Articles by Gerelyn Terzo

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BFS Capital Launches Canadian Tech Hub

October 16, 2019
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Toronto CanadaSmall business lender BFS Capital is making an expansion push with the creation of a new data science and engineering hub in Toronto. BFS, which serves customers in a trifecta of jurisdictions that in addition to Canada includes the U.S. and the UK, has undergone a technological transformation that includes building out a tech team for the next generation of the firm’s products.

BFS Capital CEO Mark Ruddock took some time to discuss the Toronto expansion with deBanked.

“We have an ambitious roadmap and plan to innovate quickly,” said Ruddock, “As a result, we had to ask ourselves, where could we best do this? We looked at cities across North America with strong tech and data science talent, and which were millennial friendly. We were frankly quite surprised by Toronto. Something fundamental is happening in Toronto – it’s fast becoming a leading city for data science, AI, and mobile app development in North America.”

Indeed, deBanked hosted its inaugural Canadian event in Toronto this past July after keeping an eye on its burgeoning fintech scene there for years.

“We are seeing a fundamental transformation happening in our customer base, from a less digitally savvy generation of entrepreneurs willing to accept the traditional financial products to a demanding, digital first generation, seeking new financial solutions,” said Ruddock, pointing to a two-pronged approach of real-time algorithmic decisioning and a mobile-first user design. “The intersection of those two things is the tipping point for small business financial services for the next while,” he added.

BFS Capital is finding that the younger generation is well equipped with technological skillsets, noted Ruddock, pointing to the Universty of Toronto and University of Waterloo as two of the best schools in North America for tech talent.

OnDeck Takes Advantage of New Same-Day ACH Technology

April 12, 2019
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OnDeck NYSESame-day ACH is here, thanks to NACHA’s planned upgrade, and OnDeck, a small business lender, has already incorporated it into its platform.

Shaleen Prakash, OnDeck’s Vice-President of Product Management, told deBanked:

“We are hyper-focused to get customers faster access to funding that’s already been
approved for them.”

Small business owners can now access up to $25,000 in funding on the same day they book a loan or make a withdrawal.

“As long as the request is made before the cutoff, funds reach the account by 5 p.m. It doesn’t matter if you are in New York or California,” Prakash said. The same-day cuttoff time and the $25,000 limit are also set by NACHA. OnDeck can lend larger amounts, obviously, up to $500,000, but not through same-day ACH.

OnDeck has already processed “millions of dollars over the new rails,” said Prakash. “Anybody who cares about when they get money and when it gets debited back from their account will benefit from this service. If there’s a cash crunch, the predictability and certainty from same day funding are fundamental to managing a business,” he added.

OnDeck’s same-day funding model is two-pronged, working both for accessing capital or processing payments to the online lender. On the cash management side, entrepreneurs gain access to the funds when they need it, even if they forget about a payment due on a Friday morning.

“A small business owner has to pay suppliers on time or meet payroll. Now they can be certain that the funds will reach the account and they will be able to manage cash flow better,” said Prakash.

OnDeck’s same-day transfers are equally important for making payments back to the lender.

“Think about the small business owner dealing with the challenges of managing cash already and how some have cash sitting in their account for three days,” he said.

Meanwhile, if OnDeck says an account is debited on a Wednesday, they really mean the funds are debited from the account on Wednesday.

NACHA, the National Automated Clearing House Association, created same-day ACH transfers in three phases. Phase one and two were limited to credit and debit transactions, which left out some of the small business population. It didn’t make sense for OnDeck to integrate the technology until now.

“Through the process of providing a loan to customers, we collect their account information, so we already have it. Now we can meet their needs of getting funding faster without introducing any new friction to the customers,” he added.

OnDeck, which boasted origination volume of $658 million in Q4 2018, is scheduled to report Q1 2019 financial results on May 2.

As Implementation of FICO’s UltraFICO Approaches, Upstart Says The Value is There

November 5, 2018
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The rise of fintech has already rocked the banking and traditional lending industry and now it’s disrupting FICO, the traditional credit scoring method that’s been in place since the mid-1900s.

