Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Articles by Sean Murray
Marketplace Lending and Investing Conference (Part 1)
November 5, 2015Source Media’s Marketplace Lending and Investing conference kicked off today with a bang. During the opening keynote, two VPs at Goldman Sachs predicted that the industry would shift to retaining loans on balance sheets instead of continuing with the gain-on-sale model. The irony is that OnDeck appears to be going in the opposite direction since their recent path to profitability is being made possible by their new reliance on gain-on-sales.
The available solutions presented to small business financing problems at the conference covered the entire gamut. Pango Financial president Candice Caruso for example, explained that small businesses can get funding by rolling over money from a qualified retirement plan. Pango’s model capitalizes on The Employee Retirement Income Security Act of 1974 (ERISA), a 40-year old law that can be streamlined with the help of technology. ERISA established the regulation that allows for a private company to use retirement funds as business capital through an Employee Stock Ownership Plan (ESOP).
Companies like Pango have found a clever way to scale the benefits out of old policies and it’s opportunities like these that have everybody excited. QED Partners founder Frank Rotman summed it up best when he recited his own Wall Street Journal quote, “It feels like the Internet in 2000. Everyone is chasing it, but they aren’t sure what ‘it’ is.”
Rotman also cautioned lenders who are trying to throw money at technology as a fix to scale their businesses. You can’t just throw money at technology, he argued. “Technology needs to be in your DNA.”
For marketplace lenders like QuarterSpot, they fit that bill well. Their CEO Adam Cohen was the Chief Software Developer for JetBlue Airways.
And among some of the other names in attendance, many are on the fast track for success. Expansion Capital Group for example just closed a $25 million credit facility with Northlight Financial and Bastion Management. And there’s also Pearl Capital who was recently acquired by Capital Z Partners. And Herio Capital, founded by one of OnDeck’s earliest employees, recently reached a new funding milestone.
At the end of the day, Anjan Mukherjee, the Counselor to the Secretary and Deputy Assistant Secretary for Financial Institutions of the U.S. Treasury Department told attendees not to bank on regulatory interest being forgotten about with a new presidential administration. Certain agendas can be “de-emphasized”, he said, but overall at least as far as the Treasury is concerned, enough important people will not transition away. They won’t forget everything, he explained.
Should Alternative Lenders Be Regulated? (Video)
November 4, 2015Funding Circle’s Sam Hodges went back on Bloomberg TV to answer questions about the rise of marketplace lending. On the subject of regulation, Hodges explains that their business model is already pretty heavily regulated.
Meanwhile, David Stockman, a former US Congressman and former director of the Office of Management and Budget, said the regulators should stay away from alternative lenders. Video below:
Jimmy Kimmel on Shark Tank (Video)
November 3, 2015Jimmy Kimmel and his sidekick Guillermo decided to walk a mile in the shoes of a small business and raise capital from the experts. As you can imagine, it was beautifully done.
Can’t see the video? Click here
OnDeck Q3 Earnings Report Shows Positive Signs (ONDK)
November 2, 2015
Back when OnDeck was telling analysts that they were focusing on growth, critics said they should be focusing on profitability. Now that they’ve had their second straight profitable quarter, critics are pointing out that loan origination growth has slowed. OnDeck can’t win with them, but this quarter’s results were the closest they’ve come to proving themselves.
They originated a little over $482 million worth of loans and reported a profit of $3.7 million. Selling loans through their marketplace to institutional investors is generating immediate income and creating the profits they lacked before.
The reliance on funding advisors (ISOs/brokers) shrank from 20.6% in Q2 to 18.6% in Q3. During the Q&A session, OnDeck CEO Noah Breslow hinted that they may have reached a floor in that ratio. That channel could stabilize and even grow a little bit, he said.
When one analyst asked whether or not loan aggregation platforms were counted under funding advisors or strategic partners, Breslow said they are counted as strategic partners. Only 4% of OnDeck’s loans come from these loan aggregation platforms, the company’s execs admitted, putting to bed any notion that loan aggregators had leverage over OnDeck’s business.
