Articles by deBanked Staff
Prosper Files 10Q, Revenues and Originations Shrink
November 17, 2016
The slight delay with Prosper’s 10-Q filing is over. The company originated $311.8 million in loans in Q3 versus $445 million in the previous quarter. Revenues were $24 million, down from $28 million in Q2.
The filing delay was said to have been attributed to a recent arbitration decision. That decision and financial impact were disclosed in their report. “On November 17, 2016, Prosper and Colchis [one of their earlier loan buyers] entered into a Settlement and Release Agreement, pursuant to which Colchis has agreed to terminate the Colchis Agreement and waive all rights conferred under such agreement in exchange for a $9 million cash payment by Prosper and equity. Prosper expects to make the $9 million cash payment in the fourth quarter of 2016.”
$9 million is a lot for Prosper who reported only $31.8 million in cash on their balance sheet.
The company has run up a $70 million loss on just $108 million in revenues so far this year, compared to a $17 million loss on $140 million in revenues for the first 9 months of 2015.
Revenues in Q3 year-over-year are down by nearly 60% while originations are down by more than 70%.
Earlier this week, Prosper’s CEO, Aaron Vermut, and executive chairman, Stephan Vermut, both stepped down from their posts.
Brief: LiftForward Secures Up to $100 Million Credit Facility from Monroe Capital
November 17, 2016Chicago-based investment firm Monroe Capital arranged a credit facility of up to $100 million for New York City-based small business lender LiftForward.
LiftForward provides small business loans up to $1 million using automated underwriting. The company also sells “hardware-as-a-service” like Microsoft Surface to manufacturers, distributors and retailers, and supports the financing of these transactions.
Monroe Capital makes debt and equity investments in middle-market companies in healthcare, technology, media, specialty finance across the U.S. and Canada.
The Infant Startup that Swooped an Erstwhile Industry Leader
November 16, 2016It’s not very often that an infant upstart comes by and swoops up an erstwhile industry leader.
While new to the scene, Versara Lending is a New York City-based debt consolidation lender that has already acquired Peerform, one of the early P2P lending marketplaces run by Wall Street credit broker Mikael Rapaport. The company confirmed that it is not an acqui-hire and that Peerform’s entire operation will be merged and be operated by Versara. Rapaport also changed his LinkedIn profile to reflect another new position – SVP of lending markets at Strategic Financial Solutions, a NYC-based financial consultancy firm, which appears to be related to Versara.
Versara only lends in seven states including Arizona, Florida, Georgia, Missouri, North Carolina, New Mexico, and Utah. In contrast, Peerform was founded six years ago, as Lendfolio by Rapaport and other Wall Street execs, Meytal Benichou and Elie Galam. The company raised $5.3 million in funding since inception and its proprietary Loan Analyzer tool matched borrowers with lenders on its platform who funded personal loans up to $25,000.
“We are committed to continue the growth we’ve experienced since we started the company in 2010,” said Rapaport, Founder and CEO of Peerform, in a statement. “In order to realize our potential, it was important for us to build a strong strategic partnership. By joining Versara, we will be able to combine our resources to scale quickly to compete effectively in the consumer lending industry.”
Once a posterboy for P2P lending, Peerform now is emblematic of the churn in the industry. At its launch, Peerform was ready to compete with Lending Club and Prosper head on, backed by institutional investors, thanks to the founders’ investment banking pedigree. The company’s platform started by offering personal loans to borrowers with a FICO score of above 660 for a three-year term. But after failing to gain critical mass, it reinvented its underwriting algorithm with its loan analyzer tool to lend to riskier borrowers (FICO scores <600).
“At this early stage it is difficult to tell whether Peerform will become a strong alternative to Lending Club and Prosper. But their timing is far better now,” Peter Renton wrote in a blogpost on LendAcademy in 2014.
Two years hence, Lending Club has taken several lumps, Prosper’s prospects are in question and in a David and Goliath-esque scenario, once touted to be an industry leader, Peerform hands off its reins to a startup.
UK’s P2P Pioneer Wants to Be a Bank. Who’s Next?
November 16, 2016
UK’s P2P pioneer Zopa is changing its stripes to turn into a bank.
