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
Coinbase Generated $800M Profit in a Single Quarter
April 7, 2021
The emerging powerhouse in the fintech industry isn’t a lending or payments company, it’s a cryptocurrency exchange. One can express as much skepticism as they want about Coinbase, but the company, which goes public on the Nasdaq next week, generated nearly $800 million in profit in Q1 of 2021 alone.
Coinbase has 56 million verified users and holds $223 billion in assets, equal to about 11.3% of the entire crypto market.
The company says it is “building the cryptoeconomy, a more fair, accessible, efficient, and transparent financial system enabled by crypto.”
The company launched in 2012. Its last private market valuation was at about $90 billion.
Facebook Ads Don’t Work For Finance?
March 29, 2021
In an op-ed by Brittney Holcomb in Leasing News, Holcomb wrote that “when it comes to developing lead generation, social networks are not the answer.”
Holcomb breaks down her reasoning, explaining that Likes do not equal leads. It’s worth a read if you have advertised or have thought about advertising on Facebook, but I will respectfully disagree with her on the basis of her arguments.
“People don’t log on to social networks to search for products or services,” she writes, “They use social media to communicate with their friends and family.”
Perhaps so, but there are many different ways in which to approach Facebook advertising, and I say this as someone who has had success advertising in the B2B universe on the platform. Users weren’t searching for my product or service either and I wasn’t advertising for the sake of branding, something I personally do not even consider doing.
You can use social networks like Facebook to convert a lead you almost got or lost. For example, not everybody that comes to your website ends up completing a form and for those that do, fewer yet will end up signing a contract.
What happens is your prospects get distracted, decide to do more research, or get wooed by a competitor. Maybe they just weren’t convinced the timing was right. This is where social network advertising comes into play because you can relay that website visitor data or unclosed leads to Facebook and serve ads ONLY to those prospects. By knowing exactly where your prospect left off with you, you can set your campaigns to target them with the most appropriate advertising. That prospect might not be searching for your product on Facebook (just as Holcomb suggests), but you can appear right there like magic in their feed to remind them of exactly where they left off last time they engaged with you.
You can pretty much do anything you want especially if you’re actively managing and monitoring your web traffic and analytics.
Maybe you only want to serve ads to visitors who didn’t fill anything out on your website but clicked around for more than 2 minutes. Worth a shot, perhaps?
Consider the person shopping around who spent a few minutes researching a financial solution on three different company websites. They don’t fill anything out but instead resolve to make a decision on where to apply in the next couple days. That night and each night thereafter, one of those companies appears in their Facebook feed constantly, telling them why they’re better than the competition or that they’re the goto-brand. It’s an ad, yes, but it creates the impression that this company is everywhere and can place them top of mind when it’s time to decide. That can be money well-spent. It’s also the fundamental way in how social media advertising works these days, which is why we sometimes get creeped out by how well ads seem to know us. Anyone can do this.
Admittedly, one might not have any leads to target on social media if they don’t have website visitors to begin with, hence why paid search would be a better medium to choose if given the option between one versus the other.
I believe the two are not mutually exclusive, however. First get the prospects to your website (be that through paid search or organic means or whatever), and then close those prospects through social network advertising. Your competitors are already doing it and that’s why some of them are doing so well.
Facebook Ads Can Work For Finance. They just have to be properly tailored. And once you get it right, you’ll be kicking yourself for not having taken advantage of it for so many years.
Funding Circle US Originated $800M in 2020, More than 90% of Borrowers Were Making Payments
March 26, 2021
Funding Circle US revealed originations of £581M in 2020, equivalent to about $800M at current exchange rates. More than 90% of the company’s American borrowers were making full regular payments on their loans, Funding Circle reported. Approximately 7% were on a “payment holiday” at year-end or were not paying.
Funding Circle’s US loans generate low annual returns, its highest being a projected return of 4.1% to 4.9% for its 2016 cohort. Its 2020 cohort is projected to generate an annual return of between 1 – 3%.
