Articles by Christopher Calnan

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Startups, Big Financial Institutions Play Nice in the Sandbox

December 20, 2017
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This story appeared in deBanked’s Nov/Dec 2017 magazine issue. To receive copies in print, SUBSCRIBE FREE

Data is the lifeblood of financial technology and more established companies frequently supply data to fintech startups for free as part of their growth model.

A Boston business incubator is basing its operations on that dynamic.

FinTech Sandbox, a non-profit group, launched two years ago and now claims more than 30 data sources that it calls partners for the startups going through its six-month program that benefits both data providers and users.

Testing new technology under a load of data is an important factor facing fintech startups so there’s a tradeoff: established financial services companies are providing data in exchange for a glimpse of the latest tech tools being developed.

FinTech Sandbox participants get to test drive their technology with large amounts of free financial data, which can be crucial step before taking on customers real time, Executive Director Jean Donnelly told deBanked.

“In order to be taken seriously, you have to test. That’s why we came about,” she said. “It’s for beta testing, to get feedback.”

Without partnerships, startups would need to buy data or scrape it from the Internet. However, providers generally don’t want to deal with the small amounts startups need versus larger paying customers. As a result, programs such as FinTech Sandbox’s can play an important role in the fintech ecosystem.

To date, four FinTech Sandbox portfolio companies have been acquired by larger companies. Most recently, machine learning company DataRobot Inc. bought software maker Nutonian in May.

Data sources for FinTech Sandbox’s startups include Fidelity Investments, F-Prime Capital, Thomson Reuters and Silicon Valley Bank.

Several banking and financial services companies operate accelerator programs and gain access to the latest technology by doing so. They include Deutsche Bank Innovation Labs, Barclays Accelerator and the Wells Fargo Startup Accelerator.

Earlier this year, Pricewaterhouse Coopers reported that the demand for data analytics is fueling the trend of traditional financial institutions folding fintech startups—and the tools they develop—into their companies.

“FinTech companies create an ecosystem that fosters the collection of vast amounts of data and builds trusted relationships with clientele. Financial institutions have realized the importance of these ecosystems and are attempting to engage with and bring innovation inside their companies. Partnering with FinTech companies is up from 32 percent in 2016 to 45 percent this year on average, but large discrepancies by country do exist.”

Ninety-eight startups have participated in FinTech Sandbox’s six-month program. They’ve raised a combined $380 million in funding, Donnelly said.

Artificial intelligence may be the hottest trend in the technology industry. But tech tools related to environmental, social and governance, also called ESG or socially conscious business models, are fueling the strongest growth trend with fintech entrepreneurs, she said.

One such startup, California-based Data Simply Inc., went through the FinTech Sandbox program in fall 2015 and now provides data to sustainability-focused companies.

The financial technology sector has changed over time to become one in which legacy and startups regularly team up, Data Simply CEO Michelle Bonat told deBanked.

“It used to be more of a competitive environment, but it’s now more collaborative,” she said. “Each realizes they can gain more from the other.”

FinTech Sandbox also collaborates with 11 accelerator programs such as Techstars, Startup Bootcamp and FinTex Chicago. Partnering with larger fintech companies turbo charges the growth of a business, Bonat said.

“It started so many useful discussions and it happened so much faster than it would have happened otherwise,” she said. “It’s all about an ecosystem and accelerating that in different ways.”

In July, Boston-based investment analytics startup FinMason Inc. disclosed that it was making its enterprise software available to FinTechSandbox participants.

The software is a suite of investment analytics with access to more than 700 analytical data types, including risk and performance metrics, aggregate factor exposures, scenario analyses and stress testing.

CEO Kendrick Wakeman told deBanked FinMason is partnering with the accelerator’s portfolio companies with a plan that such startups are prospective customers in the future.

Startup partnerships are more common in the financial services industry because an aversion to risk has slowed the adoption of innovation. Now, the industry is playing catch up and working with startups and young entrepreneurs is one way to close the innovation gap faster than developing products in house, Wakeman said.

“Institutions know they have to innovate. Consumers demand it and regulators demand it,” he said. “They have a long ways to go.”

Banks Set Sights on Small Business Loans Under $100,000

December 13, 2017
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BOSTON – One of the oldest lenders in the nation had a hand in developing technology intended to enable banks to win back the small business loan market from alternative lenders.

