Articles by deBanked Staff
Search Engine Algorithm Changes Impacted NerdWallet’s Small Business Lending Business
August 12, 2024
“Let’s say, you’re searching for a small business loan. You ideally, I think, want to comparison shop relevant choices, leveraging a brand you trust. And so if you see a government website explaining what a small business loan is, that doesn’t help, neither does a nonprofit website showcasing local grants nor is it helpful to see a regional bank that doesn’t do small business loans, right?”
This hypothetical was posed by NerdWallet CEO Tim Chen during the company’s recent quarterly earnings call. And that’s because a search engine update (which intuitively sounds like Google) actually impacted their SMB loan business in Q2.
“So during Q2, yes, like we said, [there was a] major algorithm update and [it] created meaningful headwinds on our search ads, and to a lesser extent, our traffic,” Chen explained. “So I’d characterize it as saying it’s stabilized and started getting a little better. Generally speaking, we think search is working well when it matches user intent and surfaces the best answers. And by that standard, we and a lot of industry observers felt like things went a bit haywire last quarter. So we think it’s inevitable, some of these kinks get worked out because there are strong commercial incentives for search engines to get it right. They want happy customers who keep coming back so they can sell more search ads.”
NerdWallet is one of the few companies in the business lending space to specifically draw attention to organic search traffic’s impact on its bottom line. NerdWallet, who previously acquired Fundera, has dominated in organic search rankings for top keywords for years. An investigation carried out by deBanked in 2018, for example, showed that NerdWallet and Fundera were consistently the top result(s) for basic business loan queries on Google.
But search wasn’t the only thing on their minds:
“SMB loans, particularly in originations, saw an increasing amount of pressure in Q2 as elevated rates and tighter underwriting persisted, combined with some of the organic search traffic challenges,” said NerdWallet CFO Lauren StClair. “So we continue to drive growth in the quarter with our diversified product offerings for small and midsized businesses in areas such as credit cards and banking. We believe we have a substantial runway for growth in both diversifying SMB subcategories as well as scaling SMB loans over the long run, though expect to face a tougher growth profile in the near term as we await a more robust lending environment.”
NerdWallet also recently laid off 100 employees.
OppFi Shares More About The Bitty Advance Deal
August 7, 2024
OppFi, a publicly traded fintech with a $430M market cap, discussed its recent investment in Bitty Advance during its regular quarterly earnings call today. OppFi acquired a 35% stake in the company with the option to acquire a majority in 2027.
“This acquisition is intended to serve as the foundational piece of our new small business financing vertical,” said OppFi CEO Todd Schwartz. “Bitty is a credit access company that offers revenue-based financing and other working capital solutions. Bitty generates income through origination and service fee income and therefore does not have balance sheet or credit risk.”
Special mention was made about Craig Hecker, who is still the majority owner, and his great leadership.
“I’m personally looking forward to collaborating with Craig and helping him and his team take Bitty to the next level of profitable growth by leveraging OppFi’s expertise in data analytics, marketing and automation,” Schwartz said.
During the Q&A session, Dave Storms of Stonegate Capital asked Schwartz to elaborate on any exciting short-term synergies the deal might present for OppFi. This was his response:
Todd Schwartz: I think Craig is a talented operator and obviously someone who has a lot of experience in the small business space. We think the collaboration between our two companies is going to yield great results. To remind everyone, Craig has a business that currently is in origination, so he’s earning his income from origination and servicing. We think that has a lot of optionality. He also has a really good digital platform. We believe in this digitization of small business and think there’s a lot of growth there. I think when you take a lot of the things that we do well and the things that Craig’s doing well, there’s a lot of complementary skill sets.
And I think it’s going to yield great results. I think we’ve done a lot of research on the SMB market and we feel that there is supply/demand imbalance. And we feel that there’s ability to not only take market share, but as the addressable market continues to go online to search for working capital options, that there potentially is even growth in the total addressable market. So we’re excited. We think there’s some accretion to earnings that we mentioned in this year and then for the future but we feel really good about taking our time there. We’ve kind of started to talk about it for over a year and a half. And so I think we’re just happy that we’ve fulfilled on our and delivered on our promise that we’re going to create, that OppFi is going to create a brand that has best suite of best-in-class digital financial service products that address supply/demand imbalance and credit access. And we feel like we’re on our way. We have all the ingredients to be able to do that and will yield great results for us.
SoFi Focused on Diversification
August 4, 2024SoFi signaled that diversification is a main goal in its business right now.
“Less capital, less risky businesses get valued much higher,” said SoFi CEO Anthony Noto in the company’s recent quarterly earnings call. “And we don’t want to have an over-dependence on a high capital, high-risk business. This year, the macroeconomic environment accelerated our diversification and it’s worked out quite well.”
Within the lending category of its business SoFi wants to scale up home equity loans and student loan refinancing and become more conservative on personal loan growth. That strategy is not only being driven by its diversification initiative but also the economy. For example, Noto said that the company wanted to see how the years trends with unemployment.
“We’re at 4.1% [unemployment], a move to 4.2% could signal a recession,” Noto said in the days before the actual unemployment numbers revealed an increase to 4.3%. SoFi’s stock dropped by more than 6% on the news.
