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
Get Paid More in Alternative Business Financing
May 5, 2015Maybe you’re happy with your current job now.
Maybe you’re making a lot of money.
Maybe you’re not.
Or maybe you’re at least curious to see what’s out there?
This is an exciting time to be in the alternative business financing industry. The OnDeck IPO made several senior-level people in the company instant multi-millionaires, many of whom are only in their 30s.
Now is the time
Back in 2007, payment processing professionals thought that the age of merchant cash advance was over. A Green Sheet writer in August of that year actually wrote a story about cash advance and said, “I think that boat has come and gone, and I missed it.”
And yet there were 20-somethings making between $200,000 to $1 Million a year. I knew a few of them and for their sakes, I won’t name names. The industry has treated those who are good at it very well.
Not everybody got rich though.
The industry got corporate really fast in 2008 and 2009 when it became apparent you couldn’t run a funding company like it was Delta Tau Chi in the movie Animal House. Commissions and salaries shrank and then leveled off for a time. But then the ACH payment methodology renewed the industry’s wild growth and made every business owner in the country a potential candidate for funding, rather than just those processing more than $5,000 a month in Visa/Mastercard sales.
Commissions shot up, way up. Opportunities exploded.
Today, having experience in the merchant cash advance or alternative business lending space is extremely valuable. It’s a buyer’s market. Demand for qualified and experienced professionals by funding companies and brokers far outpaces those looking for work. There are 20-somethings making well into the six figures again, particularly if they’re good at sales.
Other positions are in demand too: Operations, Underwriting, Administrative, Collections and more. If you have experience in these areas, there are employers very eager to talk to you.
But maybe you’re 100% happy.
Or maybe you’re not.
It’s a buyer’s market
Because the demand for experienced individuals is so overwhelmingly high, we’ve created the deBanked Jobs network and put the ball fully in the court of the job candidates. That means you can fill out a blind profile that details your background, but keeps your identifying information away from employers. Employers can view the background but they won’t be able to see your name, email address, or username. If they like your profile, they can contact you through the site.
You’ll be able to see who the employer is and their message when you log on. Only if you choose to email them or call them to schedule an interview will they ever know who you are. If you don’t do either, they’ll never know who you were. Like I said, the ball is in your court. Why not see who comes knocking once they’ve seen a little bit about you?
Initially, we’re only allowing a handful of vetted employers on the network to prevent abuse and solicit feedback. As of now an employer can only send you one message.
We’re also not sending email notifications so if you’ve registered with your work email address, job notifications will not be sent there. They can only be viewed by logging on.
If you no longer want your profile to be discoverable by employers, just untick this checkbox and click save. It’s unticked by default so if you’ve already set up a profile but forgot to tick the box, you won’t be receiving any messages anytime soon.
Anyone can create a jobs profile so long as they have a deBanked forum account. If you don’t have one, register here. Then just log on to create a profile on the network at https://debanked.com/jobs/.
Have feedback? Notice a bug? Are you an employer looking to hire that wants access to this? Email sean@debanked.com.
The industry’s growth is on fire. Are you happy with your place in it???
OnDeck Q1 2015 Earnings Call
May 4, 2015OnDeck (ONDK) is scheduled to release Q1 2015 earnings today at 5pm EST. Anyone can register to listen to the call via web HERE or by dialing in through (877)201-0168 with conference ID 23530259.
OnDeck closed Friday at $19.29, just 8 cents below where it closed leading up to the 2014 Q4 and year-end earnings call on February 23rd. By that measure, the stock has been relatively flat.
Recently, the company announced expansions into Canada and Australia, though analysts such as Henry Coffey of Sterne Agee remain skeptical.
“If the opportunity is so large in the U.S., why go halfway around the world to lose money?” Coffey told the Wall Street Journal.
The Street doesn’t see eye to eye on OnDeck. Compass Point issued a sell rating with a price target of $14 while Deutsche Bank issued a buy rating with a price target of $28. Meanwhile, news media continue to disseminate incorrect information about the company by often times referring to them as a peer-to-peer lender.
OnDeck has never been a peer-to-peer lender.
In April, the company announced a strategic partnership with Prosper, though the extent of their collaboration is uncertain.
OnDeck predicted a net loss for all of 2015 in their 2014 year-end report. Consequently, it is likely OnDeck will report a loss today for Q1, though analysts expect year over year revenue growth of almost double.
Wasted Leads, a Plague in the Business Financing Industry
May 1, 2015Many people don’t know this, but a few years ago I dabbled in online lead generation for business lenders and MCA companies. I did online marketing, captured prospects, qualified them using a very simple algorithm, and then directed them to the appropriate companies for a fee. I don’t do this anymore.