Eastern Bank
Photo credit: Mike Mozart, JeepersMedia

A tech incubator at Boston-based Eastern Bank, founded in 1818, has spun off Numerated Growth Technologies Inc., a startup that developed an online platform designed to identify and contact small businesses eligible for loans of up to $100,000.

Numerated Growth, which was founded in March, developed its tech in Eastern Labs and has generated about $100 million of volume since 2015. The model, which features real-time approval, is based on the tact banks first took with pre-approved credit cards in the 1990s, Numerated CEO Dan O’Malley told deBanked.

“We’re just taking the same rules and applying them here,” he said. “And by the way, that’s what customers want.”

Numerated Growth, which employs 26 workers, came out of stealth mode in May with a $9 million seed funding.

Dan O'Malley
Dan O’Malley, CEO, Numerated Growth Technologies

O’Malley, Eastern Bank’s former chief digital officer, said Numerated is now selling the platform to other banks but declined to disclose the specific number. The cost per bank depends on the number of loans being processed, he said.

The average business loan is $40,000 and they can be approved and funded within five minutes of the business completing the online agreement.

Numerated Growth’s real-time platform could be considered loan origination software on steroids. But such software essentially enables a bank to enter an applicant’s information into a digitized system to assist in the approval process. Alternative lending startups have been improving on that model for several years. Competitors in that space include nCino Inc., Decision Lender (Teledata Communications), PerfectLO and defi solutions, LoanCirrus.


But loan origination software is very crowded and startups are constantly launching to reduce the time it takes to approve a loan without increasing the number of defaults.

Aite Group“Banks need to do things that are counter to each other,” David O’Connell, a senior analyst for the Boston-based Aite Group LLC, told deBanked. “There’s a need to do a fast money transaction, but doing it diligently without making any bad loans.”

Combining the marketing and approval process is a credible approach because it keeps them on the same page in terms of targeting the most likely prospects. As a result, the number of “false positives” is lower, O’Connell said.

Instead of developing their own small business loan platforms, some banks are referring borderline borrowers to alternative lenders. But that can cause problems for the bank if the customer service doesn’t measure up to the bank’s standards and customers associate shoddy service with the entity that referred them, O’Connell said.

The best option is to develop in house. “Banks need to go as deep into the alternative lending market as they can with their own infrastructure and brand,” he said.

Because of its low value compared with other types of bank business, small business loan origination is one of the last remaining areas of banking to be targeted with innovation. “There’s not a huge price point,” said Kevin Tweddle, executive vice president for innovation and technology at the Independent Community Bankers of America.

Loan origination startups are trying to make such deals worth the bother. Yet the best tools tend to be developed by banking industry people because they understand the regulatory restrictions and integration factors, he said.

The goal of loan tech tools is two-pronged: make the approval process more efficient and make it convenient for borrowers. And so far, no software developer has risen above all the others to capture majority market share, Tweddle told deBanked.

“It’s just too early; there’s too many of them still coming out,” he said. “We’re in the early innings of a nine-inning game.”

Market metrics

Banks can’t afford to ignore the demand for alternative lending tools.

In May, the University of Chicago’s Polsky Center for Entrepreneurship and Innovation reported that the alternative finance market slowed but continued to grow during 2016 in the United States, Canada, Latin America and the Caribbean. The market’s value reached $35.2 billion — a 23 percent increase compared with 2015.

More than 200,000 businesses used online alternative funding sources during 2016. In the United States, marketplace and peer-to-peer consumer lending accounted for the largest share of market volume with $21 billion in the U.S. last year, a 17 percent increase. Balance sheet business lending was the second-largest model in the U.S. with $6 billion originated, the report found.

In Latin America and the Caribbean, marketplace and peer-to-peer business lending was the largest alternative finance segment with $188.5 million last year, a 239 percent rise versus 2015.

The same principles fueling the car-sharing business are being applied to peer-to-peer lending. As a result, adoption is growing as people view the credibility of peer lenders on an equal level of traditional experts, said David Wong, senior director of the innovation and acceleration lab at the Chicago-based CME Group Inc.

“Whether P2P markets reach or exceed the size of the incumbent market platforms (ala Uber and Airbnb), or not, they are driving rapid innovation and new dimensions of competition across industries,” he said.

