Articles by deBanked Staff
OnDeck Earnings: Originations Grow 27%, Continue to Predominantly Use Own Balance Sheet
November 3, 2016OnDeck recorded a GAAP net loss of $16.6 million for the quarter ending in September, down from a $3.7 million profit during the same period last year. The firm’s net revenue also plummeted 30 percent to $32.3 million, even though gross revenue was up 15 percent to $77.4 million. The shift is largely a consequence of moving away from gain-on-sale marketplace revenue to interest income. Only 16.6% of term loan originations in the third quarter were sold or designated as held-for-sale through their marketplace.
The company originated more loans this quarter compared to a year ago, with origination volumes rising 27 percent to a record of $613 million. Loans under management also increased 44 percent annually to $1.1 billion.
OnDeck grew its direct and strategic channels by 23 percent year-over-year. Its funding advisor channel grew 40 percent during the same period.
“During the quarter, we continued to diversify and expand our funding capacity, and we are actively engaged in the process of bringing new funding sources online,” said CFO Howard Katzenberg in a statement. “We remain confident in our unique model and track record of performance, which we believe positions us well for further growth, improved operating results and continued access to the capital markets.”
The company also recently lost one of its sales frontmen, senior vice president Zhengyuan Lu who joined Chicago-based alternative finance-focused investment firm, Victory Park Capital.
At Money 20/20 recently, OnDeck chief Noah Breslow said that the company will remain focused on small businesses as the customer and there are no plans to venture into mortgages or student loans like several of their counterparts in consumer lending.
Talking about the partnership with JPMorgan, Breslow said that the deal was still in the “initial rollout” phase, despite being announced almost a year ago.
Square Beats Revenue Estimates with $439 Million; Lending Business Grows 70%
November 2, 2016Square Inc’s stock jumped 7 percent on Wednesday, thanks to upbeat earnings reported Tuesday.
The Jack Dorsey-led company recorded a loss of $32 million for the third quarter, compared to $52 million in the comparable period last year, and beat analysts’ revenue estimates of $430 million, with a 32 percent jump in revenue totaling $439 million.
Square processed $13.2 billion worth of transactions through its point of sale devices, up 39 percent since last year and the company’s lending business, Square Capital grew 70 percent annually, extending $208 million through 35,000 loans. With this, it has originated over $1 billion in two years.
Square Capital loans are made by Celtic Bank and loan offers are presented using the Total Cost of Capital method, where cost is disclosed as a precise dollar amount so that potential borrowers will know exactly how much they will have to pay. By enforcing a fixed 18 month term, Square differentiates its loan product from a merchant cash advance or a purchase of future sales.
Square CFO Sarah Friar told CNBC that there is still a lot of room for growth in the Square ecosystem with existing merchants, even as the company extends credit to businesses that do not use Square for payments. Friar also said that the company is “executing on all cylinders” to beat estimates for revenue and growth.
Brief: Cross River Bank Raises $28 Million in Equity
November 1, 2016
New Jersey-based Cross River Bank, a marketplace lending partner bank, secured $28 million in equity, led by Boston-based investment firm Battery Ventures, along with Silicon Valley venture capital firms Andreessen Horowitz and Ribbit Capital.
The capital will be used to expand the bank’s technology and product-development teams, invest in compliance infrastructure and plan new business lines to the online lending industry. Battery General Partner Scott Tobin will also join the Cross River board of directors.
Cross River originated over $2.4 billion loans in 2015 and partners with over 15 online lenders including Affirm, Borrowers First, Marlette Funding, Rocket Loans and Upstart.
What Next? SoFi Wants to Sell Life Insurance
October 31, 2016After student loans, mortgages and parent loans, Sofi is making a new leap into life insurance.
The company is set to launch a life-insurance product in partnership with Protective Life Insurance Co, that was acquired by Japanese life insurance company Dai-ichi, last year. The Wall Street Journal reported that SoFi obtained licenses to operate as an insurance broker in states including Arkansas, California, Florida, Massachusetts, New York and South Dakota.
According to KPMG and CB Insights report ‘Pulse of Fintech 2016,’ the first two quarters of 2016 saw $1 billion in VC investment, making insurance “ripe for disruption.”
“Insurers across the world are struggling with a myriad of challenges: low levels of consumer trust, high competition, a low interest rate environment, shrinking profitability and legacy IT issues. Addressing these challenges and creating opportunity for growth can be difficult as any solutions, especially those involving technology, can be complicated, expensive and potentially high risk,” the report said.
Founded in 2011 by Mike Cagney and his fellow classmates at Stanford School of Business, SoFi started refinancing student loans with a pilot loan program of $2 million. Since then, the company has branched out into mortgages, personal loans, parent loans and wealth management services.