One of the first features I added to boost conversion rates of the recipients was auto-phone connect. It worked like this:
- Prospect fills out a web form with their phone number
- Algorithm qualifies it
- Data is sent to appropriate lender/funder via API or email
- My phone system dials the recipient’s live sales line
- Sales rep picks up
- My phone system then dials the applicant’s phone number and if they answer, they’re immediately connected to the sales rep on the other end
The entire process was fully automated. An applicant could fill out a form and be called with a live sales rep on the other end in literally 3 seconds. Basing the idea on studies performed by experts like Dr. James Oldroyd, who believes the odds of reaching a lead declines exponentially after the first five minutes, I thought my system was pretty damn brilliant.
Not quite. Every single company that tried it hated it. There were problems on all sides. The receiving companies would be too busy on other calls to answer the auto-connects, they’d be out to lunch, or the calls would come after working hours. Some receiving companies felt they didn’t have time to digest the lead they were being auto-connected to since the call was being connected before their CRM or email was even processing the data. That meant right after the merchant had just filled out a web form with all the necessary information, the sales rep being auto-connected to them didn’t have it yet and thus the merchant had to frustratingly state it all again.
Even worse, sales reps would answer the call and wait to be auto-connected to the applying merchant, but many merchants wouldn’t answer the phone on their side even though they had just literally filled out a form seconds ago requesting somebody call them. That meant sales reps were often answering dead calls. Doh!
Technological flaws aside, some of the casual feedback I got was that seasoned sales reps preferred to contact leads at their own pace anyway, with the belief that it improved their closing percentages. Why go into a call completely unprepared in seconds or minutes when you could mentally digest the prospect’s application and possibly do a little research on them online before reaching out?
But Oldroyd’s research would argue that it was better to reach out as soon as possible because waiting a span of mere minutes exponentially increases the likelihood the prospect will not even pick up the phone when you call.
So what was the happy medium or best method? It’s hard to say since I didn’t continue to evolve it or test further. I bowed to the pressure of the lenders and funders, all whom wanted it gone and I disabled the automatic phone connects for good.
Meanwhile in 2015
An experiment conducted early this year by FinServ’s Steve Conner found that 100% of sampled business financing brokers/ISOs in the industry waited longer than five minutes to call an inbound web lead. That’s a long enough delay by Oldroyd’s standards to infer that many merchants will no longer be interested by then to even accept the call.
Conner pretended to be a merchant and completed web forms on the websites of 52 brokers and funders in the industry. The fastest broker called in 6 minutes, but the average (for those that actually called) was an astoundingly slow 742 minutes, MORE THAN 12 HOURS LATER! More than half never even called at all. What the heck?!
Back in September I said that lenders will pay as much as $200 for an exclusive inbound lead in this industry. The kicker? Conner’s experiment and Oldroyd’s data say that brokers are waiting until the lead is already pretty much dead by the time they finally attempt to make their first contact.
No wonder costs per acquisition are so high?
The numbers were better for direct funders even though more than half of them never called the prospect at all. For those that did call, the average time to make contact was 17.5 minutes, far better than the average of 12 hours for brokers.
While I do not know specifically which websites were sampled, Conner’s full report (which you can download online) says that they researched the companies beforehand.
One has to wonder what happened to the leads for which nobody called. Were they filtered out and rejected by an algorithm? And if so, shouldn’t the prospect deserve to know?
While receiving a phone call from a sales rep literally seconds after completing a web form may seem creepy or overly ambitious, there’s nothing more disconcerting than complete silence. Where exactly did your information go then?
In July 2011, I pretended to be a merchant (much like recently featured loan broker William Ramos did) and filled out a single MCA website form to find out who would call me and what they would say. I still remember the name of the make-believe business I used because I still get called and emailed regularly by that company to see if my delicatessen is ready to get funded. It is now four years later.
“I’m still shopping around,” I tell them.
The periodic emails don’t bother me. Many years ago, they paid for my contact information, possibly as high as $200 for it. They might as well keep trying.
1-call-close or bust
Ken Krogue, the CEO of InsideSales and a Forbes Contributor, discovered after his research that sales reps only make 1.3 call attempts on average to a lead before giving up. He tested over 10,000 companies in fifteen secret shopper studies. “We fill in a lead on their Web site with a real phone number and email address and track how fast they respond and how many calls or emails they make,” he wrote on Forbes.
35% to 64% of sales leads never get called at all according to Krogue, whose results mimic the numbers Conner experienced in the business financing industry.
