Articles by deBanked Staff
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.
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.
deBanked CONNECT MIAMI 2025
October 9, 2024deBanked CONNECT returns to Miami Beach on February 20, 2025 at the Fontainebleau. Early bird pricing is now available. This will be deBanked’s 7th annual event in Miami since 2018. Last year’s event featured the first ever Broker Battle. Stay tuned for what’s in store for this year. You can check out interviews from the past event HERE.
TikTok is Now Offering Business Financing
October 7, 2024
Add TikTok to the list of tech platforms offering business loans. TikTok Shop Capital is now “offering sellers access to fast and flexible business financing,” the company states on its website. Unsurprisingly, one of TikTok Shop’s partners is Parafin but the company also lists Storfund and Kanmon as funding partners. Storfund announced its deal with TikTok earlier today and said that its program would be called Daily Advance.
“TikTok is not a lender or loan broker,” the company website states. “TikTok partners with third-party lenders and financing providers to offer TikTok Shop sellers business financing options.”
The process works different depending on which solution a customer uses. For example, Storfund repayments are automatically debited from TikTok Shop payouts, Parafin repayments are automatically debited from the business bank account associated with TikTok Shop payouts, and Kanmon requires repayment via auto-pay deductions from the business bank account provided during the application process.
The Parafin option does not appear to be a standard merchant cash advance. TikTok says it would actually be a Parafin commercial flex loan issued by Celtic Bank. There is no credit check required for it.
TikTok’s foray into business financing is invite-only. “If a seller has an available pre-qualified and/or pre-approved offer, it will appear within Seller Center under the Finances tab,” the website says.
Only 10% of Banks Have a Credit-Scoring System That Can partially or Fully Automate Small Business Lending
October 3, 2024If you thought that fintech had already largely come in and revolutionized the lending process at banks, you’d be wrong. According to the FDIC’s latest annual small business lending report, only 10% of banks have a credit-scoring system that can partially or fully automate the underwriting of some non-credit-card lending. Further, only 3% of banks use a credit-scoring system to auto-approve loans and less than 1% will auto-approve a loan of $250,000.
When it comes to fintech, “banks most commonly use fintech to help with regulatory compliance and for steps taken after loan approval,” the report says, “such as closing, performance and servicing, and portfolio analytics.”
Still, that doesn’t mean they’re terribly slow. In fact, thirty percent of banks can approve a small and simple business loan within one business day and 75% of of banks can approve one within five business days, though approvals usually happen within ten days on average.
And just because a bank’s business loan operation isn’t fully automated doesn’t necessarily mean they’re at a disadvantage competitively because banks actually tend to view the personal relationship with their small business loan customers as one of their core advantages.
“Banks use and high value branch locations and on-site visits as ways to generate and maintain small business lending relationships,” the report says. “About four in five banks define their geographic market for small business lending based on their branch footprint and, on average, their market extends 40 miles from their branch locations.”
“Very few banks allow borrowers to complete a loan application entirely through an online portal,” it adds. And that’s by design apparently. Of the banks surveyed for the report, almost half of them said they had NO PLANS to use or CONSIDER fintech in small business lending.
There’s a lot more insight in the full report that you can view here.
