, funders, ISOs and brokers have gotten pickier about the types of leads they’ll accept. What’s more, stricter application of the Telephone Consumer Protection Act (TCPA) is hampering lead generators’ ability to solicit business owners. As a result, some lead generators have faded away, while others have been developing additional business lines or are broadening their reach to other areas within financial services to buoy earnings.
“I don’t see any growth in the space for the next six months, or maybe a year,” says Michael O’Hare, chief executive of Blindbid, a lead generation company in Colorado Springs, Colorado. “It’s really unclear right now what’s going to happen, but we’ll see.”
The alternative funding industry has been in somewhat of a funk since spring 2016 when Lending Club grabbed headlines with a scandal that spooked the industry and also took out several senior managers, including the company’s then-CEO.
It was the first time in the industry’s relatively short history that people realized “it wasn’t all puppy dogs and ice cream,” says Justin Benton, a partner at Lenders Marketing in Santa Monica, Calif., a lead generator in the alternative funding space.
Since that time, there’s been a lot of movement in the market, including companies that are consolidating or exiting the business, pumping the brakes or making shifts in product lines, Benton says. These developments have all had a big impact on the sheer number of clients that are looking for leads, he says.
Late last year, for instance, CAN Capital Inc. stopped funding for several months, though it’s back in business as of early July. This summer, Bizfi, one of the stalwarts of the alternative financing space, began giving pink slips to staff and in August the company sold the servicing rights to its $250 million loan portfolio to rival Credibly.
There aren’t as many start-up ISOs or companies entering the alternative funding space—meaning more leads for existing funders—which, of course, is a boon for them.
“There are still roughly 75,000 business owners every week who meet the criteria for an [MCA]. Now instead of there being 5,000 options in the space, there are 2,000, so those 2,000 are gobbling it all up,” Benton says.
At the same time, however, TCPA regulations have gotten more stringent, making it dangerous to solicit businesses, says O’Hare of Blindbid. “Any phone call you make, you can get sued,” he says.
Large funding companies generally take TCPA very seriously—especially if they’ve gotten hit with violations, O’Hare says. Smaller funders and brokers, however, aren’t always as familiar with the restrictions; they think it’s only an issue if you’re calling consumers, as opposed to calling businesses, but that’s not the case. “A lot of businesses today are using their cell phone as a main business line and also for personal use. If you call a cell phone that’s on the DNC [Do Not Call Registry], you can potentially get sued.”
Last year, he had a situation where a plaintiff pretended to be an interested business. When he passed along the referral, the plaintiff’s attorney claimed TCPA violations and ultimately sued the funder. The funder balked, and it created numerous issues for his company.
His company now tries to educate funders about how to protect themselves from TCPA litigation. He sends out emails to funders with information about TCPA and provides contact information of attorneys who are well-versed in TCPA rules. He also provides funders with risk mitigation tactics and shares his list of known TCPA litigators so funders won’t accidentally call them. He also provides direction to clients that receive a demand letter or complaint on how to respond and offers a list of TCPA defense attorneys, if they need.
“We’ve become almost extreme in how we try to avoid problems related to TCPA,” O’Hare says.
To be sure, some of the changes lead generators are experiencing are indicative of a maturing industry.
A few years ago, lead generators could be less selective who they approached initially because the concept of alternative funding was so new to merchants, says Bob Squiers, chief executive of Meridian Leads, a lead generator in Deerfield Beach, Fla. Now, however, the cat is out of the bag, and, with business owners getting multiple calls a day, it’s harder to get their attention, he says.
“They know, they’ve heard, they’ve been pitched. There’s not too many unturned business owners. It’s about getting them at the right time.”
As a result, lead generation today requires more data to discern the good leads from the bad. Instead of going after half a million restaurants, lead generators are targeting the 20 percent that data suggests are the most viable funding candidates. “It’s more of a sniper approach than a shotgun approach,” Squiers says.
Rob Buchanan, senior sales executive at Infogroup in Papillion, Nebraska, who focuses on lead-generation for the fintech space, notes that within the past 18 months or so, clients have been going after “low-hanging fruit” when it comes to leads. They are looking for leads where business owners are actively looking for financing as opposed to relying primarily on UCC data. They are still using UCC data, but to a lesser extent than they were in the past, he says.
Not only do clients want very targeted and specific types of companies—but they are changing their minds more frequently about the types of businesses they’re looking for, says Matthew Martin, managing director and principal at Silver Bullet Marketing, a lead-generating and marketing company in Danbury, Conn. They might ask for businesses of a particular size or credit quality—they are even seeking to exclude businesses within certain zip codes. They are also more amenable to leads from industries they deemed too risky a few years ago.
