|11/24/2020||Smarter Loans co-founder on study|
|11/09/2020||Smarter Loans sets Q3 loan record|
|09/22/2020||Smarter Loans expands into banking & more|
deBanked Toronto 2019 - By: Smarter Loans
Smarter Loans Talks State of Fintech in Canada
Interview With Thinking Capital - Smarter Loans
There has been fast-growing demand for digital finance products this year, according to the Smarter Loans Annual State of Canadian Fintech study. The report surveyed more than 2,500 users of the Smarter Loans site.
The findings show an accelerated shift to digital transactions, which Smarter loans co-founder Vlad Sherbatov attributed to a pandemic-acceleration of the tech-leaning trends that were already coming.
“One of the central insights from this year’s study is the overall increase of fintech adoption and lending,” Sherbatov said. “We’ve also noticed the fact that people are just much more likely to manage their finances online today than they were at this time 12 months ago or a year ago.”
Intending to gain insight into Canada’s fintech industry, Smarter Loans began sending questionnaires to their users starting in 2018.
“We survey some of the people that flow through our website that have used a fintech lending product in the past 12 months, we ask them questions about their experience,” Sherbatov said. “The purpose is to extract insights so that we can help push the industry forward and improve it.”
Even just two years ago the industry was a much smaller space but has ballooned since, and the Smarter Loans survey has become a one-of-a-kind focus on Canadian fintech markets. Featured with this year’s results is commentary from Canadian industry leaders like the Canadian Lenders Association, and deBanked’s own Sean Murray.
“It’s become a bit of a staple in the lending industry,” Sherbatov said. “Because it’s the only piece of research in Canada that is laser-focused on fintech lending.”
With three years of data to compare, Sherbatov said he could see a significant increase in online activity. Part of this is just due to where the world is heading, as Sherbatov described the younger generations just stepping into the financial world.
“This is something that’s been happening for years; this is a trend that has started a long, long time ago,” Sherbatov said. “For younger generations, the way that they approach financial products and companies is very different from someone in my generation or older. Online is the standard of doing business, on-the-go, and mobile is the standard of managing your financial affairs.”
Fintech in Canada, Sherbatov said, tends to lag behind the growth of the fintech industry in other countries but is on the rise due to the Coronavirus. The digital adoption trend was pushed forward, as some customers that had been reluctant to bank online were forced to do so by necessity. Now, these changes to the way business is transacted are here to stay, Sherbatov said.
Like the surge in eCommerce activity, people are going online to make financial transactions.
“You go to Amazon to buy laundry detergent, and you go online to open up a checking account to pay some bills,” Sherbatov said. “Everybody needs financial services, just like everybody else needs household items; it’s how we’re going about obtaining them. This has changed and has accelerated due to Covid.”
Smarter Loans, a Canadian loan comparison site, announced they are expanding their services to new categories- including “Everyday Banking, Insurance, Investing Money Transfers, and Debt relief.”
The additions are part of the Smarter Loans’ mission to become the go-to place for Canada’s online financial options. Founders Vlad Sherbatov and Rafael Rositsan founded the company to bring together information on the top financial companies all in one place. They started with information on personal and business financing but have expanded to auto loans, mortgages, equipment financing, and information on all kinds of financial products.
“We wanted to bring additional financial services and products that people can now access online,” Vlad Sherbatov, the president said. “And to do that, we partnered with some of the leading companies that offer these financial services.”
The addition is the latest resource for their 40,000 monthly user base, who access a database of top banks, credit unions, and innovative fintech leaders. Rafael Rositsan, the CEO, said as a trusted industry voice, the firm is adding this new info to update consumers on new opportunities firms provide.
“There’s a rise of companies that are now offering innovative products online,” Rositsan said. “Canadians might not be aware of some of the services that are out there.”
Sherbatov said that Canadians have been gravitating toward conducting business on the go at an accelerated rate this year. The firm listened to the customer base and learned they’re not going online for just financing.
“Entrepreneurs are running their businesses online,” Sherbatov said. “People that used to just shop for household items online are now looking for ways to handle investments and everyday financial errands because the old way of doing things is not available.”
He said that many areas of the financial space have evolved. Customers can obtain life insurance, get a line of credit, and a bank account funded in less than 24 hours, all from the comfort of their home.
“This move is to both bring more services relevant to our existing user base that use Smarter Loans,” Sherbatov said. “But also for all Canadians that are looking for these types of products. We want Smarter Loans to be the go-to place for them to learn about [these offerings], and to learn about the companies behind these products.”