FICO, which is the credit scoring system created by Fair Isaac Corp, is getting a makeover. The UltraFICO Score, which is scheduled to launch in early 2019, will pull from a consumer’s checking, savings and money-market accounts and add the data to their credit profile. It creates a broader credit picture, one that is designed to lead to more lending approvals than the static formula provides, as long as a consumer manages their cash well. Reports suggest the FICO score could jump by 20 points or more for millions of borrowers.

Meanwhile, fintech startup Upstart has been in the consumer lending business for the past five years. Upstart takes a two-pronged approaching, using more variables and more machine-learning algorithms than the traditional credit-scoring method.

“Using a variety of machine learning algorithms lets you pick up new insights from data,” said Upstart Co-Founder Paul Gu.

The company’s approach has influenced banks that frequently approach Upstart, a couple of which have become partners that are using a fully branded version of Upstart.com.

Paul Gu Upstart
Paul Gu, Co-founder, Upstart

It’s not surprising considering Upstart is experiencing a lower loss rate versus its banking competitors. Upstart’s Gu explained the average lender issuing a personal loan to someone with a FICO score in the 660 range will typically experience a loss rate of 14%. Upstart’s loss rate is half that.

“That same 660-type borrower in our portfolio has an annual loss rate of 7%. That’s a pretty staggering difference and translates into benefits for our borrowers,” Gu told deBanked, adding that if the company can cut the loss rate, they can, in turn, lower the interest rate. Certainly, non-fintech lenders are paying attention.

“I don’t want to claim credit for anything FICO is thinking about. But I do think we are showing the industry at large that there is a huge amount of opportunity out there, and that you can go after it with technology that is available today. The potential benefits for consumers and your business are enormous,” Gu said.

Upstart’s early focus was on younger consumers with no real credit history but with an education history, which Gu said has yielded great success for the company. Since then they’ve expanded to pursue other groups of people who have similarly been “lost in the cracks” of the traditional credit scoring system, including certain occupations.

Gu explained that while lenders typically examine a potential borrower’s income level and their debt-to-income ratio, there’s more to it than that. Upstart most recently has created a way to include data based a potential borrower’s occupation, which he points out is tricky to quantify.

“Occupations are combinations of words that are hard to group in a useful way for the purposes of data analysis,” said Gu. Nonetheless, Upstart and its team of nearly a dozen data scientists have poured research into employers and occupations to create a classification system and determine how to turn words into numbers to use in their machine learning model.

“It’s not shocking that some professions are more highly correlated with repayment than others. Nurses, for example, are very reliable in paying back their loans,” Gu explained.

Upstart, which has issued consumer loans to fewer than 300,000 borrowers, has made it their mission to constantly improve upon their models to find cracks. “Our best estimate suggests we’ve solved only 8% of the total opportunity so far,” he said.

Low-Hanging Fruit

It’s early days for FICO’s new credit scoring system, but according to reports lenders have already begun to show an interest. Experian has reportedly partnered with fintech startup Finicity to publish the broader credit profile to banks. But the increased competition doesn’t seem to bother Upstart.

“I think there are starting to be efforts made by other players in the space to do some of the things we’re doing. Some of the lower hanging fruit we were uncompeted for earlier might have a little bit of competition. That said, the thing people don’t realize is how much room for improvement is still left,” Gu said.

As for FICO, their new feature is a side-product to the traditional credit-scoring system, not a replacement, which could impact the pace of adoption and innovation. “This kind of technology investment should take 95% of their attention, not 5%,” said Gu.

Square Expands into Consumer Lending, Keeps Banking Hopes Alive

October 16, 2018
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Outside the Square Headquarters in San FranciscoSquare is no stranger to payments and is looking more and more like a bank every day. Square Capital already facilitates loans to small businesses, and now they’re expanding into consumer loans. Meanwhile, it’s been several months since Jack Dorsey’s fintech startup withdrew its application to become an Industrial Loan Company (ILC), but Square’s banking pursuits appear far from over.