“I have clients that are constantly changing the parameters of what they want,” Martin says.
The problem is that once you start narrowing the leads of possible merchants that can be funded, lead costs go up and many funders don’t want to pay for that, says O’Hare of Blindbid. “The glory days when everything was wide open and you could generate leads really cheaply are pretty much gone.”
Meanwhile, as some lead generators have faded into the sunset, others are forging ahead in search of new opportunities.
Benton of Lenders Marketing, for instance, says his company has started to focus its efforts in other areas of lending, including SBA, new business, mortgage, commercial, residential, auto and student loans.
Digital marketing is another area experiencing increased demand. Business owners that need money tend to use Google to find funding companies. Infogroup’s digital marketing leads these businesses directly to funders, ISOs and brokers, Buchanan says.
“More and more funders, brokers and ISOs are leaning toward doing digital marketing,” he says.
Kabbage’s Petralia Talks Big Tech, Fintech and Lending
October 2, 2017
Kabbage co-founder and head of operations Kathryn Petralia was in New York last week for The Economist’s Finance Disrupted 2017 conference where she was a panelist on in an Oxford-style debate about whether tech giants Alibaba, Amazon, Apple, Facebook and Google pose a greater challenge to traditional banks than the fintech startup community. Her position is that no, they do not, and there appears to be room for both.
“Fintech can be anywhere. Alternative lenders, whatever you want to call them, I think they’re disrupting the space but not by trying to put people out of business. In our case we make loans to small businesses, but these are folks that are having a hard time borrowing from banks. So, we’re not taking business from banks. We’re drawing the circle a little bit bigger around access to capital.”
It’s only been a few weeks since the blockbuster announcement that SoftBank is investing $250 million into Kabbage, which thrust the small business lender into the spotlight for a few reasons, not the least of which was the more than $1 billion valuation that has been speculated for Kabbage.
This valuation, of course, is in stark contrast to that of OnDeck, which also lends to small businesses. As Petralia points out, however, OnDeck is a very different company than Kabbage and in fact not a very good comparable at all. For instance, Kabbage has never turned to brokers to find customers, and their application process has been fully automated since day one. She highlighted other differences too.
“All of our bank partnerships are technology integrations where our technology sits in their systems. They use our technology to deliver the customer experience. And I think what SoftBank saw in us was that potential. Whatever the valuation was I can assure you it was a result of a lot of due diligence on the part of SoftBank,” she said.
SoftBank may now be sitting on Kabbage’s technology but they’re also sitting on a vast treasure trove of customer data that Kabbage may gain access to in the future.
“Certainly, that’s something we’re interested in and that’s something they talked with us about. They have a lot of access to a lot of businesses in global markets certainly in Asia including Japan and India, so I think we’ll see more relationships forming from that alliance over time,” said Petralia.
And the SoftBank deal seems to support Kabbage’s ambitious expansion plans. “We always thought we would be in almost all of the global markets five years from now. SoftBank is a continuation of our strategy for growth.”
As Kabbage pursues its aggressive growth strategy, it’s hard to ignore some of the headwinds other industry players have experienced.
“I don’t think anyone’s immune to macroeconomic changes and changes to access to the debt markets. Our focus is on technology automation from the beginning, and I think that gives us an advantage in the way we manage our customer base. Debt investors can see it, the ratings agencies can see it. One problem with a lot of the lenders is that they’re not able to access the debt markets because there’s not enough history or their portfolios haven’t performed the way they need,” said Petralia, adding that Kabbage has had the benefit of time on its side.
Kabbage’s vision is to “dynamically deliver products that small businesses need to run their businesses and to stay connected to the data that drives the underwriting process for lines of credit,” Petralia says, adding: “This could be growth capital and it could be other products and services that work around small businesses, whether it’s data processing or insurance or payments, any of those things. We want to deliver big business tools to the little guys.”
In terms of customer interest rates, everybody would rather have a lower rate Petralia says, but customers in their ROI equation know they will be able to generate more revenue to offset that. And Kabbage doesn’t require small businesses put up any collateral, which is what a bank would require them to do.
Kabbage’s Culture
Meanwhile in addition to industry headwinds some funders have experienced company-specific issues that had more to do with internal culture than any macroeconomic influence.
