Articles by deBanked Staff
When the Bank Gets Hacked
July 1, 2024Before you point your finger at someone for backdooring your deals, consider another possibility, that some technology in the deal flow chain could be compromised, whether it’s yours, theirs, or some backend that nobody suspects could be hacked. One such modern example is Evolve Bank and Trust, which had 33 terabytes of data stolen and then leaked on the internet.
Evolve is big in the fintech world to the point where Fintech reporter Jason Mikula determined that customers at more than a dozen onboarded fintechs also had their info stolen, including at Yotta, Copper, Yieldstreet, Juno, Dave, BrightSide, SoLo Funds, ChangEd, Mercury, MainVest, Fund That Flip, Nomad, Bitfinex, Rho, and more. Other firms like Mercury, Bilt, Affirm, and Wise notified its users that their info may have also been breached in connection with the hack.
Via Mikula’s Fintech Business Weekly:
“Info security professionals who have accessed and begun examining the data in order to take necessary steps to mitigate risk have suggested that Evolve’s Azure tenant was compromised, allowing the hackers to make copies of most or all of the bank’s virtual machines, including those running its website, SFTP, SQL server, as well as information from its core banking system, which is said to be Jack Henry’s jXchange — which potentially could include Evolve’s credentials for accessing Federal Reserve systems.”
Evolve was hit with an enforcement action by the Federal Reserve last month, before revealing that it had been hacked.
“This was a ransomware attack by the criminal organization, LockBit,” Evolve said in a statement on its website. “They appear to have gained access to our systems when an employee inadvertently clicked on a malicious internet link. There is no evidence that the criminals accessed any customer funds, but it appears they did access and download customer information from our databases and a file share during periods in February and May.”
Evolve has 26 offices across 10 states, though its full service brick and mortar branches are only located in Arkansas and Tennessee.
Underwriters and brokers should be extra vigilant in verifying that apps and bank statements, particularly those that are customers of Evolve, originated from the applicant and through the means that they remembered.
Company Acquiring Funding Circle USA Had Previously Acquired Knight Capital and Assets of Fountainhead
June 24, 2024
iBusiness Funding, LLC, which is acquiring Funding Circle’s US arm, is no stranger to the small business finance industry. That’s because the company not only acquired select assets of Fountainhead SBF LLC last year, but its parent company, Ready Capital, had also acquired Knight Capital in 2019.
Ready Capital, a non-bank SBA lender, had also been one of the largest PPP lenders in the country during the pandemic. The designation of being an SBA lender is a highlight in the acquisition of Funding Circle because it means it does not need Funding Circle’s SBLC license to do SBA loans. Funding Circle had faced hostility by members of congress earlier this year for exploring a sale of its business only after it had lobbied for and finally secured an SBLC license. Now the matter is moot.
“As the Ready Capital group already holds an SBLC license, Funding Circle has, with SBA consent, surrendered its SBLC license,” the announcement by Funding Circle said. “The transaction is expected to close by the end of June.”
It was a share purchase agreement for a total cash consideration of £33 million ($42 million) which includes all of the company’s loan portfolios.
Funding Circle CEO Lisa Jacobs said, “We are pleased to have reached an agreement with iBusiness Funding, one of the leading processors of loans to US small businesses. In iBusiness, we have found a partner that shares in our mission, and we look forward to seeing the success of the combined entity.”
Ready Capital CEO Thomas Capasse said, “We’re excited to acquire FC USA and expect the acquisition to yield meaningful revenue and earnings to the combined company in the years to come.”
Founder and CEO of iBusiness Funding LLC Justin Levy said, “We are thrilled to welcome the exceptional FC USA team to the iBusiness family. FC USA’s mission to be the largest SBA lender for loans under $500,000 aligns with our goal to support underserved borrowers, the only difference is iBusiness achieves this goal through many SBA-approved lenders in our network.”
Fintech Nexus Files for Chapter 7
June 23, 2024
As mentioned on the Fintech Nexus blog last week, the former conference company turned fintech digital media operator is shutting down. On Friday, Lendit Conference LLC DBA Lendit DBA Lendit Fintech DBA Fintech Nexus, filed for Chapter 7 bankruptcy.
Fintech Nexus ran conferences from 2013 – 2023, originally under the name LendIt. It exited the conference business last year as part of a deal with Fintech Meetup. It then focused primarily on online news.
“The website will also remain online for at least the next few months, subject to the judgment of the Chapter 7 Bankruptcy Trustee,” the company said.
SBA Direct Lending Plan Not Likely to Happen
June 19, 2024A proposal to allow the SBA to get into the direct lending business appears to have been taken off the table. Originally, the president’s FY 2025 budget plan called for the SBA to get into direct lending “to address gaps in access to small dollar lending.” However, in the budget introduced by The House Committee on Appropriations this week, the Committee added a provision that would prohibit the SBA from “creating, implementing, administering, expanding, or enforcing a direct lending program that was not already in effect on January 1, 2024.” The Committee is chaired by Republican Tom Cole.