In off-the-record conversations I’ve had with a handful of lead generators in this space (companies that are neither brokers or funders), a leading challenge they face with buyers obsessed with costs and closing ratios is that the buyers don’t always end up calling all the leads or they call them once and never call them again.
There’s pressure on lead generators to provide 1-call-close quality leads. If the merchant can’t be closed on the first call, some reps are just throwing them in the trash, never to be remarketed to ever again.
“Spoiled,” was the word used by one industry veteran to describe the newer generation of sales reps who have walked into an industry growing by leaps and bounds. So many leads are coming in, that they don’t even know what to do with them all.
Research argues however they should be calling them inside of five minutes and of course following up. And there’s no reason that so many are never called at all.
One issue Conner discovered in his experiment is that several companies in this industry had broken websites. The HTML or javascript wasn’t set up right and the forms couldn’t even be submitted. :::face palm:::
A lot of money might be pouring into this industry, but a lot of money may also be getting flushed down the tubes.
Do you know your Web form-to-call response times? You should…
Letter From the Editor – May/June 2015
May 1, 2015
Alternative lending is full of bubbles. I’m referring to the inefficient exchange of information, not runaway valuations, though that’s something to explore in a future issue.
New financial products can be just as intimidating to the professionals working within the wider industry as they are to the customers they’re being offered to. I’ve blogged often of my experience investing in Lending Club and Prosper notes, something I assumed everyone in the business finance world could relate to. Alas, I find that usually raises more questions with readers than it does answers.
Are you just nodding your head and smiling when your peers talk about their alternative lending portfolios? There’s no better way to understand today’s loan marketplaces than being an investor in them, even if it’s just a small amount. Whether it’s merchant cash advances, real estate loans, student loans, or credit card debt, there are plenty of opportunities and worlds to explore. You should conduct research, diversify, and be smart of course. You don’t want to be trapped in a bubble.
Outside the knowledge bubbles, we have regional enclaves. There are entire city neighborhoods being overrun by small business financing startups. In New York City, it had long been Midtown, but some shops started moving south and before anyone realized what was happening, Wall Street had been overrun by a new breed of broker. The culture in lower Manhattan is different than you might find in Midtown or in the next two largest industry hubs, Miami and San Francisco.
In this issue, we’ll begin to explore the industry’s bubbles, both geographically and structurally.
–Sean Murray
Defraud Merchant Cash Advance Companies, Go to Jail
April 27, 2015
We once dubbed the summer of 2013, the summer of fraud, after merchants began exploiting alternative lenders at record levels. Well it looks like in at least one instance, there were consequences.
Just two months ago, the Essex District Attorney’s office in Massachusetts announced that, “six people were arraigned in Haverhill District Court on numerous counts of larceny, money laundering and fraud following a three-month investigation involving local, state and federal authorities into a false invoice scheme.”
But invoice factoring wasn’t the only thing on the crew’s hit list. Sources and research revealed that among the victims were at least five merchant cash advance companies, the names of whom we won’t mention.
At least one funding company’s UCC was filed two weeks after the defendants had been arrested, alluding to the possibility that they had obtained one last merchant cash advance in the days prior.
The Salem News reported that the group is alleged to have netted at least $700,000 over a five year period.
47-year old Susan Yerdon was fingered as the mastermind and was sentenced to three and a half to six years in state prison.
According to The Salem News, “she pleaded guilty to money laundering and other charges, will be required, in exchange for her sentence, to testify against some of her codefendants.”
“Police seized a Mercedes Benz E Class AMG, a GMC Yukon Denali, a BMW 328i, a Cadillac DTS, and a Pontiac Solstice.”
Rand Paul Speaks at Bitcoin Event
April 20, 2015
Yesterday, Senator Rand Paul spoke at a private Bitcoin event produced by Blockchain Technologies Corp in Midtown Manhattan. It was a gathering of monetary technophiles dressed in their Sunday best.
Paul’s main reason for supporting the Bitcoin movement/technology/currency was the ability to bypass the expensive fees tacked on by credit and debit card issuers. A business that only had a 3 or 4% profit margin could double its profits by eliminating merchant processing fees, he said.
The event lasted for about two hours with Paul only making an appearance for about 15 to 20 minutes.
Is Alternative Lending An Illusion? (LendIt 2015 Summary)
April 18, 2015More than 2,400 people packed into the LendIt conference last week in New York City and everywhere you turned, startups were boasting of their ability to lend billions of dollars to underserved consumers and businesses. Companies not even old enough to have attended last year’s LendIt conference had reportedly lent tens of millions or hundreds of millions of dollars already. Is it all an illusion?