More Loans, More Fraud? Lenders Are the Victims
October 30, 2016
Funders and lenders might want to review a TransUnion study that revealed borrowers who take out a second loan within 15 days are four times more likely to be later identified as fraudsters. Taking out a third loan in that time period raises the likelihood to ten times.
Telis Demos of the WSJ reported on the subject in a brief titled, Borrower or Fraudster? Online Lenders Scramble to Tell the Difference, but one statistic really stands out. “On average, 4.5% of borrowers take out more than one personal loan on the same day,” according to TransUnion. “While only some forms of loan stacking are fraudulent, the practice can be costly when inauthentic borrowers apply for multiple loans from multiple lenders within a short timeframe.”
TransUnion SVP Pat Phelan wrote that loan stacking can be a lucrative crime. “In 2015, our study of lenders in the FinTech industry reported that stacked loans represented $39 [million] of $497 million in charge-offs. Depending on how fast each lender does their due diligence, it’s possible they won’t know about other loans and applications until it’s too late.”
The analyses are notable in that they attribute stacking behavior to mischievous borrowers. It’s the lenders that are being victimized.
“It’s likely the same applicants with malicious intent who apply for multiple loans are also applying for multiple credit cards or a number of short-term or personal loans at other financial institutions as well,” Phelan wrote.
It’s Not About Replacing Banks, Square CEO Says
October 30, 2016
It’s not about replacing banks, it’s about making financial services more accessible, said Square CEO Jack Dorsey in regards to what his company and others in the fintech space are doing. During his fireside chat-style address at Money2020, he bemoaned chipped card transactions for being so slow while defending their decision to go public when they did.
“It took us a long time to get [transaction times] down to under five seconds,” Dorsey said. Their goal is to get it down to 3 seconds, which is 7 seconds faster than today’s industry average. The payments CEO who is also the CEO of twitter, appeared to empathize with consumers on long wait times with chipped cards. People aren’t happy,” he said. “It’s really, really, really slow.” While more security is good, he argued that it has to be complemented by a frictionless experience for consumers.
Square Capital, their lending division, was hardly mentioned during his time on stage, which seemed more a consequence of his time allotment than its relative importance. The company funded $189 million to their small business customers in the second quarter. “Our goal is to make sure we’re helping our sellers grow,” Dorsey said. “As they grow, we grow.”
When asked if the timing of their IPO last November was the right choice, Dorsey said that going public should be viewed as an enabler, not the goal. “It’s an investment vehicle,” he argued while standing by their decision. Notably, compared to OnDeck and Lending Club, Square is the only one of the bunch to be currently trading above its IPO price. The stock recently closed at $11.15, up 24% from their $9 IPO on November 19, 2015.
Coming Soon: The OCC’s Fintech Innovation Office
October 27, 2016Coming soon: An innovation office to work with fintech upstarts poised to disrupt to the industry.
The Office of Comptroller of the Currency that regulates and supervises banks plans to set up a dedicated “fintech innovation office” early next year with branches in New York, San Francisco and Washington.
In an attempt to “identify, understand and respond” to the changing banking landscape, the OCC said that the unit will establish an outreach and technical assistance program for banks and nonbanks, conduct research and promote inter-agency collaboration and act as a point of contact for information and requests.
“By establishing an Office of Innovation, we are ensuring that institutions with federal charters have a regulatory framework that is receptive to responsible innovation and the supervision that supports it,” said OCC chief Thomas Curry.
Last month, Curry said that his office was evaluating the “unique risks” fintech companies might pose to the banking system under a less favorable credit cycle. The OCC also plans to release a paper in the next two months raising issues with a limited-purpose charter for nonbanks similar to credit card banks and non-deposit taking entities.
For Lending Club: Downturn Readiness, a $1 Trillion Opportunity and No Origination Fees?
October 26, 2016
The Lending Club that presented at Money2020 this week was not the same Lending Club of years past. Not only is keynote speaker Scott Sanborn a different kind of CEO than his predecessor Renaud Laplanche but also the regulatory environment in which he must govern has changed. In the era of government interest, Sanborn told a huge conference audience that the company thinks about two things, regulation and downturn readiness. In that regard, they sounded very much like a bank.
But there was good news too. “I remain very bullish about the future,” Sanborn said. That’s in part because the company announced earlier that they were entering the $1 trillion auto finance market with a refinancing product.
What’s noteworthy is that auto refinance borrowers will pay no origination fees to Lending Club, a stunning departure from the 1% – 6% origination fees charged on their personal loans. One can’t help but wonder if that move was a response to new competition, namely Marcus (operated by Goldman Sachs), whose new personal lending platform charges no-late-fees, no-origination-fees, nor any fees at all outside of interest charges. While Marcus is not offering auto loan refinances in their initial rollout, Lending Club may be using this market to try and master the no-origination-fee model to compete against Goldman Sachs and any other new bank entrants in the future on every playing field.
