Archive for 2017
Stacking Lawsuit Could Go to Trial
October 18, 2017
A lawsuit between RapidAdvance and Pearl Capital that has been making its way through the Maryland state court system for two years may be heading to trial.
In this case, plaintiff Small Business Financial Solutions, LLC (SBFS AKA RapidAdvance) alleged that Pearl Beta Funding, LLC (AKA Pearl Capital) interfered with a loan agreement it had with a merchant when Pearl “stacked” financial obligations to Pearl on top of the obligations the customer owed to SBFS. Ultimately the merchant defaulted and SBFS wants to hold Pearl responsible for the damages it incurred.
Pearl originally moved to dismiss the suit but was unsuccessful. Later, Pearl filed a motion for summary judgment. On September 29th, that motion was denied, with the judge opining that issues of fact remained that were best left for a jury.
Unless Pearl appeals the decision or the parties settle, the case will go to a jury.
A representative for Pearl Capital declined to comment on the decision, citing ongoing litigation.
Patrick Siegfried, Assistant General Counsel for RapidAdvance, opted to tell deBanked the following:
“The court’s decision from many months ago to reject Pearl’s motion to dismiss and its more recent decision to reject the motion for summary judgment and permit this case to go to trial confirms the anti-stacking position RapidAdvance has consistently taken. The court’s rulings make it clear that when a funding company funds a merchant knowing that doing so is a breach of the customer’s agreement with another funder and the stacker’s funding is a substantial cause of the merchant defaulting with the other funder, its actions constitute tortious interference. As a result, the company that stacked can be held liable for the losses the original funder incurs. While the outcome at trial is impossible to predict as the court will need [to] decide whether there are sufficient facts to satisfy each element, RapidAdvance is pleased that its legal reasoning on stacking has been confirmed in a written opinion and that we now have the roadmap for pursuing others that tortiously interfere with our contracts by stacking.”
Of note, is that RapidAdvance brought this case in The Circuit Court for Montgomery County, Maryland. Few other players in the industry may be able to designate Maryland as the proper venue. The standards for tortious interference may not be the same in other states. There are many circumstances in the case not discussed in this synopsis. Consult an attorney before drawing any conclusions. YOU CAN DOWNLOAD THE FULL DECISION HERE.
The case is Small Business Financial Solutions, LLC v. Pearl Beta Funding, LLC Case No. 411478-V in the Circuit Court for Montgomery County, Maryland.
Insurtech, the Alt Lending of 2017
October 17, 2017
A new asset class is emerging and it’s taking top talent away from the alternative lending space. Insurance technology, or insurtech, is a nascent market segment that presents a similar market opportunity that fintech did back in the day, sources say. And while there are parallels between the two niches, the market landscapes are unique in many ways, too.
Former OnDeck exec Paul Rosen recently decamped to insurtech startup CoverWallet where he’s been named COO. CoverWallet is an online marketplace for small- and medium-sized business insurance policies. Rosen left the alt lending space at a pivotal time for the industry and his former employer, both of which have experienced realignments to their approach in 2017.
So why would Rosen, the former chief sales officer at OnDeck, depart a proven market opportunity in alt lending for newer waters in a less mature segment in the insurance industry? In short, he’s not the only one.
Earlier this year, James Hobson, former COO of OnDeck, left to take the helm at insurance startup Attune. According to LinkedIn, OnDeck’s former SVP of operations Martha Dreiling made the same jump, joining Attune as head of analytics and corporate operations. Josh Wishnick, another OnDeck alum, is now spearheading business development at PolicyGenius.
One might question whether the trend is specific to OnDeck, given that the newly minted insurtech execs are originating from that company. The interest in insurtech, however, extends beyond the C-Suite and into the investor base, which is indicative of a broader trend unfolding.
OnDeck spokesperson Jim Larkin told deBanked: “OnDeck was among the early pioneers of online lending going back to 2007. Since then, we have seen numerous other fintech initiatives take off. Insurtech is the latest. Several former OnDeck employees are providing their expertise to this new space and I’m confident they will help their new organizations to thrive in the same manner OnDeck has over the last decade. Growing talent and seeing some of them graduate and contribute to the vitality of FinTech ventures across the world is one of the things that we are most proud of here at OnDeck.”
Meanwhile CoverWallet in recent days announced a Series B-$18.5 million cash raise led by Foundation, a new investor in the startup that similarly backed Lending Club and OnDeck. This trend speaks to the comfort level among both alt lending industry execs and institutional investors for the emerging insurtech market.
“So, it’s interesting. A lot of the people that helped to grow and shape the fintech industry have now moved on to this industry. Insurtech today feels a lot like fintech did in 2011,” Rosen told deBanked.