“With regard to charters, Square Capital is uniquely positioned to build a bridge between the financial system and the underserved, and we continue to work closely with the FDIC and Utah DFI on our ILC applications,” a Square spokesperson told deBanked.

In the interim, Square is making a push into consumer lending, giving small businesses the opportunity to capture big-ticket sales that might otherwise slip away. After testing the feature for about a year, Square Installments has now been rolled out across 22 states with plans for a nationwide expansion.

“Historically, offering financing options for customers has only been available to larger businesses. For many Square sellers, providing a payment option like this to customers has either not been possible, or has been too complicated or time/labor intensive to set up. We are focused on expanding access to financial services for both businesses and individuals, and Square Installments sits at the intersection of both,” the spokesperson said.

Square Installments will further diversify the company’s revenue stream and build on the momentum that they have been experiencing with business loans. The new product offers customers more flexibility for purchases between $250 and $10,000, giving them the option to pay over three, six or 12-month installments at an APR of up to 24%.

“We noticed there were a lot of very high-ticket purchases on Square and sellers were saying that they might lose a sale because a national chain might offer financing,” according to the spokesperson. Over the past year, Square facilitated tens of millions of transactions for purchases of more than $250.

And it isn’t just merchant demand. Small business customers similarly are hunting greater flexibility and more financing options for budgeting purposes, according to a survey of American consumers done by Square over the summer.

Square Installments works at both the point-of-sale for brick-and-mortar businesses as well as with Square Invoices for e-commerce companies. Other fintechs that offer similar consumer lending solutions include Affirm, GreenSky and Klarna, as Reuters pointed out.

For sellers, Square Installments can be integrated into their existing Square offerings. The seller is not engaged in the credit decision process and is paid for the sale up front.

By giving customers the ability to pay in installments, small businesses can increase their sales, bolstering growth in the process. Square gives the example of Fly1 Motorsports, whose sales increased between 20%-30% while order values increased by more than 50% as a result of Square Installments.

Square has a history with the sellers on its platform, which delivers greater transparency to the credit decision process. The loans, however, will be added to Square’s balance sheet, a risk that was reflected in declines in Square’s stock price on the heels of the announcement. Square (SQ) shares are down 22% so far in October. The declines also coincided with the departure of Square’s CFO, Sarah Friar.

“From a risk perspective, we look at two types of risk — fraud and credit. At Square, we start with an advantage since we know the sellers we are bringing on to the Square Installments program given they are already processing with Square. We have visibility into what they sell, their average ticket size, and any chargebacks,” the Square spokesperson explained.

On the consumer credit risk side, Square uses machine learning and other tools to provide what it describes as a “holistic view of our borrowers.”

Digital Mortgage Lender “Better” Goes Where No Fintechs Have Gone

October 8, 2018
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Eric Wilson - headshot 1
Eric Wilson, co-founder, Better Mortgage

One product noticeably absent from fintechs expanding into lending or banking is mortgage loans, but now a fintech startup is looking to disrupt the $13 trillion mortgage industry.

Eric Wilson is co-founder and head of operations at Better Mortgage, a New York-based digital mortgage lender. Wilson explained to deBanked:

“Our industry more than consumer lending is stuck in the pre-internet era and hasn’t been able to leverage the tools to make getting a mortgage feel as simple and as empowering as other products we’re used to consuming online. The industry was waiting for a company like ours to come along with the right skills and engineering staff.”

Better Mortgage is an end-to-end mortgage lender that matches investors interested in giving loans to a subset of consumers. “We take applications and compare with investors for the best price. Underwriting and communication with the borrower happen on the internet,” Wilson said.

The investors are large financial institutions that are in the business of buying mortgage loans.

“We are a direct lender. We originate mortgages. We don’t charge origination fees to customers. We make money when we sell those loans to the secondary market, whether it’s Fannie Mae or any one of our 28 partners,” said Paula Tuffin, Better Mortgage chief compliance officer and general counsel.

In addition to zero origination fees, Better has eliminated commissions. “For us, we believe you should be able to put your storefront online and have consumers find you. We don’t think it’s appropriate or necessary pay one individual to take $6,000 out of a $300,000 loan,” said Wilson.