The 11-year-old company, upbeat about the regulatory environment in the UK that is looking to bring innovation and entrepreneurship to banking, will apply for a license soon. “Zopa has a history of creating innovative retail-facing financial services, driving consumer choice and transparency. We are responding to the positive regulatory environment and building on our experience to bring yet more choice to the market,” said CEO Jaidev Janardhan in a press release.
The new Zopa Bank will be a retail bank and provide deposit and savings accounts, thereby giving the company a stable funding source for its P2P platform.
This trend has also picked up pace across the pond, at home. For online lenders like SoFi that are adding lending products faster than they can secure sources of capital, the prospect of becoming a bank may now be more tempting than disrupting them. Marketplace lending companies in the US including Avant, Prosper and Lending Club are struggling to retain and grow investors on their platforms.
While tightening credit and raising rates to prevent delinquencies is one way to keep investors, some companies like SoFi have also started hedge funds to buy up their own loans. The advent of online lending promised to offer alternatives to the already chunky, fragmented banking system which was further straitjacketed by regulation like the Dodd-Frank Act which mandated banks have stricter lending standards. However, the rapid proliferation of the industry has brought forth concerns like fast depleting capital and waning investor interest.
Will alternative lenders in the US also drink the kool-aid and become the entity they intended to overhaul?
Kabbage Appoints Payments Industry Veterans as CTO and Data Officer
November 14, 2016
Small business lending marketplace Kabbage appointed a new CTO and chief data officer last week.
The Atlanta-based company that uses technology and data to underwrite loans hired Amala Duggirala as the new CTO. Duggirala is a two decade industry veteran and prior to this, was the executive vice president of global software development and implementations services at ACI Worldwide. There, she was responsible for developing end-to-end payment technology between consumers and retailers and accountable for the architecture, development and delivery of nearly 30 payments products. At Kabbage, she will lead the automation of the Kabbage platform and developing new products for growth.
The company also appointed the former head of analytics and insights at eBay, Rama Rao as the chief data officer. Rao also brings 20 years of experience in analytics, risk and payments. Rao holds a Ph.D. from MIT and built the risk analytics team at PayPal to manage its global risk policies. At Kabbage, he will lead the strategy for data, decision science, analytics and risk.
“We’re thrilled to have Amala and Rama join Kabbage to help us achieve our mission of sitting at the center of small business existence, both directly and through our partnerships globally,” said Rob Frohwein, co-founder and CEO of Kabbage.
This Startup Wants to Bring Realtime Payments to Medical Claims
November 14, 2016New York City-based fintech startup Liquid FSI unveiled its first product, Convert2Pay, a platform for claiming medical bills.
Liquid FSI was founded in 2014 and after two years of development and testing, the company launched its first white label solution, Convert2Pay, a platform where healthcare professionals can verify and claim medical invoices and get paid in real time.
Founder and CEO Frank Capozza wants to tend to the alternative finance opportunity in healthcare. “The SMB financing industry is reaching maturity with high cost of customer acquisition, declining renewal rates, ISO channel conflict, and stiff competition from new market entries like PayPal, Square, and American Express,” Capozza said.
“Since our strategy is to integrate our ‘View, Verify, Convert’ technology into the healthcare practice and lab management ecosystem, it’s a win-win for lenders and borrowers,” Capozza said in a statement. The Company will offer the product as a ‘white label’ solution to an alternative lending company.
On the Road to Recovery? Lending Club Shrinks Quarterly Losses, Announces Major Loan Buyer
November 7, 2016
Is Lending Club on the path to recovery, yet?
The marketplace lending company’s Q3 loss of of $36.5 million paled in comparison to the $81.4 million loss in the previous quarter, but the improvement is not as significant as it looks. That’s because Q2’s extremely poor showing was largely a result of the $35.4 million goodwill write-down of Springstone Financial and one-time “unusual expenses” related to an internal investigation into the previous CEO’s scandalous exit.
The $36 million loss is a far cry from the profit they turned in Q3 of last year however, but that spread is also deceiving. That’s because $20 million of it can be attributed to still more one-time costs related to Laplanche’s departure and an additional $11 million is due to incentives paid out to money managers to buy their loans. They stopped paying out incentives at the end of August.