Industry Landscape
Insurtech stands to disrupt the insurance industry much the same way that alternative lenders did in that arena. The nascent market opportunity is also unique, with nuances that set insurtech apart not only from alternative lending but from the broader insurance industry as well.
“SMB insurance is very different from personal insurance. You can go online with Geico and switch insurance providers in 15 minutes. SMB insurance isn’t built that way right now,” said Rosen.
For instance, most SMBs go to brick-and-mortar insurance agencies to get whatever policies they need. But the process to getting a loan is slow and paper-work driven. They might have to fill out a 42-page application to get a $600 business owner policy.
The differences are even more pronounced between insurtech and alt lending, especially when it comes to compliance. “With this business, there are heavier regulations than there are in SMB lending. All our sales people must be licensed. There’s a heavier compliance component to it,” said Rosen.
As of today, CoverWallet markets to its customers directly. “If you look at the fintech industry, we’re kind of like an ISO. At this point we’re a distribution company going directly after our customers,” said Rosen, adding that they have put brokers using their technology on the back burner for now.
CoverWallet does some of the underwriting themselves. “We’re where insurance and technology meet,” he said. If a SMB went to a typical brick and mortar broker, they might fill out a 42-page application with 80 questions. Considering that CoverWallet is online, the product is extremely simple and intuitive so the SMB owner doesn’t have to answer tons of questions. “You go through the process a lot quicker. And a lot of the underwriting is done on the sales end by our sales team,” said Rosen.
CoverWallet acts like a marketplace in that they will go through the carrier that best meets the need of the SMB. “It’s very similar to a broker. We’re out there doing online marketing. We don’t do a lot of direct mail. A customer comes in and we examine the customer and based off the industry, location and some other things we determine where the best fit for that customer is. We send them to the carrier that’s the best fit based off carrier appetite,” he said.
That Was Then, This Is Now
So, what is it about insurtech that has some top-tier talent in the alt lending space running for the exit? Rosen pointed to a trio of parallels between insurtech today and alternative lending then (back in 2011), which perhaps is what’s compelling alt lending veterans to make a career change.
When Rosen joined OnDeck in 2011, one of the things they discussed was a $100 billion market opportunity in unmet demand in the small- and medium-sized business lending market. Six years later and the industry is probably lending $10 billion to $15 billion now, which suggests there’s still a lot of headway in the alt lending space today.
Meanwhile, Rosen points out that of the $100 billion in small- and medium-sized business insurance premiums that are written today in the United States, “virtually none of them are done online.” And that, he says, is the No. 1 reason why insurtech feels a lot like fintech did in 2011.
“If insurtech can get to $15 billion to $20 billion in premiums, that will be a huge opportunity for the right companies. We think we have a shot at it,” Rosen said, adding that it’s not a zero-sum game.
Secondly, insurtech is highly fragmented similar to how the online lending industry was before. “There aren’t a lot of brokers or distributors with a significant amount of market power, especially in the SMB market. When we started OnDeck, there wasn’t any one company from a lending SMB perspective with a whole lot of market power,” recalled Rosen.
Lastly, Rosen points to industry disruption. “The way SMBs were purchasing loans in 2010 was very similar to how they were purchasing loans 20 years prior. There was not a whole lot of innovation or disruption. Then OnDeck, BizFi, Lending Club, BFS Capital and CAN Capital came on the scene and started disrupting the space. On the SMB side, there has been no technology disruption till this point. Now a handful of companies like CoverWallet are looking to change that,” said Rosen.
More Fallout?
Rosen has been fielding inquiries from others in the alt lending space. “There’s definitely interest in the insurtech space from fintech team members,” he said. Meanwhile, even though he has left, Rosen remains “bullish” both on the alt lending space and his former employer, OnDeck. I have kept most of my equity at OnDeck,” he said.
Major Online Consumer Lenders Ranked By Revenue
October 17, 2017The below chart ranks several well known online consumer lenders by revenue over the last 5 years. The data is primarily drawn from reports submitted to the Inc. 5000 list, public earnings statements, or published media reports. An asterisk indicates an approximation.
| Company | 2016 | 2015 | 2014 | 2013 | 2012 |
| loanDepot | $1,296,453,643 | $922,359,827 | $538,087,552 | ||
| Elevate Credit (ELVT) | $580,441,000 | $434,006,000 | 274,000,000 | $72,000,000 | |
| Lending Club (LC) | $500,800,000 | $430,000,000 | $213,400,000 | $98,002,000 | $33,800,000 |
| Avant | $437,929,000 | $300,000,000* | $75,000,000 | ||
| SoFi | $350,000,000* | $114,700,000 | |||
| Prosper Marketplace | $136,005,000 | $204,275,000 | $81,317,000 | $18,381,000 | $6,807,527 |
Platinum Rapid Funding Group Hires Dynamic New CFO
October 16, 2017
Uniondale, NY: Michael Kennedy, former CFO of BizFi, Mastercard Europe, and American Express Latin America, has joined Platinum Rapid Funding Group LLC. As CFO, Michael is a highly accomplished professional with over thirty years of industry experience, most recently serving as an effective strategist and visionary at BizFi.