Investors circled like hawks to try and grab an opportunity into this exploding market. Alternative lenders were practically being tackled by VCs, Private Equity firms, and specialty finance lenders:
Technological innovation is disrupting the status quo, attendees echoed. Surely banks can afford to develop new technology to compete, so why haven’t they? Lendio’s Brock Blake wasn’t afraid to challenge the Short Term Business Lending Panel on this. “Is there real innovation happening or is there regulatory arbitrage?” he asked.
The panelists mostly agreed that it was a combination of both. Stephen Sheinbaum, founder of Merchant Cash and Capital (MCC) and BizFi, said “regulation is not something that scares us in any way.” That’s not surprising considering MCC has survived more than ten years in business and fellow panelist CAN Capital has survived more than seventeen.
But for the newer players entirely reliant on third party brokers or dependent on a Reg D exemption to issue securities, their success may indeed be regulatory arbitrage. And time is on their side.
Karen Mills, the former head of the Small Business Administration asked several regulatory bodies who would stand up to oversee small business lending. “No one stood up,” she said.
It’s the brokers that worry some folks most, an issue that PayPal and Square Capital do not have to contend with at all. OnDeck CEO Noah Breslow stated, “there is always going to be a set of customers that want to shop and want to have help.”
Kabbage’s Kathryn Petralia explained that only 2% of their business comes from brokers and their fees are capped at 4%. CAN Capital’s Jason Rockman argued that it’s about working with brokers that share their values. MCC’s Sheinbaum said, “you have to be willing to not do business with some of the unscrupulous players out there.”
But while these industry captains minimized the role that brokers play, 2015 is already being dubbed the Year of the Broker.
The regulatory environment isn’t the only issue to be worried about, skeptics argued. There was cautious alarm about the market’s viability when interest rates rise or the economy takes a turn for the worse.
“I think there’s going to be a shakeout,” said Steve Allocca of PayPal. MCC’s Sheinbaum explained that when he sees other funders doing deals that don’t appear to make sense, to not feel pressured to do them as well. “Stick to your disciplines. Stick to your guns,” he preached.
Fundation CEO Sam Graziano argued that small business lending is already very risky. The lifetime default rate on 7(a) SBA Loans is 20%, he said. Graziano, who hates the term alternative lending prefers to refer to the industry as digitally enabled lending.
And digitally enabling is something that OnDeck has focused on. In Breslow’s presentation, he said that applying offline for a loan takes 33 hours of work on average. Banks are shuttering branches at a record rate, he added.
Banks are dead, said many in attendance. Kathryn Petralia of Kabbage disagreed. “The death of banks has been greatly exaggerated,” she argued on a panel.
Indeed, Mills’ report shows that total outstanding debt on business loans by banks dwarfs the alternatives by more than 50 to 1.
But former U.S. Treasury Secretary Larry Summers is convinced the tide is turning.”The conventional financial sector has, in important respects, let all of its main constituents down over the last generation, and technology-based businesses have the opportunity to transform finance over the next generation,” he said during the keynote speech.
With conference sessions looking and feeling like a cramped NYC subway during rush hour, the popularity of alternative lending is no illusion.
But healthy skepticism is at least creeping in while the industry marches forward. Changes in regulations, interest rates, and economic activity will separate those simply riding a wave from those that have created something real. Expect companies that exhibited at this year’s conference to be gone by 2016 or 2017, said several panelists.
The final count of LendIt attendees was 2,493 people. 150 people who tried to register at the last minute were turned away. More are expected to attend next year.
Objectively, alternative lending appears to be very real.
Is NAMAA Reborn? Meet the Small Business Finance Association
April 14, 2015Almost seven years ago exactly, the North American Merchant Advance Association announced their presence. As of today, they are now officially the Small Business Finance Association (SBFA). Back then, a release dated April 15, 2008 stated:
The North American Merchant Advance Association, Inc. (NAMAA) has recently been created to represent merchant cash advance providers and to promote competition and efficiency throughout the merchant advance industry. NAMAA’s members will have the opportunity to share industry education and professional development, ethical standards and best practices guidelines, the development of industry relevant products and services, and the engagement in regulatory and legislative advocacy.
Of the ten original members, a handful are no longer operating. NAMAA’s membership in 2008 arguably encompassed the entirety of the merchant cash advance industry sans AdvanceMe (now named CAN Capital). Today, the SBFA website currently lists seventeen members. The organization has clearly grown but it pales in comparison to the size of the industry in 2015.