“From our perspective, culture is incredibly important. We were No. 16 for Glassdoor reviews for mid-sized businesses and that’s because employees really enjoy working here. If I had to characterize our culture with one term I’d say connected – our employees are connected to one another and to our customers. There is transparency and trust and a culture of caring deeply about one another. That’s really important to us,” said Petralia.
As for future growth avenues for Kabbage, there’s a lot of stuff in the works none of which she was at liberty to discuss.
Bizfi Survives, Thanks to World Business Lenders Asset Purchase Deal
September 22, 2017
The Bizfi marketplace is slated to live on, according to Stephen Sheinbaum who joined World Business Lenders (WBL) as a managing director in July. On Wednesday, WBL purchased several assets from Bizfi including the brand, the marketplace, the Next Level Funding renewal book, and other related pieces of the company, he says. Sheinbaum founded Bizfi (then Merchant Cash and Capital) in 2005.
WBL, a Jersey City-headquartered small business lender will also be a lender on the platform.
Other key Bizfi personnel have joined WBL including former Managing Director of Renewals John BellaVia, VP of Sales Michael Caronna, and Sales Manager Ryan Bressler.
The asset purchase does not affect the deal forged with Credibly to service the $250 million portfolio, Sheinbaum explains, which is separate.
While lesser known among the mainstream fintech media, WBL has been a stalwart player in the non-bank lending industry for years. Their ambitions and size became more apparent when AltFinanceDaily attended their invite-only annual shareholder meeting at the Waldorf Astoria in NYC in 2015. The company went on to open a massive office in Jersey City in July 2016 that was attended by Jersey City Deputy Mayor Marcos Vigil, Councilwoman Candice Osborne, Archbishop David Billings and Mitchell Rudin, the CEO of Mack-Cali. At the ceremonial ribbon cutting, WBL CEO Doug Naidus said that he wanted to build a company that lasts, one that he can look back on and be proud of.
Now with the Bizfi brand and marketplace in tow, the company is uniquely positioned.
“[It’s a] game changer here,” Sheinbaum said. “2.0 here we come!”
Bond Street Has Stopped Lending
September 13, 2017
NYC-based small business lender Bond Street has stopped making new loans, according to sources who worked with them. The Wall Street Journal published a similar report earlier today. In addition, the WSJ reported that Goldman Sachs is hiring 20 of Bond Street’s employees.
Just seven months ago, Bond Street announced that they had closed a $300 million loan purchase agreement with Jefferies. The WSJ reported that an inability to raise additional equity is what threw a wrench in their future. The same situation happened to Bizfi just a few short months ago, who wound down after 10 years and shipped their portfolio off to rival Credibly to service.
Bond Street’s 1-3 year loans with APRs ranging from 8% – 25% were terms that many in the alternative business lending universe say is a fundamentally unprofitable model. The company now appears to be joining the ever growing purgatory of alternative small business finance companies. They join Dealstruck, Herio Capital, Bizfi, and Nulook Capital. CAN Capital was previously on that list but was recently restructured and revived.
Able Lending, another small business lender, denied that they were going out of business but admitted they were looking to be acquired.
Square is also reportedly in talks to hire Bond Street employees, the WSJ claims. When Bizfi closed, their employees were mainly picked up by rivals World Business Lenders, Strategic Funding, iPayment, 6th Avenue Capital, and others.
What Happened to Bizfi?
July 1, 2017
Update 9/22: Select assets of Bizfi including the brand and marketplace were acquired by rival World Business Lenders
Update 8/30: Credibly was selected to service Bizfi’s $250 million portfolio
This past week, Bizfi gave their remaining employees a 90-day warning notice, according to sources familiar with the matter. It was the latest wave of layoffs to hit the company over the last few months. At its peak, Bizfi, which provided capital to small businesses, employed more than 200 people. Some of those riding out their potentially last 90 days are anxiously awaiting the outcome of nonpublic negotiations to salvage parts of the company’s legacy, if it can be done at all.
It’s a bittersweet moment, according to newly former employees I spoke with, some of whom are so young they vaguely recall Bizfi’s past as both Merchant Cash and Capital (MCC) and Next Level Funding (NLF). They characterized their experience as having worked in fintech.
MCC was founded in 2005 as a buyer of future credit card sales, way before the rise of modern fintech. They later spawned affiliate company NLF, which was eventually consolidated into the newly minted Bizfi brand in 2015. In 2016, they were one of the top three largest originators of merchant cash advances. Today, they are no longer funding new business.