Ali Mayar commented “we are so pleased to announce that Michael is officially on board, and we’re excited to continue on this road of growth and prosperity, now aided by his industry expertise. We view his appointment as a sign of our commitment to being the leading company in our industry.”
Michael Kennedy enthusiastically stated “I am thrilled to join Platinum Rapid Funding at this exciting time in the Company’s evolution. As their CFO, I am impressed with the strong foundation that Ali and his team have built and I look forward to helping them to bigger and better things.”
About Platinum Rapid Funding Group
Platinum Rapid Funding Group is a Merchant Cash Advance company that provides working capital to businesses nationwide. Founded in 2012, Platinum’s mission is to help businesses succeed by providing service to merchants seeking rapid alternative financing. Platinum has seen exponential growth by utilizing a unique business model, harnessing manpower, technology and proprietary data, placing them at the top of the industry standard.
Payday Lending King Scott Tucker Convicted
October 14, 2017
One year after a federal judge awarded a record-setting $1.3 billion judgment to the FTC against Scott Tucker for damages caused by his payday lending empire, a jury in the Southern District of New York found him guilty on criminal charges that include participating in a racketeering enterprise through the collection of unlawful debt, wire fraud, money laundering, and violations of the Truth In Lending Act.
Tucker and another defendant, who happened to be his attorney in the scheme, are set to be sentenced on January 5th. He will remain on house arrest until then. Tucker is facing more than 20 years in prison. He is 55.
Among the luxuries Tucker spent his ill-gotten gains on were his professional racing hobby. His auto racing team, Level 5 Motorsports, participated in international tournaments and won 4 championships. The feds auctioned off his race cars that included two Ferraris and a Porsche earlier this year.
According to the DOJ:
TUCKER devised a scheme to claim that his lending businesses were protected by sovereign immunity, a legal doctrine that, among other things, generally prevents states from enforcing their laws against Native American tribes. Beginning in 2003, TUCKER entered into agreements with several Native American tribes (the “Tribes”), including the Santee Sioux Tribe of Nebraska, the Miami Tribe of Oklahoma, and the Modoc Tribe of Oklahoma. The purpose of these agreements was to cause the Tribes to claim they owned and operated parts of TUCKER’s payday lending enterprise, so that when states sought to enforce laws prohibiting TUCKER’s loans, TUCKER’s lending businesses would claim to be protected by sovereign immunity.
At trial, the jury wasn’t fooled. Read the full DOJ report here.
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.
The Sept/Oct 2017 Issue of deBanked Magazine Has Shipped
October 12, 2017The latest issue of deBanked Magazine has shipped. In this issue we explore a new rule implemented by credit bureaus surrounding the reporting of liens and judgments, the shifting landscape for lead generators, and once again, what merchants themselves are saying about their experiences with online loans and merchant cash advances. There’s a lot more of course!!!
If you’re already subscribed, you should receive a copy soon. If you haven’t subscribed, you can make sure to get all future issues FREE by SIGNING UP HERE
Mayor Rahm Emanuel Cuts Ribbon for 160% APR Online Lender
October 11, 2017Chicago Mayor Rahm Emanuel cut the ceremonial ribbon at OppLoans’ new headquarters in Chicago this week. The APR of a typical installment loan is 160% APR in many states, according to the OppLoans website. In South Carolina, a typical loan is listed as 199% APR over 9-18 months.
Today we cut the ribbon on @OppLoans' new office in Chicago. pic.twitter.com/SAROJfCTcE
— Mayor Rahm Emanuel (@ChicagosMayor) October 9, 2017
According to a press release, Emanuel said “While for a lot of people outside this room, this may be the first time they’ve heard of OppLoans. There is no doubt in my mind this will not be the last time they’ve heard of OppLoans. I look forward to being back as you scale more mountains, more heights, and continue to grow and to be successful, and to offer financing to a lot of families.”
While OppLoans offers consumer loans, Emanuel has previously attacked small business finance products with lower costs than OppLoans as predatory. Perhaps he has reevaluated his understanding of APR.
