Archive for 2020
Shopify Capital Originated $430 Million in Loans and MCAs in 2019
February 17, 2020
Shopify Capital, the e-commerce giant’s small business financing arm, originated $430 million in funding through loans and merchant cash advances in 2019. Shopify now has more than 1 million e-commerce merchants on its platform, the company says. Earlier in the year the company began rolling out funding to merchants that are not using its payment service.
Though 2019 year-end reporting for the industry is still sparse, the company’s origination figures will likely cause Shopify to move up the rankings maintained by deBanked.
PayPal, who deBanked predicts will keep its #1 spot, did not disclose its annual origination figures in its already-reported Q4 earnings.
Idea Financial Chimes In On New Hire
February 17, 2020
Last week Idea Financial announced that it had appointed Gregory Sandler as its Chief Operating Officer and General Counsel. Having served as General Counsel to both Beyond Finance and Spruce Finance after working as VP and Corporate Counsel to Bayview Asset Management, Sandler believes he’s well positioned to help Idea.
“I have a sense of gratitude to them, because I feel like I’m piggybacking on a lot of the hard work they’ve already done over the last three years,” Sandler told deBanked in a phone call. “But part of the reason for bringing me on I think is that as we move from a startup to a more mature company certain skill sets are needed, and they put the trust in me that I have the skill set that can help them get to that next level.”
Before providing counsel to alternative finance companies, Sandler served as an Associate Director at Bear Stearns in the mids-2000s.
“We’re about to cross into our one hundred million dollars in funding threshold, which is a big deal, very soon,” Justin Leto, CEO of Idea, explained over the phone. “That’s a major accomplishment, and it just shows that we’re in a position right now where bringing on the strongest and the brightest people is exactly what we need. And I think Greg is a symbol of what this company has become and what it will continue to be.”
N26 Exits UK Market Citing Brexit as Reason
February 13, 2020
The challenger bank N26 pulled out of the UK market this week, citing Brexit as the reason for its departure. Saying that it will no longer be able to service Britain now that it has left the European Union, N26 has stopped onboarding new customers and will be closing all British accounts on April 15th.
The news came as a shock to many N26 users as the company has, as recently as October 2019, published multiple blog posts assuring customers that Brexit will not disrupt their service. These posts have since been deleted.
In a statement, the neobank advised its UK customers to empty their N26 accounts before April 15 and apologized for the inconvenience. “With the UK having left the European Union, N26 has today announced that it will be leaving the UK market. The timings and framework outlined in the Withdrawal Agreement mean that the company will in due course be unable to operate in the UK with its European banking license.”
Having its headquarters in Berlin, the neobank holds a German banking license. Under EU law, passporting rights enable any banks that hold a charter granted by an EU member state to operate in any other EU country. And while this of course means that N26’s license will no longer be enough for the UK market, temporary permissions exist that allow EU fintechs and financial services companies to continue operating under the same rules until December 31st, 2020, allotting time to draw up new deals and ink new charters.
This detail, as well as the fact that none of N26’s competitors, Revolut, Starling Bank, and Monzo, have announced their exit, has led commentators to reason that the high investment cost associated with applying for a UK banking charter is influencing the decision to pull out, rather than the feasibility and process required.
Speaking to deBanked, a spokesperson for Starling said that “We’re not affected by N26’s decision. Some digital banks appear to have been focusing on growth at all costs. At Starling, we’ve always gone for sustainable growth and have long mapped out our path to profitability. We expect to hit breakeven by the end of 2020 and to turn a profit by the end of 2021.”
Having entered the UK market in October 2018, more than two years after the leave vote, N26 will be cutting service to its +200,000 UK customers. Most of the dozen or so staff members the neobank had in Britain will be repositioned elsewhere in the company, which has offices in Berlin, Barcelona, São Paolo, Vienna, and New York.
The challenger bank has been available in the States since August 2019, garnering over 250,000 customers in the market since then. Valued at $3.5 billion in its July funding round, N26 has received investments from Peter Thiel’s Valar Ventures, Li Ka-shing’s Horizon Ventures, and China’s Tencent Holdings Ltd.
Varo Receives FDIC Approval for Bank Charter
February 12, 2020V
aro Money, the company that has been providing customers with app-based banking since 2017, has just received approval from the FDIC to take deposits. Having been working towards this for the previous three years through various rounds of applications to the FDIC, Varo CEO Colin Walsh told CNBC that “it was a long process – for this to finally see daylight is a big deal for the industry.”