In Q2, analysts became alarmed over the competitiveness of the direct mail channel. This time around, Breslow said the environment hasn’t gotten more or less competitive, that it was about the same. Competition is stabilizing and the advantage goes to the scaled players, he argued after describing their ability to target, analyze, underwrite and fund faster than others. Breslow added that they are not banking on relief from the competition to carry out their long term objectives.
A sentiment discussed on the call but not exactly argued by anyone is that it’s become pretty late in the game for new lenders to start entering the field, the implication being that the long-term competition is already in business, instead of it being some new companies that have yet to form.
The regulatory environment was described by OnDeck as “stable.”
All in all, the results of Q3 were optimistic.
Join us at the Marketplace Lending and Investing Conference This Week
November 2, 2015The Marketplace Lending & Investing Conference produced by Source Media begins November 4th in New York City. Hosted at the New York Hilton Midtown, attendees are promised an all-star speaker lineup that includes Noah Breslow of OnDeck, Stephen Sheinbaum of Bizfi, Angela Ceresnie of Orchard, Sam Graziano of Fundation, Candace Klein of Dealstruck, Peter Renton of Lend Academy, and many more.
In the meantime, check out this preview podcast between the conference hosts and Sam Granziano, the CEO of Fundation.
Listen to OnDeck’s Q3 Earnings Call
November 1, 2015
Anyone can listen in to OnDeck’s Q3 Earnings call on Monday, November 2nd by dialing into (877) 201-0168 and using conference ID 55963420.
OnDeck closed sunday at $9.52 and has been relatively stable since August 6th, but has not been able to gain any ground back toward its IPO price of $20.
In their Q2 earnings call, the company admitted that they were up against competition in the direct mail channel. CEO Noah Breslow argued their strategy was to “break through the clutter” and “better communicate our value proposition.” He later added that “competition for customer response remains elevated.”
Back in August, Compass Point analyst Isaac Boltansky wrote to subscribers that the Madden v Midland ruling would hang over the heads of OnDeck and other marketplace lenders.
In an article by Deborah Festa, Robert C. Hora, Douglas Landy and Albert A. Pisa of Milbank, Tweed, Hadley & McCloy LLP, they wrote that one thing that could be done is to simply avoid Second Circuit jurisdiction. “Madden is directly binding if a defendant to a usury claim is sued in and subject to personal jurisdiction in the Second Circuit,” they wrote. “Excluding loans to borrowers located in the Second Circuit may reduce the risk of a usury lawsuit being filed in that circuit,” but added that it wasn’t a foolproof fix.
Meanwhile, Manatt, Phelps & Phillips, LLP attorney Brian Korn said at an invite-only event hosted by Herio Capital on October 8th, that the Madden v. Midland ruling was a non-event for business lenders.
And in Lending Club’s Q3 earnings report, they said, “In regards to our loan issuance framework, we continue to see no measurable impact from the Madden decision that was rendered in May this year by the second circuit Court of Appeals.”
OnDeck is therefore likely to be evaluated on their ability to scale originations as well as keep marketing costs and bad debt down. Analysts may also consider whether or not the lender can defend its relatively high costs and collection practices in an age where the mainstream media is scrutinizing alternative lenders with a closer eye.
The company responded to a front-page NY Times article that put them in an unflattering light earlier this month.
Advertising in deBanked’s E-mail Newsletters is Sold Out
November 1, 2015deBanked’s twice-monthly email newsletters have had such tremendous industry reach that advertising space in them is currently sold out.
Thanks to everyone that has made them such a huge success. Our readership continues to get bigger and bigger.
deBanked still has limited availability in its other channels including website sponsorship, print magazines, and email blasts. If you are interested in that, please give us a shout.
Money2020 Photos
November 1, 2015Below are some of the shots we got at the 2015 Money2020 Conference in Las Vegas!
Did you go to money2020? Feel free to send us some of your photos 🙂