Smarter Loans – Canada’s largest loan comparison website – is excited to announce their expansion into new financial categories that include: Everyday Banking, Insurance, Investing, Money Transfers, and Debt Relief.
Canadians nationwide use Smarter Loans to find the most innovative financial products and services in the country, compare their options, and make smarter financial decisions. Launched in 2016, Smarter Loans today works with over 80 of the top financial brands in Canada, including banks, credit unions, alternative lenders, financial services and innovative FinTech companies that are leading the digital transformation in the Canadian financial sector.
The expansion is another step by Smarter Loans in helping Canadians access more financial products online.
We believe that Smarter Loans is at the forefront in the evolution of how people want and expect to shop for financial products. There is a big shift towards buying online and companies that are setup to transact and sell their services on the Internet are winning. We work hard to seek out top financial brands and are really excited that Smarter Loans visitors can now find even financial solutions on our site. (Rafael)
It’s a great experience when a person can send money overseas, get life insurance, and open a savings account all from the comfort of their home or on their mobile device. Our mission is to highlight all of the great and reputable companies that offer Canadians that experience. (Vlad)
Smarter Loans has responded to the growing demand for digital financial products and services in Canada by securing working relationships with leading brands that offer financial services online, including chequing and savings accounts, investing solutions, insurance for personal and commercial coverage, international money transfers, debt relief and credit solutions.
The new categories are available to all new and existing Smarter Loans members, everywhere in Canada.
The new categories will help even more Canadians save time and money, and discover great companies that can help them with various financial needs, entirely online.
If you are a financial brand and are interested in discussing partnership opportunities please get in touch with Smarter Loans at: firstname.lastname@example.org.
Technology-based lending platform SmartBiz Loans, which is dedicated to facilitating SBA loans, has expanded its bank roster. SmartBiz announced today a new partnership with Sacramento-based Five Star Bank, bringing the tally of the number of banks on the startup’s platform to five and thrusting marketplace lending into the spotlight once again.
Five Star already delivers SBA loans to customers but through the SmartBiz platform will slash both the time and costs in the underwriting process while reaching new small business customers in the process.
Evan Singer, CEO of SmartBiz Loans, told deBanked that the mindset of the executive team at the Silicon Valley startup has always been to bring banks back into the fold and to incentivize them to fill a void in the market left by the financial crisis by originating smaller loans, in particular SBA loans.
“What we’ve seen in the market is that good businesses cannot get access to low-priced capital if they want to borrow $250,000. So sure, if they want to borrow $5 million they can get access. That’s why we came up with the idea to bring the banks back through fintech,” he said.
Five Star Bank, a privately held bank with $850 million in total assets, is pleased to be among those ranks. James Beckwith, president and CEO of Five Star Bank, was introduced to the SmartBiz technology about a year ago after which time the bank execs began the due diligence process.
“I was intrigued,” Beckwith told deBanked. “We felt the need to somehow play in the space. But we also knew it wasn’t practical for us to develop our own platform. So this was really right in our sweet spot of how we like to partner with people.”
As a result of the partnership Five Star Bank, which makes loans from its own balance sheet, is reaching small business clients the bank did not have access to before.
“Our market presence didn’t allow us to touch a lot of these businesses before, whether from Los Angeles, or Arizona, or San Jose. It’s really people we were unable to touch now being touched through the SmartBiz partnership,” said Beckwith, adding that the small businesses span industry verticals.
“At this point we’re looking at deals in the Western United States and we hope to expand that. The small businesses are really all types – construction companies, PR firms, consulting firms, — there’s no concentration in terms of industry type,” he noted.
The bank’s target customer is seeking a loan for $350,000 or less and the average loan size is $250,000 to $270,000. Terms of an SBA loan on this platform are comprised of a rate of Prime plus 2.75 over a 10-year period.
“The term is much longer and the rate is much lower than traditional loans. Small businesses can save thousands of dollars per month by getting an SBA loan through the SmartBiz and Five Star partnership,” said Singer. In fact, Five Star bank spends about one-tenth of the time on a file or customer originating from SmartBiz than it would on a customer coming from the traditional retail side of their business.
Much of the fallout in the marketplace lending market segment has been tied to the stigma of subprime lending. Beckwith is quick to point out, however, that the underwriting standards for the loans on this platform, which are agreed upon by both Five Star and SmartBiz, are high.
“If you look at some of the average FICO scores we are doing, they are actually good deals. They’re SBA, they’re not subprime deals. I would not characterize them as subprime deals at all,” Beckwith said.
Meanwhile the marketplace lending segment has undoubtedly become more crowded in recent years, attracting the likes of lenders and non-lenders alike, evidenced by the participation of Amazon and Square Capital in this space, for instance.