Fintechs such as Varo, like Revolut, N26, and Chime, rely on partnerships with banks to provide financial infrastructure in the absence of such FDIC approval. This decision is a first for the fintech space and it means that all accounts with Varo’s partner, Bancorp, will transfer to Varo in Q2 of 2020, so long as the company passes final regulatory tests.
Robinhood, a startup that offers options to invest in stock through its app, previously applied for the same charter but pulled out in November, while the payments titan Square has applied for a different charter for a specialized industrial loan company license.
“Receiving an official bank charter has been part of Varo’s vision from the very beginning, and we are excited to progress through the necessary steps to accomplishing that goal,” Walsh, who is a former American Express executive, said in a statement. “Despite historic economic growth, only 29% of Americans are considered financially healthy. Varo is committed to creating inclusive financial opportunities that deliver measurable benefits to all consumers. Becoming a fully chartered bank will give us greater opportunity to deliver products and services that impact the lives of everyday people around the country.”
Varo has stated that it has ambitions to provide additional services that are typical of banks, eg. credit cards, loans, saving products, but these are of course pending charter approval.
Bank, Auto Lender, and BFS Capital Are New Additions to Canadian Lenders Association’s Board
February 11, 2020
The Canadian Lending Association has announced today that it has three newcomers to its board: BFS Capital’s CEO, Mark Ruddock; Cox Automotive Canada’s EVP, Jerome Dwight; and BMO’s Head of Specialty Finance and Loan Syndication in Canadian Commercial Banking, Lyla Kanji.
In a statement, Kanji said that she was “excited to join the CLA board and bring my expertise in specialty finance to help provide guidance to member companies.” While Ruddock commented that “After having focused for the past few years on financial technology innovation abroad, it’s thrilling to be back in Canada, and to be supporting Canadian businesses with access to the capital they need to power growth.”
Tal Schwartz, a spokesperson for the CLA, explained that he viewed new members joining the board as an indication of maturity for the Canadian market. With BFS being an established American alternative finance company and Cox offering auto loans, Schwartz told deBanked that these companies “show that commercial and consumer financing is expanding beyond what we typically think of as an SME or as a regular borrower.”
On BMO, Schwartz was delighted to have one of Canada’s largest banks join the board. “To have a major bank join the CLA really underlines how robust and mature the alternative finance industry has become,” Schwartz noted. “For us, having BMO join is really breaking down that old world understanding of alternative versus mainstream lending and proving that there’s really just a continuum of different lending solutions depending on the profile of the borrower.”
The Story Behind The #BrokersAreBetter Super Bowl Commercial
February 7, 2020
Watching the Super Bowl, you may have seen a number of oddities: the resurrection of a peanut as an infant, the tattooed inside of a popular rapper’s head, Google’s plea to be the hub for all your elderly relatives’ memories, and, on top of it all, a cheeky spar between mortgage lenders.
Quicken Loans, the Detroit-based mortgage provider, had an ad that featured Hawaiian actor Jason Momoa reveal his ‘true’ self, all while explaining the values of Quicken’s Rocket Mortgage product. Par for the course with Super Bowl ads, until United Wholesale Mortgage’s advert aired. Throwing shade at it its competitor with the line: “Playing with rockets is great when you’re a kid, but when it’s time to get a mortgage, you quickly realize a rocket is complicated and expensive,” United promoted its FindAMortgageBroker.com website, which points potential customers towards a host of brokers local to themselves, before closing its ad with the #brokersarebetter hashtag.
Speaking to The Detroit News about the joke, United CEO Mat Ishbia said: “I don’t think we attacked (Rocket Mortgage); we had fun with it … I think it’s going to grow their business just like it’s going to grow ours. I think (Quicken founder) Dan Gilbert and (CEO) Jay Farmer are going to laugh when they see it. They won’t like it enough to chip in with the cost. The reality is we’re friendly competitors.”
Being a wholesale lender, United gains customers exclusively from its brokers, where as Quicken engages with both brokers and its own marketing efforts. In a call with deBanked, United’s Chief Marketing Officer, Sarah DeCiantis, explained that this was one of the main motivators behind the ad. Noting that for local, independent brokers it can be a struggle to compete with behemoth retail lenders, DeCiantis said that the ad was an answer to the question of ‘How do we allow them to get out there?’ “Retail are amazing at marketing and customer retention, so we try to do what we can to put [independent brokers] on the same playing field because they don’t have the same budget.”