Instead, Better relies on a team of loan consultants who are “full-time employees or better” who are incentivized to deliver a delightful customer experience,” said Wilson. This differs from the traditional broker model used by much of the industry. “We don’t deal with third-party mortgage brokers. This eliminates a lot of the potential for fraud and harm to investors,” he noted.

Pain Points

The “pain points,” he noted, tied to mortgage lending surpass that of personal or unsecured lending. For instance, greater amounts of data are needed for loans of this size, and there’s the complex and intensive process of risk underwriting, all of which is exacerbated by heavy regulation.

Unlike some of its fintech peers, Better Mortgage has no interest in pursuing an OCC special- purpose national bank charter, or fintech charter.

Wilson is a millennial who had a front-row seat to the mortgage crisis and all of the hardship that fell on consumers. “It was a result of irresponsible lending practices,” said Wilson, “and a failure by regulators to keep lenders in check. So to that end, we are champions of post-crisis Dodd Frank-era consumer protection regulation.”

While operating under a single regulator across all 50 states would streamline the process for Better, it would come at the high price of innovation. “It comes with some pretty hefty strings attached. That regulatory environment is often so challenging to navigate or requirements so onerous … that I would be hesitant to go head-first into a program like this,” said Wilson.

As a result, Better incurs the cost of taking a state-by-state approach, a burden that Wilson says the company is happy to bear: “If we were to pivot and get a bank charter issued by the OCC, we could transact in 50 states overnight. But our ability to innovate evaporates in the process.”

Better is licensed in 19 states and is making an expansion push in which it plans to operate in all 50 states in the first half of 2019. The minimum FICO score for a Better conforming mortgage product is 620.

“By and large, the market is shallow in the application of technology. We’re a tech company first and we acquired a mortgage company as opposed to being a mortgage company learning about tech. This gives us a fundamental advantage in the way we think about problems,” said Wilson.

Varo Money Chief Eyes Next Year for Bank Launch

September 10, 2018
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Colin Walsh-2San Francisco-based Varo Money just cleared a major hurdle in its pursuit to become a bank. Varo Bank N.A. received the preliminary green light from the Office of the Comptroller of the Currency (OCC) to form a de novo national bank. It brings Varo one step closer to becoming the maiden all-mobile national bank in the United States. It’s an exciting development for a fintech play, one that Varo CEO Colin Walsh calls a “game changer.”

“That the OCC is willing to move ahead with the application is very different from what they’ve done before. It marks the beginning of a whole new era in consumer banking,” Walsh told deBanked.

Indeed, the OCC has only issued two national bank approvals in nearly the past decade, the last one of which was a traditional branch-based bank. Varo, meanwhile, is anything but traditional, boasting a mobile, cloud and API-based offering.

“What stands out about the Varo team is we are very experienced and seasoned in banking and consumer technologies. We’ve spent most of our professional lives in the industry. It’s not like we’re trying to figure it out and learning on the job,” Walsh explained. As a result, when regulators peppered Varo with questions and scenarios, the team already knew how banking works.

Now that Varo has the regulatory wind at its back, there’s no time like the present, and Walsh is the first to admit he’s got an “aggressive timeline.”

“Our plan is to open the bank within the next year … The pieces are falling into place now,” he said, pointing to lots of dialogue unfolding with the FDIC for deposit insurance and other components required to build a core banking system. One of the items at the top of the agenda is for Varo to separate from its sponsor bank, The Bancorp Bank, to become its own independent bank, something the fintech has been transaparent about since day one when it was founded in 2015.

Competitive Landscape

Walsh described a competitive landscape of the massive $1.4 trillion banking market of which there are $750 billion of consumer deposits. It’s divided evenly, he explained, between nine major banks and 5,600 smaller banks. The nine banks continue to invest billions into new products and chasing customers. The long tail of smaller banks, meanwhile, “try to do the right thing, but many are sub-scale. They don’t have the technological advantages that some of the new players have,” Walsh said. Varo competes with all of them.