According to Singer some industry shakeout can be expected in the near term. He expects over the next couple of years that those marketplace lenders and other alternative lenders unable to meet customer demands will either experience a wave of consolidation or they simply won’t be around any longer.
“We are already starting to see a number of our loan proceeds being used to refinance expensive shorter-term debt where they save thousands per month. Businesses are getting smarter with available options and folks that are able to best meet and deliver with small businesses on their minds first are going to come out on top,” said Singer.
SBA 7(a) Cap
As a technology platform dedicated to SBA loans, the issue of the program’s annual allotted cap is something that gets revisited on an ongoing basis. Nonetheless even when the SBA program has come close to suspension, Congress has stepped in to keep it afloat.
“The great thing about SBA is that it has support from both sides of the aisle in D.C. We’ll see what happens this year,” said Singer.
James agrees. “Every year that this becomes an issue the cap has been increased. I feel comfortable that what has happened in the past will happen again in the future because these programs are very viable. The small business space has very strong economic development activity.”
If they’re right this bodes well not only for the Smart Biz and Five Star partnership but also the new banks that the tech-based lender has in its pipeline.
“We are adding banks into the marketplace. And we’re selective about who we add,” Singer said.
At the late September Marketplace Lending and Investing Conference in New York City, loanDepot CEO Anthony Hsieh laid out his view on the state of the union.
“As a nonbank lender, you must be patient,” he preached. Hsieh knows something about patience. His company’s planned November 2015 IPO was cancelled due to adverse market conditions and six months later, the scandal at Lending Club sent just about all marketplace lenders reeling.
“I’m still trying to figure out what’s been going on over the last 6-9 months,” Hsieh joked in front of the audience. No rookie to lending, Hsieh said he has been in consumer lending for 32 years, before FICO scores were around, and as he viewed it, through five credit cycles.
“The mortgage industry is still very archaic,” he said. “It hasn’t found the digital age yet.” He explained that it can take weeks or months to do a cash-out depending on where a borrower lives because of the appraisal process. And since the Great Recession, those borrowers that used to tap into their home equity have been going somewhere else.
One thing they noticed was that the credit and financial profiles of their borrowers were nearly identical whether they took a home loan or a personal loan, meaning that it’s all the same borrower base.
Both borrowers had a 724 FICO on average.
Home loan borrowers had an average age of 49 versus an age of 51 for personal loan borrowers.
Home loan borrowers had an average income of $82,500 versus an average income of $82,300 for personal loan borrowers.
Home loan borrowers had an average 100% home ownership rate versus a 94% home ownership rate for personal loan borrowers. But here’s where it gets different. The average home loan amount is $274,000 while personal loan sizes average only $16,076. The average coupon percentage is 3.88% for home loans versus 13.87% for personal loans.
The motivations for borrowing are also similar. 92% of personal loan borrowers claim to be using the funds either for debt consolidation or home improvement. So until home equity returns as a major source of consumer cash, which Hsieh believes it will, consumers will continue to seek all types of alternatives.
One way they’ve been able to measure that demand is from the sheer volume of leads they acquire, in the range of 600,000 leads every month, a level that has surprised even Hsieh. Not that they don’t work to generate those prospects considering they spend more than $150 million a month in marketing.
Conversions, he noted however, have been quite low for many lenders because so many are monoline. But even so, “today’s cycle is fundamentally different from the previous 4 cycles,” Hsieh agued, citing that people working in the industry this time around are genuinely smarter. And despite the fact that loanDepot operates in the era of the CFPB, a judge, jury and executioner-style government agency, Hsieh remains optimistic. “I respect the CFPB,” he said. “I think they’re a great agency.”
All data and quotes were sourced from Anthony Hsieh’s presentation at the Marketplace Lending & Investing Conference in New York City on September 27th. deBanked did not interview him personally.
It turns out those who rent might be smarter, after all. Applications for refinancing mortgages and new home purchases fell 4 percent from the previous week, according to Mortgage Bankers Association.
As home prices rise and the anticipation around Fed raising rates builds, it will only lead to loans getting more expensive. As such, refinance applications decreased 4 percent, seasonally adjusted, and purchase applications decreased 5 percent and applications for government loans fell 6 percent. The average loan size on refinances also dropped for three straight weeks.
“House prices have breached the peak levels of 2006, raising concerns about the long-term sustainability of current price levels,” Sean Becketti, chief economist at Freddie Mac, wrote in a report on the housing market.