Payoneer Funds $80M in MCAs in Q1
June 17, 2024
Payoneer, the digital payments provider that also offers working capital on e-commerce platforms like Walmart Marketplace, originated $80M in merchant cash advances in Q1, according to the company’s recent quarterly earnings report. While the company did not draw attention to this stat, it appears in its Statement of Cash Flows. Payoneer originated $299M in funding to merchants throughout all of 2023, which would put the company below Funding Circle in terms of annual funding volume.
When it comes to Walmart, Payoneer offers up to 140% of a marketplace merchant’s average monthly Walmart volume and factor rates that range from 1.015 to 1.10.
“Payoneer will collect a pre-determined portion of each Walmart payout you receive via ACH bank debit from your bank account,” the website states. “Debits typically take place within 1 business day of each payment received from Walmart.”
The program is not new. The two first announced this relationship in December 2021. At the time, a senior director at Walmart said “Affordable working capital is more important than ever to help our sellers grow their business.”
Looking at PayPal’s Business Funding Charge-Offs
June 10, 2024
When PayPal announced a sudden and dramatic pullback on its MCA and business loan operations in the third quarter of 2023, it was surprising news. For instance, the company’s net charge-off rate had been trending downward for years, coming in 7.4% at year-end 2019 right before covid and going down to 4.7% in 2021 and down to 4.5% in 2022. By June 2023, however, that number had somehow soared to 13.3% and by September was 20.4%. At the time, PayPal attributed this shift to “the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding.” Because of how they calculate charge-offs, reducing originations at the same time that charge-offs were peaking made that number look a bit worse than it was. But still…
Although many funding and lending companies have complained of an increase in fraudulent applications in the immediate post-covid era, PayPal’s figures can hardly be attributed to fraud. That’s because their charge-off rate doesn’t even include losses from fraud.
PayPal’s products are very short-term so it was able to rapidly scale back its balance sheet exposure. Total merchant advances and loans outstanding, net of participation interest sold, decreased from $2.1B in Q1 2023 down to $1.2B in Q1 2024. Of the active loans, 88.7% were considered current in Q1 and 4.4% were greater than 90 days beyond their projected payment pace. With the exception of 2020 (when the % > 90 days past expected hit 12.5%), 4.4% is among the worst PayPal has experienced since 2017.
Lightspeed: ‘We plan to grow our MCA business cautiously’
June 6, 2024
Global e-commerce platform Lightspeed continues to see a lot of potential in the merchant cash advance space. It more than doubled the cash expended to originate MCAs quarter-on-quarter to $18.5M up from $8.3M.
“I’ll start by saying that when we look at our peers that are doing capital and have been doing capital for a long time as a part of their business, they’re giving out about 1% of their GTV (Gross Transaction Value) in merchant cash advance,” said Lightspeed CFO Asha Bakshani in the Q4 2024 FY earnings call. “If we were to do 1% of our GTV, that’s almost $1 billion in merchant cash advance. So, definitely a ton of growth potential for this business.”
Bakshani continued by saying:
What we plan on doing is growing this business very cautiously given the macro. As we’ve said before, we are in the perfect position to underwrite our customers for capital, determine the creditworthiness of our customers and how much they should be underwritten for, and we’ve had great success with the business so far, but again, growing it in a very steady and cautious manner. We don’t expect that we would use our balance sheet for several hundred million of merchant cash advances underwritten.
We’re already in talks with partners. There are lots of interested parties because they recognize that Lightspeed is in a great spot to underwrite customers. So, we’re already in talks with partners today. We have at any given point in time, $50 million to $60 million outstanding from this merchant cash advance business, and that may go up to $100 million, but we’re not planning to leverage our balance sheet for much more than that.
Kris Roglieri To Stay in Prison Indefinitely After Shocking Development
June 3, 2024Add credible threats to murder an FBI agent to the list of scandalous accolades that Kris Roglieri has racked up in recent months. On Monday, prosecutors revealed the rationale behind the unusual demand to have him detained for what is seemingly a white collar crime, and that is that he has become dangerous. According to calls and emails Roglieri had with an unnamed friend, he said would “take out” a judge and a receiver, that he was going to “wack anybody” that went after him, and that he had determined the home address of one of the FBI agents investigating him and that he planned to put a bullet in their head.
“when someone takes everything away from you . . . if I go down, everyone goes down,” he said.
When the FBI became fully aware of the circumstances, he was arrested and taken into custody on May 31 on a single charge of wire fraud. It is likely that more charges will follow given that more than $100 million of the funds he took from customers remain unaccounted for. Nevertheless, prosecutors used the danger he posed to secure his temporary detainment without bail and on Monday he was ordered to remain in prison indefinitely while awaiting trial. He is being represented by a public defender.
Meanwhile, Roglieri’s company Prime Capital Ventures has been in receivership while he himself is in Chapter 7. In the latter case, he was recently ordered to turn over all his assets, including ownership of his businesses. One of those businesses, NACLB, announced prior to the order that it was rebranding to a different name, was still accepting payments from customers, and that it was exciting to still be moving forward.
