Articles by deBanked Staff
Lending Platform Orion First Appoints CTO
February 24, 2016
Lending platform Orion First hired Paul Marcoe as its Chief Technology Officer.
Marcoe joins Orion from Financial Pacific Leasing where he was the vice president of information systems and security where he spent 20 years spearheading the direction and development of several campaigns to update and improve internal systems.
“Paul is a talented Information Technology executive with proven industry experience.” said David T. Schaefer, CEO of Orion First. “His robust skillset, numerous successful projects managed and overall IT vision make him a perfect fit to lead technology initiatives here at Orion.”
Orion is a third-party servicer in small business commercial finance marketplace. In 2014, they secured a relationship with Raisworks, an online direct lending platform that connects small businesses with institutional lenders looking to lend directly to private businesses.
During a 2015 conference panel, Orion First CEO David Schaefer had said that humans should still play a role in underwriting.
Goldman Sachs Ramps Up Online Lending Unit, Makes Key Hires
February 24, 2016
Goldman Sachs is ramping up its online lending business and has hired a former Consumer Financial Protection Bureau attorney.
Mitch Hochberg who was a senior counsel of the agency from 2011 to 2013 has been roped in to head compliance for the investment bank’s new online consumer lending business, Buzzfeed reported following Hochberg’s LinkedIn profile.
Goldman Sachs has hired a bunch of executives for this endeavor. Over the past year, it has hired executives from Discover, Lending Club and American Express. It’s not surprising that big banks like Goldman Sachs and JP Morgan Chase want a slice of the online lending market valued at trillion dollars. JP Morgan Chase partnered with online lender OnDeck last year to build a new lending product for small business merchants to be launched this year.
Google To Shut Down Financial Products Comparison Site
February 23, 2016
Another Google product bites the dust.
The tech giant plans to shut down Google Compare on March 23rd 2016, a tool which let users compare financial products like credit cards, mortgages and insurance.
The service which has been active in the UK since 2012, was launched in the US as Google Advisor last year and allowed customers to get quotes on financial products. Despite having launched with partners like Zillow and Lending Tree for mortgage products, the service didn’t do much for the company in terms of revenue.
In its letter to partners, the company noted, “Despite people turning to Google for financial services information, the Google Compare service itself hasn’t driven the success we hoped for.”
SEC Says You Can Crowdfund Startups This Summer
February 23, 2016Now you can own a piece of a startup doing the next-big-thing or invest seed money in an idea that looks promising starting May this year.
Last week, the SEC released an investor bulletin on crowdfunding for retail investors and said that “Starting May 16, 2016, companies can use crowdfunding to offer and sell securities to the investing public.”
In October last year, the regulator adopted rules permitting companies to offer securities and raise a maximum of a million dollars a year through crowdfunding platforms. Individual investors with annual income or net worth less than $100,000 can invest no more than $2,000 but less than 5 percent of their annual income and not more than 10 percent for investors with income and net worth of over $100,000 in a twelve-month period. 
Investors are allowed to invest in these ventures strictly through an online platform including mobile app of a broker-dealer or a funding portal registered with the SEC and a member of FINRA.
This is a major step in recognizing crowdfunding as a legitimate means of raising capital, which thus far has been typically used to solicit charitable donations or raise funds for artistic projects like movies, music and social projects.
The SEC warned investors of the risks involved with such investments like limited disclosure, illiquidity, opacity in valuation and capitalization that is associated with private companies. Investors are also prohibited from reselling their stake for the first year unless it’s a transfer to the company, an accredited investor or a family member.
China: New Regulator In, Stocks Up
February 22, 2016
Chinese stocks got a much-needed respite and traded at a four-week high after the country ousted the head of its securities regulator, China Securities Regulatory Commission (CSRC) Xiao Gang amidst a volatile stock market. Gang will be succeeded by Liu Shiyu, former deputy governor of the central bank and chairman of the Agricultural Bank of China.
The Shanghai Composite was down 18 percent within the first two weeks of this year and 40 percent since last year. And twice in a week, last month the Chinese stock market traded only for 29 minutes after the CSI 300 Index fell 7 percent.
The slump on stock markets is an amalgam of various factors like a weakening renminbi, slowing down of manufacturing activity and China’s slow transition to a consumption-led economy.
All signs point to drying up of capital in the country. China News Service last week reported a decline in the number of P2P lenders following the Ezubao Ponzi Scheme where marketplace lenders swindled $7.6 billion from investors.
Chinese lender Yirendai closed 0.73 percent up.
Loan Brokers or Self Origination? Here’s What Experts Say
February 22, 2016
Last year belonged to the brokers in alternative finance — with a phone and a few leads pulled up online, anyone could sell a loan. With seemingly no barriers to entry, alternative lending attracted auto and insurance salesmen fleeing their jobs to cash in on the gold rush in an economy which was coming out of the shadows of distrust for big banks. And it found quick ascension to grow into a trillion dollar market.
