Articles by deBanked Staff
OppFi Encouraged By Early Results With Bitty
November 10, 2024OppFi achieved a new record in Q3.
“The record quarterly net income was a result of credit initiatives that continue to drive strong loss payment and recovery performance, marketing cost efficiency and prudent expense discipline across the organization,” said OppFi CEO Todd Schwartz during the quarterly earnings call. One part of that organization is Bitty Advance, which it acquired a 35% stake in this past summer. “We are encouraged by the early results and potential opportunity of this platform and the strength of our relationship with Bitty,” Schwartz said of the progress so far. “We continue to explore similar opportunities that would be accretive and align with OppFi’s strategic vision.”
One analyst on the call inquired further about what similar opportunities Schwartz might be referring to on the M&A front. Schwartz responded with the following:
I mean I think whatever it is, it’s got to be something that’s highly accretive. I mean, OppFi’s vision is to be a platform for digital alternative financial service products where we see large supply-demand imbalances in large addressable markets. There’s definitely different profiles of business out there, different situations are pretty — it’s pretty bespoke, but we’re prepared to handle either-or. So it has to make sense for us, though. And obviously, we’re going to protect and mitigate risk with anything we do to make sure that it’s successful and make sure that we’re going to be getting a return on our capital and it’s highly accretive to shareholders.
Square: Our Customers Actually Grow Faster With a Square Loan Than Without One
November 7, 2024On average, Square customers that used the Square Loan product grew 6% faster than those that did not use it, the company revealed. Jack Dorsey, the CEO of Square’s parent company, Block, used the 3rd quarter earning’s period as an opportunity to discuss its lending operations. The relevant parts are excerpted in non-sequential order below:
“In 2013, we began offering capital to sellers because we saw a meaningful gap in the market: small businesses were often denied access to credit, in the same way they were once denied access to accepting credit cards. We utilized our deep understanding of the seller and their business to build a technology that invited them to accept a loan with transparent rates, and pay back simply by making sales to their customers. We called it Square Capital (which is now known as Square Loans).
Since then, we’ve underwritten more than $22 billion in loans globally, with aggregate loss rates below 3%. And we’ve proven we can expand access: 58% of Square Loans are to women-owned businesses, and 36% are to minority-owned businesses, both of which are higher than the benchmark we track If our sellers grow, we grow – and we believe Square Loans has a direct impact on our sellers’ growth. Sellers who take out a Square Loan grew on average 6% faster than sellers who did not take out a loan.
Many financial products trap borrowers in cycles of revolving debt. We don’t allow customers to take on new loans if they have an overdue balance. And repayment is built into how our products work: Square sellers repay loans through a fixed percentage of their revenue, creating a manageable-real-time payment flow.
On credit risk management, we have a long history of maintaining stable loss rates and these products act as working capital, which means they are usually short in duration. What that means for us is that a dollar used on our balance sheet can turn multiple times, driving capital efficiency while providing us with high-quality data to continually refine our technology-driven underwriting.””
-Jack Dorsey
Square shared some stats as well, showing that the average loan term was 150 days and average loan size is only $10,208.
Loss rates on Square Loans have historically been less than 4%. Square is a company to watch considering it is likely the largest online business lender in the United States.
eBay: ‘We’ve Already Done $40M in MCAs’
November 3, 2024
eBay is coming in hot to the small business financing game. The company reported that it had connected merchants with $100M in funding YTD, over $40M of it being “business cash advances” through Liberis alone.
Liberis is a UK-based company that expanded into North America 4 years ago. It secured $112M in debt funding last year. The partnership between Liberis and eBay only started this past July. eBay’s other big funding partner is Funding Circle.
eBay’s role as a facilitator for funding follows what every other major e-commerce platform is doing. For example, Amazon, Shopify, Walmart, Lightspeed, and DoorDash all offer funding to sellers on their platforms. Technically, eBay was the first considering it had originally partnered up with Kabbage back in 2010. That relationship did not last, however.
Nerdwallet: Continued “Pressure in SMB Loan Originations”, Search Engine Traffic Flux
October 30, 2024
“We continue to see pressure in SMB loan originations, with rates remaining elevated and underwriting remaining tight,” said Lauren StClair, CFO of NerdWallet on the Q3 earnings call, “However, this was more than offset by growth in our renewals portfolio, which showcases the benefit of our vertical integration strategy and the reoccurring nature of the vertical when we pursue a higher touch experience.”
NerdWallet CEO Tim Chen further said that it was a “tough macro environment in SMB loans.”
Their SMB business overall, which includes several products, not just loan referrals, did well however in Q3, generating double digit YoY growth for a total of $27.8M in revenue.
Of additional note is NerdWallet’s commentary on search engine traffic and its impact to its business.