Overall, the company grew too fast and missed the window of opportunity to sell, observers maintain. In a CNBC interview in 2015, a Bizfi representative said that they believed securing a major equity investment would allow them to go public by 2017. Such an investment never came. And with the market cooling last year, institutional interest in the space waned and several of the industry’s better-known players were forced into a precarious position.
Bizfi held on, until recently.
I myself was the third employee of MCC, or fourth depending on who actually walked through the door first on my first day that I shared with another new hire back in 2006 (who by the way was Jared Feldman, the eventual co-founder and CEO of Fora Financial, which sold for millions to Palladium Equity Partners LLC). I was at MCC until 2008 and then worked at NLF until 2010. That means I had been gone for five years before the companies ever merged to become Bizfi and seven years before the current dilemma. Therefore I’m not able to personally comment on what exactly went wrong because the company was nowhere near the same as when I left it.
I will report new developments as they become public.
From the Board of Credit Suisse to the FinTech World – Gaël de Boissard joins the winner of last year’s Money20/20 Europe Startup Competition
June 27, 2017
New York, NY – 26 Jun, 2017 – Exactly one year after winning Money20/20 Europe Startup Competition, James (a FinTech in Credit Risk, formerly known as CrowdProcess) returns to Copenhagen after closing an oversubscribed investment round led by Ex-Credit Suisse Board Member Gaël de Boissard. This round also included ex-Deutsche Bank COO, Henry Ritchotte, and BiG Start Ventures, a VC focused on FinTech and InsurTech. As a result of this deal, Mr. de Boissard has now joined James’s Board of Directors, after having previously been at the board of Credit Suisse.
The company that successfully pivoted into the FinTech industry in late 2015 sees its ambition of building the first Credit Risk AI, together with the superb results achieved with banks’ risk departments as the major factors behind this successful investment round. According to Mr. de Boissard, “Having worked in banking and credit for more than two decades, I was always surprised to see how little progress was being made in advancing the science, data analysis, and process automation around credit risk. When I met James I knew that was the future I’d been looking for, and I’m incredibly excited to be part of implementing the first credit risk AI.”
Providing financial institutions with solid, scientifically-backed risk management tools can help prepare them against cyclical crisis and help protect their reputation, making the global financial system safer in the long-run. Additionally, the fact that the company has a track record of helping banks achieve results such as 30% default rate reduction and 10% acceptance rate increase has been the cornerstone of its growing reputation both in the US and in Europe.
After going through a product/market fit process that involved testing the solution with over 25 financial institutions in three different continents, the company is now focused on execution and growth. In order to fulfill this, company co-founder and lead researcher Pedro Fonseca recently handed over the role of CEO to his co-founder João Menano, who built the company’s strong international commercial reach. This marks the beginning of a new stage for the company, where the focus has shifted from finding product/market fit to reaching global scale.
This investment round will allow James’s team to grow accordingly to the market needs felt mainly in the US and in Europe.
About
James is a data science company focused on the credit industry. Founded with the goal of bringing the best of data science to every risk department, James is on its way to build the first Credit Risk AI. Currently operating in three continents, the solution was tested by over 25 financial institutions, from Tier 1 banks to alternative lenders.
Winner of last year’s Money20/20 Europe Startup Competition, the 20 person startup aims to one day place the best of data science in every risk department.
Contact
Name: Francisca Beija
Email: francisca@crowdprocess.com
Phone Number: +351 968 183 576
Catching Up With Marketplace Lending – A Timeline
June 13, 20174/11 Regions Bank recruited Kabbage’s chief technology officer, Amala Duggirala, to become its chief information officer
4/12 Federal Reserve Published their 2016 Small Business Credit Survey
4/13
- Marathon Partners, a minority shareholder of OnDeck, publicly called on the company to make changes
- Fifth Third Bank partnered with Accion to support lending to underserved small businesses
4/17 Affirm surpassed the mark of making more than 1 million loans since inception
4/20 YieldStreet surpassed $100M in loans funded since inception
4/21 Glenn Goldman stepped down as Credibly’s CEO
4/25
- SmartBiz Loans announced partnership with Sacramento-based Five Star Bank
- CommonBond begins offering loans to undergrads directly
4/26 State regulators sued OCC over fintech charter proposal
4/28
- IOU Financial announced that they loaned $107.6M to small businesses in Q1
- China Rapid Finance announced their IPO
5/2
- Funding Circle closed their online forum
- Elevate’s Debt facility with Victory Park Capital increased from $150M to $250M
5/3
- Prosper Marketplace disclosed that it miscalculated returns shown to retail investors
- Square announced that they loaned $251M to small businesses in Q1
- Nav raised $13M from investors that include Goldman Sachs and Steve Cohen’s Point72 Ventures
5/4
- Vermont governor signed into law new licensing requirements for anyone soliciting loans to Vermont borrowers.