But a year on, as the dust has settled, we asked industry veterans what it means to remain successful in this business and what is the key to sustainability — is it in going for the ISO/broker channel to find deals or originating your own.
Here’s what they had to say
Don’t Break the Broker
Tom Abramov of MFS Global voted for the ISO/broker channel and said that that’s how the company strictly does deals, working with brokers who have a track record as a part of their recruitment system. The six year old company that started as an broker shop now focuses only on funding with products that are a mix of merchant cash advances and lines of credit.
“We don’t look at FICO scores or SIC codes, we only look at cash flows of businesses,” said Abramov. “I want to see if I give a someone a dollar whether they can turn it into two.”
Abramov added that his firm offers brokers 20 percent commission and their default rates are sub 5 percent.
The advantages of scoring deals through a broker channel can be alluring. It involves no overhead, no staff that needs compensation, motivation and incentives, and makes use of the existing broker-merchant relationships.
Jordan Feinstein of NuLook Capital said that his firm works with brokers exclusively and the model has helped them respond to merchants faster. “We do not have a sales team speaking to merchants directly, that’s in conflict with our model,” said Feinstein. “We decided that the best way to grow is to build relationships to avoid the overhead, compliance, training and manpower that a sales team would require,” he said.
Building a Hybrid Model
There are some others who want to make the best of both the models and work with brokers while originating and funding their own deals. Forward Financing which uses a hybrid model has strategic partnerships with some brokers while still originating their own deals. “We have a hybrid model because our goal is to have a program for any type of business and work with companies across the spectrum of risk,” said Justin Bakes, CEO of Forward Financing. “While our priority is to self originate, it is essential to create and maintain partnerships in this business,” he said.
The Original Origination
While the allure of a lean business is certainly attractive, there are some who are in the industry to build a bigger business and create value by making it robust — Jared Weitz of United Capital Source is one of them. “There is a big market for both analytical process as well as sales process. It’s important to go after your strength,” said Jared Weitz, founder and CEO of United Capital Source. “When you originate and fund your own deals, you’re in a rewarding position and in control of how merchants get treated.”
Industry Trends
Speaking of the industry in general, these experts agreed that the business was undergoing a change with new entrants coming in and experimenting with better services and technologies.
“Last year was the year of brokers but we are still missing the education with merchants. Some brokers are interested while some are not,” said Abramov.
“I notice a clear difference between the old and the new in terms of technology and pricing model,” said Bakes.
“New funders are coming in with different products and terms with increased competition in the ISO market,” said Feinstein.
“Marketing is getting more expensive and only the ones who can afford to pay can play,” said Weitz.
Square Goes Back To The Drawing Board, Ahead of First Earnings
February 19, 2016
Square is bracing for its first milestone as a public company – its first earnings report.
On March 9th, the payments company will present a scorecard of how it’s doing and what that means for its investors. Visa picking up a 10 percent stake in the company came as a respite for the stock which has generated close to 27 percent losses since its IPO.
But that might not be enough to prove that the seven year old company is in a sustainable business. Square has to prove that it is all a small business needs. From capital, payroll to point-of-sale, Square wants to be the one stop shop for small merchants, not relying entirely on its payments business which makes up 95 percent of its revenue.
When the company started in 2009, its strategy was to go after micro merchants that were too fragmented and small for bigger payments companies. Square started by giving these merchants a dongle to accept card payments for a flat fee. While the idea was to serve an untapped market, the company could not be shielded from the risks that these merchants bring to a business with their heterogeneity, fragmentation and smaller deals.
But ahead of its first earnings call, the company is ramping up its efforts towards bringing more businesses into its fold. Forbes reported that Square expanded its payroll product to merchants in Tennessee, New Hampshire, Nevada, South Dakota, and Alaska in addition to the existing markets of California, Texas and Florida allowing them to serve 30 percent of independent businesses in the U.S.
SEC Committee To Examine Capital Raised By SMEs
February 18, 2016The Advisory Committee on Small and Emerging Companies at the SEC announced they will meet next week (February 25th) to examine the capital raised in “unregistered securities offerings”
The committee provides a mechanism for the regulator to receive recommendations on small enterprises, both public and private with a market cap of less than $250 million. Stephen M. Graham, Managing Partner of Fenwick & West LLP’s Seattle office, and Sara Hanks, CEO of CrowdCheck will serve as co-chairs of the committee.
“Small businesses play a crucial role in our nation’s economy,” said SEC Chair Mary Jo White. “The advisory committee members have a wealth of experience and ideas that will help inform the Commission on the many important issues affecting small and emerging businesses.”