This doesn’t bode well for lenders like SoFi which is trying to make a big headway into mortgage refinancing. “While we launched our mortgage business focused on larger ‘jumbo’ loans, the certainty and efficiency offered by Fannie Mae will enable us to serve more members by expanding geographically and into smaller loan amounts,” Michael Tannenbaum, VP of Mortgage at SoFi said when the lender became a Fannie Mae seller.
“As Canadians stayed home longer, adoption of fintech products has accelerated dramatically,” the report says, accelerating trends that had already been developing for years. The data is based on survey results submitted by nearly 2,600 fintech lending customers.
While there are dozens of important takeaways, respondents indirectly signaled how valuable it is to be among the brands that are found first by borrowers.
That’s because loan applicants said that they researched fewer lenders than ever before (35% only researched 1 or 2 lenders before applying) and they spent less time researching lenders than ever before (31% said they spent less than 1 hour researching). Furthermore, 51% of respondents said that they only applied with a single provider.
This approach worked. Of those that got approved, 89% of respondents said that they were satisfied or very satisfied with their loan provider.
The trend should signal to lenders that borrowers may simply come to expect a satisfactory experience regardless of where they apply and that there is tremendous value in simply being the first 1-2 lenders that a prospective borrower considers.
And hint hint, it pays to be easily discoverable online. Fifty eight percent of respondents said they discovered their loan provider through online search.
This week the Canadian government announced its coronavirus economic relief plans. Among them are two initiatives that aim to assist small businesses: the Canada Emergency Response Benefit (CERB) and Canada Emergency Business Account (CEBA).
The first of these is a wage subsidy that will cover up to 75% of a company’s payroll. The hope being that this will postpone the overcrowding and clogging of the Canadian unemployment benefits system, known as employment insurance. However this program appears to appeal to only certain types of businesses. With subcontractors not qualifying as part of payroll, there is the fear that CERB could leave many small businesses and startups that rely on freelancers unprotected. As well as this, there is a requirement that the company’s most recent month of revenue be at least 30% less than what it was at the same time the previous year. This specification again acting as an obstacle to startups and high growth businesses.
The second is a loan program that is capped at CAN$40,000 with 0% interest for the first two and a half years, and then 5% annual interest beginning January 1, 2023. There will be an opportunity for the remainder of the loan to be forgiven if the business has repaid 75% by December 31, 2022.
According to Smarter Loans’ Vlad Sherbatov, the situation in Canada mirrors what is happening in the US with regards to PPP. “There are very little details available about how people are going to apply to get the funds,” the President and Co-Founder explained. “Nobody knows what’s actually happening and nobody knows when business owners can actually anticipate to receive any funding.”
Expressing frustration that the Canadian government chose to ignore non-bank lenders in favor of allowing Canadian banks like BMO, RBC, and TD to distribute the funds, Sherbatov noted that it is the lenders who have the technology and processes to speedily disperse capital. “We did a survey that said almost 50% of business owners said they would shut down in less that four weeks without additional help … so it’s not that it’s just fine that there is help available, it’s how fast can [business owners] get the help, because every day that goes by makes the situation worse.”
Speaking to Kevin Clark, President of Lendified, he echoed Sherbatov’s concern.
“It’s all good that the government is making these decisions, but the capital has to move and the programs have to be in effect. So announcing these things is one thing, actually practicing them and executing them is another. There’s a time lag that could potentially put companies out of business and so, for us, it’s about trying to connect with a lot of these borrowers to say, ‘What can we do to help you with payments?’ But at the same time, we don’t want deferments for a long period of time because then our revenue base is challenged. So the fintech lenders all have significant challenges at hand, because defaults that move from within the normal course of between 5 and 10%, say now to between 15 and 25%, or even higher, are significant challenges for the operations of our business.”
Also a member of the Canadian Lenders Association, Clark is involved in the CLA covid-19 working group that was launched in March. Formed with the intention to assist the government’s approach to capital distribution, Clark was disappointed with the government’s decision to exclude non-bank lenders after the group reached out to both the Ministry of Finance and the Business Development Corporation of Canada. And with no government funding operation to assist, Clark, like many lenders in Canada, is turning toward his existing customers, hoping to keep their heads above water.
“What we’re all doing independently is trying to work with our customers to give them guidance on what is going on in Ottawa. And so most of us have made website adjustments to give some education to interested parties on what’s available in terms of subsidy. We’re trying to provide support to our customers through deferments and so forth, just as every lending institution is doing these days. It’s just that I think it’s harder for us and smaller firms that don’t have the margin and the wherewithal to withstand any sort of significant timeline in this situation. So it’s a little bit of week by week for us, trying to manage our own costs and so forth and keep our customer bases as happy and healthy as we can.”
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