Early adoption


Industry observers agree that small business loans haven’t seen enough innovation from the banking industry because of its size compared with commercial lending and real estate deals. As a result, it has a long way to go to shorten the time it takes for approvals and improving the customer experience, O’Connell said.

“Banks that fail to embrace automation for their commercial lending lines of business will lose the valuable relationships, loan outstandings, and fee-based income abundant in the commercial and industrial market,” he said.

bank signAfter the 2009 global financial crisis, bank regulations tightened and data sets were required to be available and analytics-ready, providing another compelling need for commercial loan origination systems, O’Connell said.

No dominant players have emerged because neither traditional banks nor alternative lenders have figured out the best approach that satisfies both the lender and the customer, O’Connell said.

“Businesses don’t want money right away but they do want a quick and easy process,” he said. “My data tells me that in addition to providing underwhelming turnaround time, no particular lender has an edge over another. Nobody has it right.”

At Numerated Growth, O’Malley said the “initial wake-up call” signaling that a change was needed came in 2013 when Eastern Bank noticed solid small business customers paying off loans from alternative lenders such as On Deck Capital Inc. and LendingClub Corp. The pattern suggested that there was an unmet customer need.

Numerated Growth’s platform is designed to enable banks to proactively aggregate the data they need to identify prospective borrowers instead of requiring business owners to collect the data and present it to banks, O’Malley said.

“We’re making the banks do the work,” he said. “The same process that transformed the credit card industry will transform the financial products industry.”

Closing Loans and MCAs — From the Bedroom to the Office

December 8, 2017
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working in bedThe merchant cash advance industry has gone mainstream so quickly that it has become more difficult to identify potential customers.

Market saturation and industry consolidation have caused the cost of sales leads to increase sharply. Yet a New York business loan broker is finding success by applying lead generation and online marketing strategies to merchant cash advance, or MCA, while expanding the number of services he offers prospects. Funding is just the foot in the door.

Philip Smith, founder and CEO of PJP Marketing Inc., told deBanked the MCA industry’s acceptance has made it more difficult for sales lead generators to produce profits. But expanding the number of services that independent sales organizations (ISOs) offer can offset the contraction. Smith’s life as a stay-at-home-dad, was recently featured in Innovate Long Island, a regional newspaper.

An ISO can’t just be a broker anymore. It needs to change, identify new revenue streams to excel. In doing so, a lead generator transforms itself into a business consultant that prospective customers turn to for additional services they often didn’t even know existed, Smith said.


For example, business loans and MCA is Smith’s largest business generator. But his most popular add-on services with such sales leads are credit repair and credit monitoring.

“The market is relatively easy,” Smith said. “The hard part is monetizing. The ISOs are going out of business because they refuse to monetize the other, non-cash advance leads.”

Smith, armed with a degree in business/e-business from the University of Phoenix, is also an advocate for entrepreneurs who want to work from home. It’s a viable model for lead generators because low overhead costs provide entrepreneurs an opportunity to capitalize on aggressive business strategies.

As such, Smith markets his pajama-centric business model with But he acknowledges that working from home presents its own challenges. Entrepreneurs need to be extra focused and tough to distract. No watching Dr. Phil during work hours.

Since they don’t work with more experienced managers, work-from-home entrepreneurs also need to seek their own sources of business advice and strategies. They deal with the reality that some lenders may deem them too small to do business. “Not everyone will work with you,” he said.


Working from home also requires a entrepreneur to set office hour limits and parameters to prevent burnout, Smith said.

“Do you know when to turn it off?” he asked. “That’s my problem. I’m up until 1 o’clock in the morning because I can.”

Smith now brokers sales leads in several verticals such as credit repair, tax relief, mortgage and solar energy. He claims revenue of $1.6 million last year and plans to reach $2 million this year.

When he was just 23, Smith launched his first company, We Link You Internet Services, a business that evolved into a web hosting concern.

He later worked for New York-based Canrock Ventures to launch a search-engine optimization platform called SEOPledge that was acquired in 2013. The following year, he founded what is now called PJP Marketing to broker leads amid the rapidly rising MCA space using the digital marketing skills he’d learned from the previous positions.

In October, deBanked reported that several factors have contributed to several changes in the MCA industry, including consolidation, making it more difficult for alternative-funding business lead generators.