Internal data indicates that there are well over one hundred direct providers of merchant cash advance. Several hundred more are ISOs/brokers that co-invest in merchant cash advance transactions (Strategic Funding Source has had more than 200). And there are more than one thousand ISO/brokers that resell the product nationwide.
On this basis alone, less than two percent of industry providers and resellers are members of the trade organization. Granted, the seventeen member companies likely make up at least 15% of the industry’s funding volume. Member company Merchant Cash and Capital for example, announced just last month that they had funded $1 billion since inception.
Some have viewed the organization’s membership as overly exclusive and resistant to change. A seasoned veteran of an ISO that wished to remain anonymous said prior to the organization’s announced changes that, “NAMAA served a purpose for a long time but as the industry has changed, they have not.”
Ironically, Goldin’s statement in today’s release couldn’t be any more well timed. “With the alternative financing industry growing exponentially into a multi-billion dollar industry, we felt it was time for the trade association to evolve with it and open itself up to all types of small business alternative financing providers hence the name change to Small Business Finance Association,” he said.
The shift clearly acknowledges the true dynamic of the industry’s growth, that it’s not all merchant cash advance anymore.
SBFA Vice President Jeremy Brown is quoted in the release as saying, “NAMAA started primarily as an association of merchant cash advance providers and has evolved into an association for all types of small business alternative financing – particularly those providers of business loans.”
But with lenders added to the mix of potential constitutents, is the SBFA a little light? The SBFA will now represent less than 1% of the companies selling or reselling merchant cash advances and business loans. In growing membership however, patience may perhaps be a virtue.
Jared Weitz, CEO of United Capital Source, said, “NAMAA is a beneficial association in the industry and should be choosy with who they let in.” As a broker, his company has historically not been eligible for membership.
Similarly, Chad Otar, Managing Partner of Excel Capital Management, whose company has also not been historically eligible for membership, said, “The aim of NAMAA is to help out our audience to understand and remember the information we stand for as funders and ISOs.”
Otar’s point belies a troubling trend, that many players in this industry disagree about what it is they stand for.
In a deBanked Magazine article, titled, Stacking: Is it Tortious Interference?, Robert Cook, Cathy Brennan, and Kate Fisher of Hudson Cook, LLP delved into the industry’s most polarizing debate, the practice of entering into a cash advance transaction or loan knowing that the merchant has one or more open cash advances or loans with a competitor. They wrote:
On one side are companies that only originate first-position deals. These companies generally include a clause in their contracts prohibiting the merchant from obtaining another merchant cash advance or loan until the company receives all of the future receivables it has purchased or is fully repaid. First-position companies view stacking as a threat to recovery of money advanced or loaned to merchants. On the other side are companies that routinely offer second or third-position deals. These companies argue that merchants with adequate cash flow to support additional advances should be free to obtain them.
Though I did not ask the SBFA directly if the practice of stacking is an immediate disqualifier for membership, the organization has long been known to advocate against it. In Year of the Broker, Goldin commented that stacking litigation is underway.
Lawyers at Hudson Cook, LLP echoed the same. “In the last several months, at least two first position companies have sued their stacking competitors, claiming that stacking constitutes tortious interference with contractual relations,” they wrote.
The lawsuits come on the heels of the International Factoring Association (IFA) ban on merchant cash advance companies, citing tortious interference as the main driver.
After meeting with board members from both associations, the decision was made to deny membership to merchant cash advance businesses. This decision was based on numerous complaints and increased scrutiny that could negatively impact the factoring industry. By distancing ourselves from the merchant cash advance industry, we hope to diminish the chance of potential legislation.
-Commercial Factor July/August 2014
With several merchant cash advance companies left high and dry by the IFA, a potential leadership void has been created.
“As every industry evolves and shapes itself, some sort of governance and guidance is always needed,” said Otar. “This guidance is something that NAMAA holds itself responsible for,” he argued.
“The question is, can they reestablish themselves as a powerful voice that demands respect?” asked an industry veteran on the condition of anonymity.
Goldin assured me that the updated version of the organization’s best practices guide will be a public document.
Industry brokers like Otar are eager to comply with an established code of conduct and play any role they can in its creation. “Most of the business driven industry-wide is brought in through various ISO channels, which are the ones responsible in presenting the product offered by the funders to the end client,” he said.
That enthusiasm may be resonating with the SBFA. Goldin communicated that they are working towards different types of memberships, hinting at the possibility that brokers might one day be extended an invitation to join.
“We are exploring different levels of membership / pricing,” Goldin wrote in an email.
For the right price, they will likely find a lot of eager applicants.