“We compete with the big guys, we compete with the long tail, we compete with fintechs. But with such a big market that has so many issues, it’s ripe for disruption,” said Walsh.

Ron Suber: ‘This Industry Will Look Very Different One Year From Now’

February 25, 2018
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Ron SuberRon Suber wears many hats. His official LinkedIn profile lists him as President Emeritus and Senior Advisor at Prosper Marketplace. Now you can add a new title to his repertoire – the Magic Johnson on fintech. That’s because when it comes to Suber’s legacy, he’s all about the passing game.

“I really enjoy the assist in basketball more than the score or the dunk and so I’m trying to be that leader of assists in our industry, Magic Johnson, if you’ll let me use that analogy … I want to be him for our industry and help everybody win and help the whole thing be bigger, but you have to give the ball to the people in the position where they can score and that’s what I’m trying to do,” said Suber in a podcast discussion with Lend Academy’s Peter Renton, who is also a co-founder of LendIt.

Since Suber stepped down as president of Prosper, his presence in marketplace lending and fintech only seems to have blossomed, which in hindsight may have been the plan all along. The godfather of fintech, as he’s also known, is in the midst of what he’s dubbed a professional rewiring, one that didn’t prevent him from participating in a podcast with Renton.

During the discussion, Suber didn’t shy away from any topic, fielding questions on everything from his investment portfolio, to Prosper, to travel and his views on marketplace lending and fintech. His travels have taken Suber to Patagonia and the straits of Magellan to his favorite Aussie city of Melbourne. Next up Suber plans to explore Africa, including Rwanda and Tanzania.

deBanked AustraliaSuber on Aussie IPO Credible

San Francisco-based Credible, a consumer finance marketplace for millennials, just raised $50 million in an Australian IPO. Suber, who serves as chairman of the fintech, got to know Credible CEO Stephen Dash a few years ago. When Dash needed to raise money, Suber was the first to work with other fintech influencers including a group in Asia to invest $10 million in the company at a $40 million valuation.

Credible followed up with another equity round before deciding to IPO in Australia, where the market is different versus the United States or Hong Kong.

“We were able to meet with the asset managers, the family offices, and the superannuation funds and some of the pension funds in Asia, Hong Kong in particular, and throughout Australia who were very supportive of Stephen Dash, who is from Australia,” said Suber, adding that Credible was the biggest tech/fintech IPO in Australia last year.

Incidentally, Suber has also met with Australia Treasurer Scott Morrison, who sparked a meeting with Suber, Dash, US cryptocurrency exchange Coinbase and other members of the payments market to discuss how Australia can engage with young US entrepreneurs.

“IN MY OPINION, THE WINNERS INCLUDE COINBASE, RIPPLE AND ETHEREUM”

We asked Suber what to expect with crypto and lending, in response to which he told deBanked: “Like the very early days of the internet, there were lots of dot-com companies with high valuations in the hype cycle, little revenue and unclear long-game solutions…think Amazon. Big winners emerged, and the majority lost money on the early bets. The same is true for cryptocurrencies. Enormous winners will emerge. In my opinion, the winners include CoinBase, Ripple and Ethereum.”

Suber on Prosper

Prosper MarketplaceWhile Suber has moved on from an executive role at Prosper, he remains engaged with the company and is close with the leadership team, including CEO David Kimball and CFO Usama Ashraf. Suber’s involved across the board, from customer acquisition, to business development and on the capital markets side of things as well.

“It’s again doing close to $300 million a month in originations, it has $100 million in cash it generates cash each quarter, it has its own securitization channel at this time in addition to the consortium … There’s a lot going on there including some product expansion, so there’s no shortage of things to do with Prosper, which I care a lot about,” said Suber.

Suber on Hindsight Being 20/20

Marketplace lending has had peaks and valleys along the way as it has matured from a nascent segment to essentially a transformational influence on the lending space, with its technology touching everything from the business model, to the borrower to the banks.

But if hindsight were 20/20, there are some things he’d do differently the second time around.