ISOs and brokers have gotten pickier about the types of leads they’ll accept as MCA evolves from a niche business to one that’s more commonplace. Also, a stricter application of the Telephone Consumer Protection Act (TCPA) has chilled soliciting and hamstrung the ability to connect with business owners who are prospective clients.

Last year’s LendingClub Corp. scandal ousted several senior managers, including the company’s then-CEO. Last summer, Bizfi laid off workers and sold the servicing rights to its $250 million loan portfolio to rival Credibly.

The result has been a consolidation of the alternative funding business.

“There are still roughly 75,000 business owners every week who meet the criteria for an [MCA],” California-based Lenders Marketing partner Justin Benton told deBanked. “Now instead of there being 5,000 options in the space, there are 2,000, so those 2,000 are gobbling it all up.”

Sales FloorDavid Ross, a 12-year veteran of the MCA industry and owner of Pro Leads NYC, said MCAs higher profile has been a game changer for lead generators.

“MCA is beyond saturation,” he said. “All of the merchants know about it and understand it. Now, [funders] want exclusive leads.”


Working from home is a possible option for ISOs that are wizards at online marketing. But it’s less attractive for the conventional lead generator who relies on backing from a marketing team, Ross said.

“Realistically, if you’re a broker and want to make money you have to be on someone’s floor,” he said. “You need marketing.”

Last year, a Bryant Park Capital report estimated the MCA market to be worth about $12.8 billion. It’s projected to top $15 billion this year. Smith expects the continued strong demand for MCAs regardless of all the industry consolidation and costlier lead generation.

“I think they will always be fine because they can live through the storm,” he said. “It’s now a mainstream service so more people know about it.”

Smith told Donna Drake during an appearance on the Live It Up television program that going it alone as entrepreneur takes a “do-not-quit attitude” that has served him well so far.

“Any business is pretty much a numbers game,” he said. “I live and breathe it every single day.”

Former MCA Co-founder Meir Hurwitz Kicks Off New Venture With Kim Kardashian West

November 9, 2017
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An early innovator of the merchant cash advance industry has re-emerged on the business scene in a very different new venture focused on mobile shopping.

Meir Hurwitz, co-founder of Pearl Capital, the MCA company acquired in 2015 by Capital Z Partners Management LLC for as much as an estimated $60 million, is now the chief visionary officer of ScreenShop. The New York startup markets an app designed to enable users to shop for a specific item by uploading a screenshot of the item to the app.

Working on a mobile app is a longer shot than MCA and it doesn’t always pay off, but Hurwitz said Thursday he’s enjoyed learning the business after two years off and visiting 62 countries since selling Pearl Capital.

“It’s new and exciting for me, but I don’t get paid right away,” he said. “It’s something I haven’t done before — it’s kind of exciting for me.”

The app is the first developed by New York-based Craze Ltd. and publicly launched on Nov. 7 with celebrity Kim Kardashian West cited as an advisor. Craze employs 12 technical workers in Israel and five in New York, Hurwitz said.

Hurwitz started in MCA in 2006 and then launched Pearl Capital with partner Abe Zeines in 2010.

Abe Zeines and Meir Hurwitz

Pearl launched with $1 million and generated an $8 million profit in 2012. The following year, the company doubled its profit and reached origination volume of $100 million, Bloomberg reported in 2015. Hurwitz’s ScreenShop profile indicates that he’s a “three-time successful entrepreneur” and cites “over $500 million in funding capital.”

In addition to a real estate business in Puerto Rico, Hurwitz said he’s managing partner of New York-based GS Capital, a convertible debt company lending to small businesses. Zeines lists himself as the CIO of GS Capital, according to his online profile.

At ScreenShop, Molly Hurwitz (Meir’s sister) is listed as the co-creator and co-founder. CEO Mark Fishman was previously a risk manager for Pearl Capital.

The startup’s app, which is free, scans screenshots taken from any app or website on a mobile phone, converting them to similar items that can be bought for various prices. It plans to generate revenue by collecting a commission at the point of sale, Forbes reported.

“The results have been — we’re No. 5 on the app store category of fashion,” Meir Hurwitz said. “We’re just getting started.”

Watch Molly Hurwitz discuss the app on CNBC below