Overall, Funding Circle reported a total net loss of £108.1M (approx $150M US) on just £103.7M in revenue, a massive loss that stemmed entirely from the first half of the year, attributed mostly to a write-down in “fair value.”
Funding Circle’s primary market is the UK. When comparing the market with the US, the company said that the US is in an earlier stage of development even though the market is 5x larger.
No, Corporations Can’t Sue For Usury in New York, Appellate Division Rules
March 25, 2021
Businesses hoping to use the New York State court system to invalidate an MCA or financing agreement, suffered a major defeat on Wednesday. The Appellate Division, Second Judicial Department, ruled that corporations cannot assert usury as a cause of action, even if the allegations meet the criminal usury basis. In deciding this, the Appellate Court was simply affirming what New York’s statute on the matter plainly says.
This has not stopped plaintiffs from asserting criminal usury as a cause of action in New York, however, but now such attempts will probably be fruitless.
In May 2016, Global Merchant Cash, Inc. (GMC) entered into a merchant agreement to buy the future receivables of Paycation Travel, Inc. Paycation breached the contract and GMC ultimately filed a confession of judgment. Paycation then tried to vacate the judgment by suing GMC on several grounds including its theory that the judgment was void and unenforceable because the underlying agreement was for a criminally usurious rate of interest.
GMC moved for summary judgment to dismiss the complaint and its motion was denied. GMC appealed the decision insofar as it believed Paycation could not assert criminal usury as a basis for a cause of action.
On March 24, 2021, the Court rendered its decision on the narrow debate in GMC’s favor.
“A transaction . . . is usurious under criminal law when it imposes an annual interest rate exceeding 25%” (Abir v Malky, Inc., 59 AD3d 646, 649; see Penal Law § 190.40). General Obligations Law § 5-521 bars a corporation such as the plaintiff from asserting usury in any action, except in the case of criminal usury as defined in Penal Law § 190.40, and then only as a defense to an action to recover repayment of a loan, and not as the basis for a cause of action asserted by the corporation for affirmative relief (see LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 666; Intima Eighteen, Inc. v Schreiber Co., 172 AD2d 456, 457). Accordingly, the Supreme Court should have granted that branch of the defendant’s motion which was for summary judgment dismissing so much of the first cause of action as alleged criminal usury in violation of Penal Law § 190.40.
This decision did not decide the entirety of the case and litigation between the parties is still pending. It does, however, bring conclusive clarity to whether or not corporations can assert usury as a cause of action, even if it’s alleged to be criminal.
The case number is 52579/2017 in Westchester County in New York Supreme Court. The Appellate decision can be viewed here.
Tune In Tuesday at 10:30 AM EST: deBanked TV Live – With Guests From the Business Funding Industry
March 22, 2021
deBanked is hosting a livestream broadcast tomorrow beginning at 10:30 AM from a venue in Midtown Manhattan with guest speakers from two broker shops and a business funding company. There is no need to register for anything. Anyone can tune in live at deBanked.com/tv to watch it. The broadcast will run for 2.5 hours and end at 1 PM. This is an-person event being broadcast with no Zoom or virtual conversation. The event will also be recorded and made available free.
deBanked’s massive in-person conference, Broker Fair, will return to NYC later in the year on December 6th at Convene at Brookfield Place in lower Manhattan.
Connecticut Introduces Commercial Financing Disclosure and Double Dipping Bill
March 20, 2021
Ever since New York State Senator George Borrello famously questioned the meaning of “double dipping” in a commercial financing transaction, states have rushed to include the term in proposed laws despite no one knowing exactly what it means.
The latest state is Connecticut, which introduced SB 745 in February, an “Act Requiring Certain Financing Disclosures.” It is essentially a copy & paste of New York’s recent law which is slated to go into effect in June.
The Connecticut bill similarly applies to factoring, merchant cash advance, business lending and more. It was introduced by State Senator Saud Anwar (D).