He pointed to Prosper’s acquisition of American HealthCare Lending, which he characterized as a “great decision,” giving the marketplace lender an opportunity to tap the healthcare borrower market. But as in any relationship, you can’t change each other.

“We changed American Healthcare Lending too much and tried to make it into something that it just couldn’t be with the point of sale financing. I think the lesson there is it’s great to do an acquisition, but you have to make sure you execute and keep it fresh and focused and successful once you get it,” said Suber, pointing to the acquisition of Tel Aviv’s BillGuard as yet another example of this.

Prosper also took on too much office space around the country.

“Perhaps we could have outsourced a little more instead of all the hiring. Clearly diversifying committed capital and maybe back then even using some of the capital we raised to do these own CLUB deal securitizations, which Prosper does now very successfully with its balance sheet,” he noted.

airline industrySuber also urged the marketplace lending market to showcase its technology and unique abilities as “tech-enabled finance companies” more. As the innovator that he is, Suber suggested there should be greater collaboration among marketplace lenders, comparing it to the airline industry. He explained:

“So, the airline industry is competitive, they’re competing for dollars and seats and people and talented pilots and the best planes, but the reality is they have to work together, they have to make sure that planes don’t crash and that the industry is on time and does lots of good things together… And that’s really what I think we can do better, a better job of as an industry is really working together, competing, but communicating and making sure everybody lands safely.”

Suber on Marketplace Lending

As the godfather of fintech, Suber is often looked to as a guiding voice on the status of the market. That’s why when he says the industry has advanced in innings, it’s revelatory.

“I think we’re in the home stretch, I think we’ve done the seventh inning stretch,” he said. Suber pointed to Asia, where the market has gone from 3,000 platforms to 50 and in the United States where it’s consolidated from 300 to fewer than 100.

“THE MATURE ARE MATURING”

“The mature are maturing,” he said,” pointing to a race in which some platforms are pulling away from others in terms of valuation, volume and the ability to engage the industry.

“The separation will continue,” he said. “The industry will look very different one year from now.”

Suber on His Investment Portfolio

If you’ve ever wondered which investment areas Suber believes represent the next opportunity, look no further. He’s “struck” by financial inclusion, in particularly a telecom play Juvo for which he’s an advisor and in which invested a few rounds. Juvo is looking to serve the unbanked in the developing world where they lack financial identities, internet access and smartphones. The company has partnered with the likes of Samsung.

“We talk a lot in the online lending industry about top down, super-prime and prime and near prime; this is my way of coming from the bottom up with technology and data and finance to be involved in financial inclusion. I’m really quite excited about that one,” said Suber.

He also likes startup Unison and the emerging fractionalization of the home equity market, which he characterizes as “the next big thing.” In addition to Suber, this market has attracted the likes of Marc Andreessen.

Suber has nearly 20 investments in private companies, including payment companies, financial inclusion and lending. He’s also become a debt investor to some online lenders, invoice finance plays among others. “I’ve really enjoyed the debt side of investing as much as the equity side,” he proclaimed.

Suber on Broader Fintech

In addition to marketplace lending, Suber is also a believer in the point-of-sale (PoS) solution and invoice finance companies, which he says are “fixing the way invoicing is financed and making it better, cheaper and quicker.” And in taking an overarching view of the market, he also likes the cleantech, pointing to solar fintech play Mosaic and a company called CleanCapital.

teotihuacan, avenue of the dead and the pyramid of the sunSuber on Rewiring

Suber is a big believer in rewirement, both in his personal life and in business. He defines it as “redesigning one’s life personally and professionally.” Before he applied it to his career, Suber and his wife Caryn pursued a rewirement in their personal lives, one that included selling their home and material possessions, buying a new home and traveling.

“THERE’S A LOT OF GREEN ON MY CALENDAR”

In 2017, he decided to do the same thing professionally to strike a better balance in his life. Since then, he’s developed a color-coded regiment by which to live, separating the hours of the week across categories including exercise = blue, personal = green, work = purple and teaching and managing his family office = red.

“There’s a lot of green on my calendar,” he said.