“After a stronger start of the quarter, we saw some additional deterioration in our search visibility in mid-Q3,” said Chen. “While traffic to our monetizing shopping-oriented content started to rebound as we exited the quarter, traffic to our non-monetizing learning-oriented content did not. As a result, Monthly Unique Users were down 7% year-over-year in Q3.”
deBanked drew attention to their search engine observations this past August after hearing Chen muse that the current state of organic search result rankings were not actually helping business owners get business loans. Chen dived into this subject yet again on the Q3 call, the full quote of which is worth including:
“So, during our Q2 call, our search visibility was broadly stabilizing and actually starting to rebound a little bit. And then soon after our Q2 call, things took a turn for the worse. So with our shopping traffic, things got worse in August and September. But then going into October, rebounded back to a level that was a bit better even than where we were when we did the Q2 call. We think we did some things on our end to clean up the user experience that were net positive. Now, there were some exceptions, so for example, parts of credit cards and personal loans are still lagging. But, overall, we got a pretty good place – we got to a pretty good place on shopping pages and feel like we’ve figured out what to improve.
Conversely, for that far bigger bucket of education-oriented traffic that is less commercial in nature, things got progressively worse throughout the quarter and recently stabilized at a lower level. So, what’s happening there is a renewed push by search engines to incorporate their own answers directly into the search results, like you mentioned AI overviews as an example. So, for those of you who have been following search over the years, this isn’t really anything new. So, for example, at one point when you search for the weather, it didn’t show up directly in the results, and eventually a module was inserted there. That trend towards the simpler stuff being pulled into search results is inevitable, and we’ve always been more insulated from that, but historically it happens in waves, and sometimes haircuts are MUUs.
So, we’ve generally seen a re-baselining after any major changes, and then eventual growth from there as you lap the impact. Oftentimes, those changes are rolled back. And so, over the last 10 years, I’d say these changes come in waves, and we’re in the middle of a big wave, and as long as we focus on delivering consumer value, we’re steering in the right direction, and things tend to sort themselves out. So, this headwind is driving our outlook for further MUU deceleration in Q4, because of the full quarter impact of some of the stuff that happened with those headwinds.
Now, in the long run, I do think an improving search experience is a win for the overall ecosystem and keeps it healthy and growing. And, really, I’d say the silver lining here is that Q3 was pretty brutal as far as some of the headwinds we faced in organic search, especially in highly commercial areas, and being able to hit like a 12% NGOI margin in Q3 in spite of that headwind is really a testament to some of the progress we’ve made in building a brand and a direct relationship with our users and our increasing competitiveness in other channels.”
PayPal is Back to Growing its Merchant Lending Program
October 29, 2024
After taking drastic action over the last year to rein in surging SMB lending charge-offs, PayPal believes it has corrected the issue.
“We have now fully lapped the actions taken last year to tighten credit underwriting and reduce on balance sheet risk,” said PayPal CFO Jamie Miller on the Q3 earnings call. “We’re seeing better performance across the portfolio, and have now started to modestly grow merchant originations. We’ll continue to prudently manage the portfolio’s exposure with the goal of sustaining our balance sheet-business model, while providing our customers with more ways to manage their cash flow, spending and borrowing needs.”
The reduction in originations since the pullback had been severe, down by as much as 50% by deBanked’s prior estimates.
Enova Surpasses $1 Billion in SMB Loans in a Single Quarter For First Time
October 23, 2024Enova’s small business loan arm had a huge 3rd quarter.
“Notably, for the first time in our history, we originated over $1 billion in small business loans, up 33% year-over-year and 14% sequentially,” said Enova CEO David Fisher during the company’s earning call. “The main drivers of this growth are consumer spending and confidence from small business owners in this current economy.”
Additionally, he said:
As discussed on our first quarter call, we identified opportunities within our SMB business that we believe would support continued strong growth with improved unit economics. We continue to see the benefits of this strategy in the third quarter as small business originations growth was strong, small business revenue yield continued to move higher sequentially and the small business quarterly net charge-off ratio remained on the low end of our expected range. Expectations for our future credit performance remained stable as the consolidated consumer and small business fair-value premiums were all largely unchanged from last quarter.
Intuit: Consumers Expected to Spend 34% Less This Holiday Season
October 21, 2024It’s not all good news with the economy. According to Intuit, a QuickBooks-commissioned survey predicts a 34% drop in consumer holiday spending, an $85 billion decrease from last year.
Of those who plan to spend less this year, more than 6 in 10 say grocery and gas prices are to blame, the survey revealed. Another 4 in 10 say their wages haven’t kept up with inflation over the past year.
Ironically, small business owners are anticipating the opposite trend. Eighty-two percent of business owners surveyed, for example, said that they expect to earn the same or more revenue in total holiday sales than they did last year. Perhaps they need the optimism. Twenty-three percent of business owners surveyed said that if the holidays are not a success, it will make it a really difficult year. Five percent said they might have to close.
And of the revenue they do earn, the majority said it will just go toward paying down business debt.
Meanwhile, 59% of consumers that plan to shop online plan to do so through a business's website directly.
The full report can be viewed here.
New Jersey Tries Commercial Financing Disclosure Bill Again
October 17, 2024For the 7th year in a row the legislature in New Jersey is trying to pass a commercial financing disclosure bill. While a notable component is an APR requirement it also applies a broad warning to brokers.
A broker shall not make or use:
(1) any false or misleading representations or omit any material fact in the offer or sale of the services of a broker or engage, directly or indirectly, in any act that operates or would operate as fraud or deception upon any person in connection with the offer or sale of the services of a broker, notwithstanding the absence of reliance by the buyer; or
(2) any false or deceptive representation in its business dealings.1
The full language can be found here.
