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Articles by Srividya Kalyanaraman
Square Sets Foot in UK with Squareup Europe
July 20, 2016Square is making a jump across the pond to sell its service in the UK.
The payments company incorporated Squareup Europe Ltd in London early last month.
The six year old company started by Twitter chief Jack Dorsey plans to provide payment services in Britain which it began testing last month, Reuters reported.
With a presence in the US, Canada, Japan and Australia, the company provides payment solutions to merchants through its mobile point of sale device on iPhones and iPads.
In the US, Square made the natural transition to offering loans to its customers. In Q2, Square reported a loss of $97 million but raised projections for 2016 revenues from $600 – $620 million to $615 – $635 million. With low customer acquisition costs, Square is well positioned to become an easy choice for merchants who already use the product. The company made 23,000 advances for $153 million in the first quarter before moving on to ditch the MCA program for business loans.
CommonBond Raises Equity, Debt and Acquires Personal Finance Startup, Gradible
July 19, 2016Did someone say trouble in (online lending) paradise?
CommonBond has raised $30 million in equity, $300 million in debt and acquired a personal finance startup, Gradible.
The New York-based online student loan lender that specializes in higher education loans raised $30 million in series C equity round from new investor Neuberger Berman along with existing investors August Capital, Tribeca Venture Partners, Social Capital, Nyca Partners and Victory Park Capital. Individual investors in the round included finance veterans like former Citigroup CEO Vikram Pandit, former Thomson Reuters CEO Tom Glocer and former Barclays Private Wealth CEO Tom Kalaris.
The company plans to use the funds towards hiring folks in finance, sales and technology, building new technology platforms and scaling its loan operations. Founded by Wharton graduates David Klein, Michael Taormina, and Jessup Shean in 2012, CommonBond started as many startups do, with a founder’s problem of lack of affordable graduate student loan options. Today the company has crossed $500 million in funded loans and provides MBA loans, refinances student loans and offers personal loans.
Non-bank student loan providers make up just a sliver of the market, says CEO David Klein. “Over 99.99 percent of the student loan market is driven by the federal government and private banks and the the tiny piece of the market is made up by CommonBond and SoFi,” he said. “And as big as that sounds, relative to the largesse of the market, we don’t even make up a percent of that.”
The Gradible acquisition should answer some of that for CommonBond, giving it access to 40 million students and a network of employers. It plans to build a portal for employers who can contribute directly to their employees’ monthly student loan payments, through a student loan contribution platform similar to a 401(k) matching program.
CommonBond competes with rivals like SoFi which has made news for everything from being offensive, offering dating services, selling mortgages and its purported plans to become a bank. And CommonBond isn’t shying away from other loan products either. “Our long term vision is to provide our customers with their evolving needs and we are well positioned to provide other products and services over time.”
In terms of its lending operations, CommonBond uses a hybrid model of funding by holding half of the originated loans on its balance sheet and selling the other half on a marketplace. “To weather any storm, it’s important to diversify capital sources and we think the hybrid model will end up being the only option,” Klein said.
Lending Club Hires BlackRock’s Patrick Dunne to Head Investor Group
July 18, 2016Lending Club has a new chief capital officer.
The company hired Patrick Dunne who headed iShares Global Markets and Investments at BlackRock. With 25 years of industry experience, Dunne has overseen 700 investment products with over $1 trillion assets under management.
As the resurging online lender looks to amend investor relations, as the new chief capital officer, Dunne will manage Lending Club’s Investor Group which spans individual investors, strategic partnerships with retail distribution partners, banks and other institutional investors including asset managers, pensions, foundations, and endowments. “Patrick will play a key role in reaffirming our continued commitment to our investors,” CEO Scott Sanborn said in a statement.
After founder and initial CEO Renaud Laplanche exited the company on May 9th, Lending Club has been playing musical chairs with its management team while slashing 179 jobs. At the company’s last annual shareholder meeting held last month, Scott Sanborn was named CEO while executive chairman Hans Morris was appointed chairman of the board.
The challenge for most online and marketplace lenders in this credit environment lies in diversifying their capital sources and roping in more investors to buy their loans. And, lenders are turning to investment bankers for this purpose. Last week, UK P2P lender Funding Circle roped in Nomura’s European head, Jeremy Bennett as chief financial officer who designed and ran UK’s Asset Protection Scheme, which insured risky assets of big banks like Royal Bank of Scotland.
Lack of deposits as a capital source has led non-bank lenders to depend on securitization and retail and institutional investors. The road is long and the trudge is harder. Will the new crop of hires lead the way?
Student, Auto Loan Delinquencies Rise Slow and Steady, Report Says
July 7, 2016Is there reason for concern?
A Morningstar report on debt shows rising delinquencies in student loans and auto loans. While the rate for student loans more than 90 days past due declined to 11.0 percent in the first quarter, from 11.5 percent in the fourth quarter 2015, it has been rising since the end of 2011 when delinquencies were 8.5 percent
This corresponds with the increase in student enrollment at for-profit colleges that target lower income groups with the lure of higher paying jobs. Enrollment in these institutions have quadrupled since 2000 and a study revealed that 70 percent of the students who defaulted on their loans in 2013 went to for-profit educational institutions.
In 2014, 47 percent of students at these institutions defaulted on their loan, compared to 38 percent who went to two-year institutions and 27 percent who did the traditional four-year courses.