Operating revenue grew 10 percent QoQ from $102.4 million to $112.6 million, but shrank by 2 percent annually from $115.1 million.
The stock closed up 15% on the day, but it’s still down more than 60% from the IPO price. The day’s rally was bolstered in part by an announcement that a US subsidiary of National Bank of Canada, Credigy, agreed to buy up to $1.3 billion worth of loans through the Lending Club platform over the next twelve months.
Loan originations grew marginally – $1.97 billion, up 1 percent from $1.96 billion in Q2, down 12 percent compared to $2.24 billion last year.
“I am very pleased with our performance in the third quarter. We actively reengaged with investors of all types to deliver on our plan and enable $2 billion in loan originations,” said Lending Club’s President and CEO, Scott Sanborn in a statement. “While we’ve made incredible progress, there is still work to be done. In the months ahead we are focused on increasing the diversity and resiliency of our funding mix, realigning our resources, and regaining our operating rhythm.”
At the Money 20/20 event last month, Sanborn announced that the company will foray into the $40 billion auto refinance market and said that he remains bullish about the company’s future in this new venture. The marketplace lender is offering loans in the range of $5,000 – $50,000 with APRs ranging from 2.49 percent to 19.99 percent for terms up to 72 months.
The third quarter has been an eventful one for the company which saw some management shuffle too. CFO Carrie Dolan was replaced by Thomas Casey, former CFO at the medical device company, Acelity. And, citing high delinquencies, the company also raised interest rates by a weighted average of 26 basis points, with high a concentration on F and G grade loans, in October.
One major cause for concern, however, remains to be the thinning retail investor base. While the company expanded its investor base to 142,000 active individual investors, investment was down to $273 million in the third quarter, from $327 million in Q2.
As OnDeck’s Stock Hits Record Low, Is There a Renewed Confidence in the Broker Channel?
November 6, 2016
OnDeck traded below $4 on Friday, a new all-time low that came in the wake of the company’s earnings announcement just the day before. Apparently, the company’s record-breaking $613 million in quarterly originations was not the assurance that investors were looking for.
Their report showed that more of the company’s loans are staying on their balance sheet and notably, there’s been an increase in the percentage of loans sourced from brokers. 27% of the dollars originated in Q3 came from brokers versus only 24.5% during the same period last year. Meanwhile, the raw number of loans originated by brokers is up from 18.6% to 20.2% in Q3 year-over-year. These are still substantially lower than previous years. For instance, brokers originated 41.4% of dollars in 2014, 56.54% in 2013 and 75.1% in 2012.
OnDeck refers to brokers as “funding advisors” in their reports, with company CEO Noah Breslow noting that this channel has grown 40% year-over-year, almost twice as fast as their direct and strategic channels. Analysts took note and Brian Fitzgerald from Jefferies asked why this was occurring on the morning call. Breslow responded by saying that it wasn’t due to any intentional reallocation of resources among the channels.
“So at any given quarter you may see a push/pull on the relative growth rates of the channel but I would say that we’re not sort of allocating resources or dollars between channels and the channels really are competing for resources internally. So I think the dynamic in funding advisors frankly, is a positive. We took that channel down last year, we did a pretty aggressive recertification. So we’re working with a lot fewer partners than we did a while back and on the flip side, those partners are higher quality and we’re seeing better originations now from them; and we’ve really optimized our conversion rates with a number of those partners. So we feel we feel pretty good about that.”
Also discussed on the call was OnDeck’s partnership with Barbara Corcoran, in which it was said that the company is sending out direct mail using her name and likeness to promote the company. Her TV commercials have already been making the rounds.
And just as signing on Shark Tank stars as partners probably doesn’t come cheap, Breslow suggested that the industry competition had really been narrowed down to the players who had already made hundreds of millions of dollars in loans.
“I think it’s fair to say that the very early stage start-ups or the subscale players are increasingly having a little bit more trouble competing, so we are seeing the preponderance of some of the marketing activity coming from folks who are a little bit larger in scale. And my sense is that continues and that’s going to consistent with the overall trends that people have seen. So the folks who are buying marketing at this point are folks who have loaned hundreds of millions of dollars as opposed to tens of millions of dollars, and I think the VC environment for these types of companies remains pretty challenging.”