And with only 30 seconds to express this, the challenge was on — not to mention how such ads are estimated to cost $5.6 million. “So much thought goes into every frame, every second,” remarked DeCiantis, who said she was proud of the final product. “We’ve gotten over 75,000 searches on the website just in the first few days after the ad.”
The high profile decision to purchase Super Bowl air time comes during what looks like will be a big year for United, with it planning to add an additional 3,000 employees to its already 5,000-strong staff in its Pontiac headquarters. Despite this, according to Ishbia the focus is still on the local: “If a consumer goes through an independent mortgage broker it will be faster, easier and more affordable than going through a retail lender or mega bank.” From his point of view, it just makes more sense to go independent, it isn’t rocket science.
New York Appellate Court Overturns QFC, LLC v Iron Centurian, LLC
February 7, 2020The Appellate Division, 2nd Department of The Supreme Court of New York, overturned QFC, LLC v Iron Centurian, LLC and Mohamed Sadiqui last month, granting victory to a merchant cash advance company. The case can be summed up as follows:
A Confession of Judgment (COJ) was filed by plaintiff against defendants for breach of contract. Defendants argued by way of motion that the COJ should be vacated and agreement voided because the underlying transaction was really a criminally usurious loan. The trial court concurred and ruled in favor of defendants, vacating the COJ and voiding the “illegal” merchant cash advance transaction.
Plaintiffs appealed.
On January 29, 2020, the Appellate Division unanimously sided with the plaintiffs and overturned the lower court’s decision. Similar to two other rulings issued the same day (Volunteer Pharmacy, Micromanos), the Court said that a COJ cannot be vacated in the manner in which defendants sought it.
Lender Ranking Website Accused By FTC Of Misleading Rankings
February 6, 2020
LendEDU, a Hoboken-based company that lists and ranks loan providers, came under fire this week after the FTC filed a complaint detailing how LendEDU charged businesses for higher positions in its rankings of lenders and promoted fake testimonials. Providing ratings for student loan refinancing, personal loans, and mortgage lenders, it is the first of these loan types that is in the spotlight.
While LendEDU initially denied that it received any compensation for its lists, saying, “ratings are comparatively objective and not influenced by compensation in anyway” and that “research, news, ratings, and assessments are scrutinized using strict editorial integrity,” this assertion was disproved by the FTC’s investigation.
Emails were discovered which featured CEO Nathaniel Matherson and Vice President of Products Alexander Coleman discussing with a business the pricing per click to hold the #1 spot on the best student loan refinancing company list, as well as what sort of traffic could be expected at this ranking. Accompanying this was a contract between LendEDU and a student loan refinancing company, revealing that in return for compensation the company would drop “[n]o lower than position three” in the rankings. It was also found that if businesses who were already in the rankings refused to pay for the clicks they received, they would drop down in the list.
The testimonials that featured prominently on LendEDU’s homepage, which noted alleged consumers’ names, colleges, and years of graduation, were found to be wholly false, with the people portrayed in them being nonexistent.
And the reviews of LendEDU that were found on Trustpilot and subsequently posted to the company’s own website, were also shown to be fake. Of the 126 reviews, 123 were found to be 5-stars; and only 11 were proven to be from customers (this was confirmed as the emails matched those used by customers), the other 115 were deigned to be written by friends, family members, and associates of LendEDU members, as well as by LendEDU employee’s themselves under false names.
All this is coming after LendEDU landed in hot water following a controversy in 2018 that saw Matherson admit to working with others to create a fictitious expert on student loans, named Drew Cloud, who would give interviews and comments to publications, creating a pro-student loan refinancing discourse. According to Matherson, Cloud “was created as a way to connect with our readers (ex. people struggling to repay student debt) and give us the technical ability to post content to the WordPress website.” Cloud was even given a pixelated face and backstory that extended into high school, imbuing him with a passion for journalism even in his teenage years. Neither Matherson’s comments on Cloud nor his fictional biography do anything to explain how or why his creators decided to give him a name that is quite clearly fake.
LendEDU promptly agreed to settle the charges and pay $350,000 while not admitting or denying the allegations. The public has 30 days to comment on the settlement prior to it becoming final.