For those interested in rewirement, Suber has launched a blog on the topic, with the maiden couple of entries documenting the first 360 days and counting.


Many of Suber’s quotes here originated from his interview with Peter Renton. Renton is the co-founder of the LendIt Conference.

BFS Capital’s Marrache on Canadian Small Business Landscape

January 28, 2018
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Michael Marrache
Michael Marrache, CEO, BFS Capital

It’s been about five months since Michael Marrache took the reins as CEO of BFS Capital. He spoke with us then about the company’s algorithmic solutions, ISO relationships and product pipeline. He recently took some time to talk with deBanked about the key themes in the Canadian market in 2018 – from minimum wage, to the impact of US tax reform on the Canadian economy, to ISO opportunities — and BFS Capital’s role there.

deBanked: When did BFS Capital begin operating in Canada?
 
Marrache: BFS Capital funded its first loan in Canada in 2012. Traditionally, we have approached Canada’s market via our partner channel, both US and Canada based. We plan on increasing that effort in 2018. 

deBanked: Is Canada a market that BFS Capital recognizes as growing?
 
Marrache: Canada is a growing market for BFS Capital, though our non-US markets, including Canada and the UK, currently represent less than 20% of our global $300 million in financings. We see significant upside in both Canada and the UK in the next 12 months.
 
deBanked: What are the themes as you see them for Canadian small businesses and BFS Capital in 2018?
 
Marrache: There might be more insecurity among Canadian small businesses this year. The 2018 minimum wage increase to $14 an hour in Ontario, expected to rise again in 2019, for example, might cause some small businesses to have to cut hours or reduce staff to make up for the expense. They may have to raise their prices, which could impact demand.

Additionally, recent policy and legislative changes in the US could also impact Canada. For example, tax reform in the US, specifically a reduction in the US corporate rate, will put the US on par with Canada in terms of tax rates and similar burdens. At the same time, US regulations are being reduced while Canada’s appear to be increasing. All of this is part of the current US government’s initiative to drive domestic business growth and we are not sure how it will affect Canada’s economy, business confidence and consumer spending.

The Canadian dollar is also forecast to remain weak and might continue to fall for a while longer. With US tax reform potentially boosting the economy here, the US Fed is likely to raise interest rates, which might reduce demand for the Canadian dollar. The CAN$ could further slide if Bank of Canada cuts rates again. [Scotiabank]

At the core, however, Canada has 1.1 million small businesses. Not a small number. There were more than 350,000 small businesses created in Canada in 2016 and 42% of job creation in the country in the past decade stemmed from firms with fewer than 100 employees (CIBC Capital Markets). These businesses need working capital for a variety of needs related to their everyday business and, importantly for where we fit in, it has traditionally been difficult for small businesses to obtain financing from banks.

BFS Capital financing has come into the mainstream because it’s more accessible than a bank loan, less expensive than equity, and less risky than bootstrapping. Our financing solutions also require less commitment than taking on a partner or getting venture capital. Moreover, the few big banks in the market have tended to shy away from small businesses, so we have seen an opportunity with our ISO partner-base and directly, for our lending solutions.

Today small businesses in Canada can get the money in their account in just a day or two and there are a variety of products with different rates and payment options. As the market in Canada gets more competitive the rates will continue to go down.

deBanked: The last time I spoke with you, you talked about automated solutions, transparency tied to ISOs and company culture. Are these at the forefront of the Canadian business as well? Explain.
 
Marrache: Yes. These initiatives are embedded in the company strategy at the top. We believe speed is required but not sufficient; the company must lead with a culture of service and transparency. We are also investing in data science to improve risk profiling and process efficiencies for every partnership and every financing, including in Canada. These initiatives have been instrumental to our strengthened partnerships in the US and we expect these to benefit our Canadian partners as well.
 
deBanked: Can you provide any illustration of the number of Canadian merchants on the BFS Capital platform or the amount in loans or MCAs you’ve deployed in the country?

Marrache: Although at a more modest volume than our business in the US, since entering the Canadian market in 2012, BFS Capital has achieved originations growth of approximately 100 percent on a compounded annual growth basis.

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