SoFi’s business loan marketplace was hardly mentioned, generating only a single line in the company’s earning’s announcement. “Small and medium businesses can now apply and get approved offers from lending partners all on SoFi,” it said.
SoFi says its business loan partners can lend up to $2 million and can fund as fast as the same day.
Square Loans: Loss Rates Still Consistent With Historical Averages
August 2, 2024
Block’s business loan division, Square Loans, reported that loss rates in Q2 remained consistent with historical averages. This while origination volume continued to tick upward, coming in at $1.45B in Q2 over $1.32B in Q1. Block is likely the largest online business lender in the US. It originated $4.78B in 2023. The vast majority of Block’s business loans are sold off to to investors.
Because of Block’s overall company size, its business lending operation was mostly unmentioned during the earnings call. Its CEO Jack Dorsey emphasized that a key part of the company’s acquisition strategy going forward is “self-serve onboarding.”
“Product-led growth remains a core pillar of our go-to-market strategy because self-serve onboarding is still Square’s most important customer acquisition channel,” Dorsey said in the quarterly shareholder letter. “Self-serve onboarding is an important differentiator for Square and one of our super powers. Many of our competitors don’t even offer this as an option.”
Lightspeed: MCAs continue to grow with healthy margins
August 1, 2024
Lightspeed Commerce, a global e-commerce platform for merchants, once again talked about its MCA business in the latest quarterly earnings call despite it only accounting for 3% of the company’s overall revenue.
“[Lightspeed] Capital continues to grow with healthy margins,” said CFO Asha Bakshani. She added that it was very popular with customers but that it was still a nascent product offering for them. They’ve consistently said over the last couple years that they intend to grow this business cautiously, which they have done. The company currently holds $87.5M worth of MCAs on its balance sheet.
“Lightspeed capital offers fast access to capital and an automatic repayment method to Lightspeed Payments,” Bakshani said. “Merchants are leveraging this offering to finance inventory purchases, upgrade equipment, and expand their overall business.”
PayPal Business Loan/Working Capital Volume Down By Half Since Pullback
July 30, 2024
PayPal’s small business financing volume has been roughly reduced by half since the company officially announced a pullback in 2023.
For example, consider that PayPal purchased only $774M in merchant receivables through the first half of 2024 vs $1.4B purchased in the first half of 2022. Though these numbers are not originations per se they are proxy indicators that show just how much has changed.
Of the $774M purchased in the first half of 2024, only $355M of it was from the 2nd quarter. Meanwhile, one of its competitors originated $918M in the same quarter.
Back in early 2022, PayPal announced that it was then one of the top five lenders to small businesses in the United States. It claimed to be doing $4B a year in originations in 2019, at that time making it arguably the largest online business lender in the country. Today the leading online small business lenders are Block (Square Loans) and Enova (OnDeck & Headway Capital).
Enova Originated $918M in Small Business Loans in Q2
July 29, 2024
Enova remains optimistic about the economy and its borrowers, according to its latest quarterly earnings report.
“Recently, there’s been significant talk from both pundits and our competitors about an uncertain macro environment, but our Q2 performance as well as internal and external data confirmed that both our SMB and consumer customers remain on solid footing as our customers continue to benefit from job growth, low unemployment rates, easing inflation, and rising real wages,” said CEO David Fisher during the earnings call.
SMB loan originations of $918M were down slightly from Q1 but up 29% year-over-year.
“I think competitively, I would say there’s very little has changed,” Fisher said. “There haven’t been new entrants in the space. We haven’t seen any of our competitors get particularly more aggressive. There’s always a little bit of ebb and flows but certainly no trends. As I mentioned in my comments, certainly over the last couple of quarters, we’ve heard some lack of confidence I think from some of the other players in the space and it’s probably holding them back a bit when I think we’re seeing somewhat of the opposite. … And as we talked about, we think our customers are in a really, really good place. Job growth has remained good. Wages continue to rise. Inflation is coming down. Enova is a very beneficial place for both consumers and small businesses.”
Debt Settlement Attorney Sanctioned by Court
July 29, 2024A self-proclaimed merchant cash advance debt settlement attorney was sanctioned in the New York Supreme Court for frivolous conduct attributed to making an overtly false and/or misleading statement of fact.
The attorney is Dominick R. Dale, who is defending a merchant in an action brought by a revenue based financing company in Index No: EF000224-2024. According to court documents, Dale sought to move a case filed by plaintiff in Orange County, NY (which the contract specified as the forum) to either Kings County or New York County on the basis that defendant was not a resident of the State of New York, had no connection to the state, and that the forum selection clause in the agreement was invalid.
The irony is that the defendant did actually reside in Orange County, NY.
In the order granting plaintiff’s cross-motion for sanctions, the judge ruled that the defense attorney’s motion to transfer venue was “solely based on the distance between defense counsel’s office and the courthouse” because the 71 mile distance was apparently too far for him to want to travel.
The case is still ongoing.
Dale, who is listed under the name Law Office of Dominick Dale, Esq. in the action, also goes by the name “Merchant Cash Advances Law Firm” with an advertised focus on debt settlement.