A hearing held on March 2nd, drew testimony from the Commercial Finance Coalition, Small Business Finance Association, Electronic Transactions Association, Innovative Lending Platform Association, and Secured Finance Network.
If the bill passes, it is designed to go into effect in October of this year.
Maryland’s Latest Merchant Cash Advance Prohibition Bill Failed to Advance
March 18, 2021
Despite the rapid advancement of the newest merchant cash advance prohibition bill in the Maryland state legislature, the bill failed to jump over the final hurdle in a House Committee hearing on Thursday. Delegate Seth Howard (R), who introduced the bill, vigorously advocated for it to move forward so that it could proceed to the Floor, going so far as to say he was willing to make some concessions to at least get “the regulatory structure” of the bill into law.
“I don’t want to snatch defeat from the jaws of victory,” he maintained.
There were several amendments up for consideration, including the inclusion or removal of a 24% APR rate cap on MCA transactions. The subject of APR dominated the light Q&A that took place, but one delegate voiced concern that creating restrictions on capital providers to businesses that might not be able to obtain funding elsewhere would probably be counterproductive. And when a roll call of votes was taken to determine if the Bill should advance to the Floor, he voted no, as did nineteen of his colleagues. Only three voted yes, so the bill did not advance, ending its prospects for the 2021 legislative session. However, it could be reintroduced again in 2022.
Committee Vice-Chair Kathleen Dumais (D) said that she thought the bill “was not ready” despite Delegate Howard “having worked hard on it.” This was Howard’s second try in two years to move it forward. His first attempt, introduced on February 7, 2020, was called the Merchant Cash Advance Prohibition Bill. The more recent one dropped the “prohibition” label but used language that would have effectively prohibited them in the state of Maryland.
Upstart Says Covid Had No Material Impact on Loan Performance, Believes All Loan Underwriting Will be Powered by AI in the Future
March 17, 2021
Yet another online consumer lender has reported that the Covid-era was good for business. Upstart, which went public in December, recorded $1M in profit in Q4 and $6M in profit for the year. Prosper Marketplace, an Upstart competitor, reported an $18.5M profit for 2020 just days earlier.
“Despite the COVID-19 pandemic, we delivered strong growth and profits in Q4 and for the full year 2020,” Upstart CEO Dave Girouard said in the company earnings announcement. “This combination is rare among FinTechs and demonstrates the growing advantages of AI-based lending.”
Upstart actually grew its revenue in 2020 by 42% over the previous year while keeping loan performance steady.
“We’re happy to report that the COVID-19 pandemic had no material impact on the returns that our bank partners and loan investors experienced this past year.”
The company is going full speed ahead on AI-based lending. “We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation.”
Keenly aware that AI is an overly used buzzword, the company reminded investors about what its AI can actually do.
Our AI models, like all AI systems, are fueled by incredible amounts of data and sophisticated software to interpret that data, while most lenders consider only a handful of variables as part of a lending decision, Upstart’s model considers more than 1,000 variables about each applicant. You can think of these as the columns in a spreadsheet. And as of December 31, 2020, our model was trained on more than 10.5 million unique repayment events.
These are like the rows in the spreadsheet. And we continually upgrade the machine learning software that interprets this data, enabling us to price the next loan on our platform just a bit more accurately. Upstart goes far beyond a singular AI model predicting default risk. We have discrete AI model that improve the entire lending process, including identity fraud, income misrepresentation, loan stacking, prepayment risk, fee optimization, and more.
But of course, our model that targets default risk is the centerpiece of our system. It predicts not just the likelihood that a loan will default, but when that default can be expected to happen.
Upstart also intends to bring that technology to auto lending. The company simultaneously announced that it had acquired Prodigy Software, Inc, a tech that’s been used to assist with selling more than $6B worth of cars.
“…2021, from our perspective with auto, is really a building year,” said Girouard, “And the acquisition of Prodigy, we certainly view as an accelerator toward the point of sale, the majority of the market that happens at the dealership.”