Auto loans
The report also warns of rising delinquencies in auto loans propelled by an increase in subprime lending.
The rising competition among lenders lending to millennial borrowers with thin files has led to the uptick in subprime auto loans. Experian reported a 10.9 percent year-over-year increase in the balance of subprime auto loans and leases held by consumers in the first quarter of 2016
Auto delinquencies have crept higher, with the rate of loans more than 90 days late reaching 3.5 percent in the first quarter, up from 3.4 percent in the prior quarter.
“For student and auto loans, it’s important to keep the eyes on the road and watched as these are vulnerable to subprime lending with rising delinquencies,” said Stephanie Mah, director of research at Morningstar and author of this report. “Even though the pace of student-loan delinquencies slowed in the previous quarter, they remain at near record levels..”
Russian Startup Blackmoon Wants to Play Middleman in Marketplace Lending
July 6, 2016Russian startup Blackmoon, that screens other company’s loans before selling them to investors, has launched in the US, drawn to the lure of its $1 trillion addressable market. Blackmoon aims to reach a billion dollar in loans by the end of 2017 and is targeting business, consumer, student and car loans.
The company provides ‘marketplace lending as a service’ working as a middleman between debt investors, lenders as well as banks. Its platform brokers deals between balance sheet lenders and investors. The company was founded in Moscow City last year by investor and entrepreneur Oleg Seydak. Seydak was a partner at venture capital fund Flint Capital and managing director of private equity firm FINAM Global.
Cofounder Ilya Perekospky in an interview with Venturebeat said that the US market is ripe with opportunity for companies like Blackmoon. “We believe that existing marketplace lenders have only scratched the surface with respect to the volume of loans being originated in the U.S. today,” he said. “The size of the marketplace lending market is measured in billions of dollars, whereas balance-sheet lender loan origination volume is nearly a trillion U.S. dollars or more.”
Fora Financial Crosses $500 Million in Small Business Funding
July 5, 2016Fora Financial crossed the $500 million mark in providing 10,000 small businesses with working capital since 2008.
The eight year old New York-based company that does merchant cash advances and business loans was started by college friends Dan Smith and Jared Feldman and finances a wide clientele of restaurants, retail stores, construction companies and more.
In May this year, the company closed a $52.5 million senior revolving credit facility with a group of financial institutions which will take care of Fora’s financing for the next three years and allow for expansion of the facility to $75 million.
“Providing half a billion dollars of capital to American small businesses is a tremendous accomplishment for Fora Financial and reflects the immense commitment, effort and support of our employees and stakeholders over the past eight years,” says Dan Smith, co-founder of Fora Financial. “Most of all, this achievement displays the faith our customers have in Fora Financial’s ability to provide them with the capital they need to drive their own business success. We are more committed than ever to providing our customers with the products and services that will help their businesses thrive.”
As Credit Tightens, Borrowers and Investors Retreat Alike
July 5, 2016America’s bond market is drying up.
The value of bonds packaged with personal, corporate and real-estate loans fell by $98 billion, a 37 percent decline from the first half of 2015 making it tough for businesses to refinance their debt.
Lenders have for long relied on securitization for capital but as the credit market tightens, companies will be forced to diversify and soon.
There are currently more than $10 trillion in outstanding securities backed by personal, business and other loans, according to the Securities Industry and Financial Markets Association, the Wall Street Journal said.
And it’s not just investors who are retreating. A recent study found that small businesses are hesitant to borrow and rely on personal resources to meet their business’ capital needs. Demand from businesses with revenues of less than $5 million shrunk 15 percent from Q1 2016 to Q2 2016, from 38 percent to 32 percent.
The survey also noted that a third of business owners that responded transferred personal assets like savings and personal credit cards to their business accounts in the last quarter.
“Business borrowing habits suggest owners may not see a need for an immediate infusion of capital,” said Dr. Craig R. Everett, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “However, these findings suggest business owners are still feeling the lasting impact of the recent recession and remain skittish about the future, as reflected in an abundance of caution when it comes to the economic environment.”
Business owners are being tightfisted with borrowing, instead using earnings and profits for capital expenditure.
“There are far fewer small businesses taking a loan, as they don’t see opportunity for expansion,” said Holly Wade, director of research and policy analysis at NFIB, a small business trade association. “Some are uncertain about the future so they don’t want to take out a loan and in some instances, owners have a more difficult time finding desired loans.”
Avant Will Slash More Jobs as Loan Volumes Shrink
July 1, 2016Avant is preparing for a second round of layoffs in two months.
The beleaguered online lending industry has another victim and it’s Chicago-based personal loan lender Avant, again. The company said that it expects loan volume to fall by 50 percent and consecutively lay off some employees, without disclosing details.
This is a second wave of downsizing for the four year old lender. In May, the company slashed 60 jobs after its loan volume shrunk by 27 percent in the first quarter of this year. Avant also paused its auto loan refinancing program that it announced in March.
Bloomberg reported Avant spokeswoman Carolyn Blackman Gasbarra as saying, “As the lending industry faces continued uncertainty in the capital markets and volatility of the online lending category, we are moderating loan volume to focus on the immediate profitability of our core personal loan products…As such we have made the difficult decision to launch a voluntary severance offering to our employees.”
Avant is led by Al Goldstein who made a fortune in small dollar loans through his online subprime lending company Enova International that he started in 2004 and sold it two years later for $250 million. Avant has funded over $3 billion in personal unsecured loans so far.