- Lending Club announced that they loaned $1.96B in Q1
5/5 Thomas Curry steps down as OCC head, replaced by Acting Head Keith Noreika
5/8
- OnDeck announced it was substantially reducing its workforce as part of its plan to achieve profitability. The stock price proceeded to hit record lows.
- Dv01 announced reporting partnership with SoFi
- With no IPO on the horizon, SoFi revealed that they began letting their employees sell some of their stock
5/9
- In the United States District Court, The Southern District of New York ruled that a purchase of future receivables was not a loan largely because it was not absolutely payable. Colonial Funding Network, Inc. as servicing provider for TVT Capital, LLC v. Epazz, Inc. CynergyCorporation, and Shaun Passley a/k/a Shaun A. Passley
- The value of 1 Bitcoin surpassed $1,700.
5/10
- CFPB announces that it will begin work on small business loan data collection pursuant to Section 1071 of Dodd-Frank.
- CFPB publishes a white paper on small business lending
- SoFi revealed that they will apply for an industrial bank charter
5/12 NY’s banking regulator sued the OCC over its proposed fintech charters
5/15
Prosper announced that they lent $585M in Q1 and had a net loss of $23.9M
5/16
- Media outlets reported that SoFi is expanding into wealth management
- Lending Club named PayPal’s former head of Global Credit Steve Allocca as President
- OnDeck’s share price hit a new all-time low
See previous timelines:
2/17/17 – 4/5/17
12/16/16 – 2/16/17
9/27/16 – 12/16/16
What You Need to Know About The CFPB and Small Business Lending
May 10, 2017
On Wednesday, the Consumer Financial Protection Bureau (CFPB) held a hearing on small business lending. Here’s why it mattered and what you need to know:
Why: The 2010 Wall Street Reform and Consumer Protection Act, aka Dodd-Frank, empowered the CFPB to collect data on small business lending. The CFPB is just now getting around to rolling this out. The purpose is to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses. In short, to determine if women and minority-owned businesses are operating on a level-playing field when it comes to accessing credit.
Who: “I’m an MCA funder, factor, equipment lessor or other, and this only applies to lenders right”?
Maybe, maybe not. Although Section 1071 makes several references to loans and credit, it doesn’t refer to the companies subject to data collection as small business lenders. Instead it says financial institutions which it defines as “any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity.” That sounds incredibly broad.
What: What are they trying to collect?
- the number of the application and the date on which the application was received;
- the type and purpose of the loan or other credit being applied for;
- the amount of the credit or credit limit applied for, and the amount of the credit transaction or the credit limit approved for such applicant;
- the type of action taken with respect to such application, and the date of such action;
- the census tract in which is located the principal place of business of the women-owned, minority-owned, or small business loan applicant;
- the gross annual revenue of the business in the last fiscal year of the women-owned, minority-owned, or small business loan applicant preceding the date of the application;
- the race, sex, and ethnicity of the principal owners of the business; and
- any additional data that the Bureau determines would aid in fulfilling the purposes of this section.
How: Great question. The law says that where feasible the underwriter or analyst isn’t allowed to know if the business is woman-owned or minority-owned and that this information must be captured separately and kept secret from the underwriter. The section is actually called the “NO ACCESS BY UNDERWRITERS” section. Oddly, as this applies to all small business lending, not just faceless transactions, one wonders how an underwriter is supposed to avoid discovering the gender or ethnicity of the applicant. It is possible that in 2009 when this section was drafted, the architects could not imagine a business lending universe that looked beyond FICO scores and balance sheets.
When: It’s still early days. Right now the CFPB just wants to know everything about what these “financial institutions” do and how they do it before they start requiring the data be collected. To that end, they’ve published a Request For Information, seeking voluntary responses so that they can start formulating the data collection framework in a way they believe best.
Where: Where can you read and watch more about this? We’ve got some information on this page here, including a video of the hearing.
What should I do? Should I do anything?
Join an industry trade association. When it came to the proposed regulation in New York, they did most of the heavy lifting. There are many to choose from depending on your business model. In New York though, the regulations were purely proposed. Under Dodd-Frank, the CFPB already has the power to collect data. They’re just finally getting around to using it.
