Regulators Say ‘Sandboxes’ Work
October 22, 2018
At the regulatory technology (or RegTech) sessions at Money 20/20 yesterday, toy shovels seemed glaringly absent given the number of times the word “sandbox” was used. Of course, panelists were referring to a regulatory sandbox.
Nick Cook, Head of RegTech and Advanced Analytics at the Financial Conduct Authority in the UK, discussed his experience facilitating regulatory sandboxes. According to Cook, a regulatory sandbox is an arrangement between a company and a regulator where, in order to test the viability of a new business or product, the regulator grants some kind of allowance to the company for a fixed period of time in exchange for the regulator’s ability to observe carefully how the new business or technology works and behaves in the market.
“Whether you call it ‘sandbox’ or not, are you going to just talk about it, or are you going to encourage actual experimentation?” Cook posited to other regulators broadly. “Don’t kid yourself that standing still is an option.”
“I hope that states continue these sandboxes,” said Chris Camacho, President & CEO of the Greater Phoenix Economic Council.
Seated on two of the panels on regulation was Paul Watkins, who, as Civil Litigation Division Chief at the Arizona Office of the Attorney General, drafted and advocated for legislation that established the first Fintech Sandbox in the US. Watkins said that coordination between the federal and state regulators will be important moving forward.
One of the panelists was Melissa Koide, CEO of FinRegLab, a research organization that is designed to test new technologies to inform public policy, much like a sandbox.
“Regulators have anxiety about liability if something goes wrong,” Koide said. And she that therefore dialogue among regulators is very helpful, especially the ability for regulators to learn together.
“Regulators can’t innovate if they can’t experiment,” said JoAnn Barefoot, who moderated a few of the sessions. Barefoot is the co-founder of Hummingbird Regtech, a platform for anti-money laundering.
How Regulators Like to Be Approached
October 22, 2018
On the first day of Money 20/20 yesterday, a panel of current and former regulators discussed how the regulatory environment can help emerging fintech companies and how the leaders of such companies ought to interact with regulators. “How do regulators want to be approached?” was a question presented to the panel.
“The first person I hear from I don’t listen to,” said Paul Watkins, Director of the Office of Innovation for the U.S. Bureau of Consumer Financial Protection (BCFB). He clarified with deBanked after the panel discussion that this is in reference to his previous regulatory role as Civil Litigation Division Chief at the Arizona Office of the Attorney General. He said that this “first person” he doesn’t listen to refers to the lobbyist. Watkins continued: “The second person might have something interesting to say and the person who is quiet maybe knows what’s going on, and I’m interested to learn from them.” The “second person,” he explained, might be the CEO of a company and the “quiet person,” he said, would often be a non-senior level employee at a company who really sees what’s happening on the ground level.
Melissa Koide, who once served as the U.S. Treasury Department’s Deputy Assistant Secretary for Consumer Policy, said that she always appreciated hearing directly from the innovators themselves about their relationships with banks.
“It can be valuable to make trips to [visit regulators,]” Koide said.
Koide is now CEO of FinRegLab, a financial services research organization that examines how technology and data can help achieve public policy that leads to a more efficient and inclusive marketplace.
Chris Camacho, President and CEO of the Greater Phoenix Economic Council said that elected officials want to hear from industry leaders.
“Engage [legislators] thoughtfully and educate them,” Camacho said.
In New Jersey, Yellowstone Capital Buoys Volunteer Ambulance Organization
October 19, 2018
Hatzalah of Union County, New Jersey, a volunteer ambulance organization, has saved hundreds of lives thanks to its volunteer-only team and its three ambulances, all funded by donations from Yellowstone Capital CEO Isaac Stern and the company’s employees over the past seven years. Total donations from Yellowstone Capital, including from Stern, have exceeded $300,000.
“[Stern] is our largest supporter and he spreads through Yellowstone the opportunity to give,” said Yudi Abraham, chief of the Union County Hatzalah operation. “He’s gotten everyone there into the idea of giving back.”
In 2015, Stern held a fundraiser barbecue dinner at his home and in a subsequent year, he organized a fundraiser barbecue in a public New Jersey park, to accommodate more people.
While Hatzalah (which means “rescue” in Hebrew) is primarily a Jewish organization, anyone – regardless of background – can call the hotline and get emergency medical attention, free of charge. The emergency number varies depending on where you live. The first Hatzalah emergency team was founded in Brooklyn in the late 1960s and the Hatzalah of Union County was started in 2004.
Abraham explained that the Hatzalah model is different from 911 ambulances in that the all-volunteer force generally arrives within three minutes in their own personal vehicles that are equipped with oxygen, a defibrillator, a full trauma kit and an emergency childbirth kit. The Hatzalah ambulance then arrives at the scene shortly minutes later.
Over the past year, with donations from Yellowstone, Hatzalah of Union County has upgraded its emergency radio dispatch system from analog to digital, Abraham said.
“Yellowstone has truly been a partner for us,” Abraham said.
NYIC – IFA Northeast – AFBA – deBanked Conference Recap
October 17, 2018
Yesterday, the New York Institute of Credit (NYIC) hosted a conference in Manhattan with attendees from several segments of the commercial finance industry, including factoring, MCA, and asset based lending. Approximately 100 registrants gathered at Arno Ristorante in the garment district section of midtown. In addition to local New York firms, attendees travelled from as far as Chicago and California to be at the event.
“By all accounts, it was a big success,” said Harvey Gross, Executive Director of the NYIC, which recently celebrated its 100th anniversary. The half-day conference was a collaboration of the NYIC, the Alternative Finance Bar Association (AFBA), the IFA Northeast, and deBanked.
“The joint conference was truly groundbreaking,” said Lindsey Rohan, a cofounder of the AFBA, who also moderated a legal panel. “Having the various business models that make up the alternative finance space in the same room created an opportunity for honest and impactful conversation. While we only scratched the surface and I have many new questions, I’m confident that new business relationships were created and this will open the door to a continued exchange of ideas.”
Nineteen panelists, many of them executives at financial companies and lawyers, contributed to four panels that filled the afternoon with lively and thoughtful conversation. Regulations coming out of California and just recently from New Jersey, were hot topics of discussion.
deBanked founder Sean Murray moderated a panel on Best Practices. “These type of collaborative events are necessary as commercial finance offerings continue to expand. Education and debate create a more fluid marketplace,” Murray said.
Andrew Bertolina, whose company Finvoice offers factors and asset-based lenders a sleek software solution, said it was “great to see everyone at the Lending Conference and cross-pollination of MCA, factors and fintech players. Most cross-pollination at this IFA NYIC event than in prior factoring events.” Bertolina is the co-founder and CEO.
Robert Zadek, an attorney with Buchalter said, “that was a great meeting. It was so instructive to hear intelligent, honorable representatives of factoring and of alternative finance, who share clients and have overlapping products cordially comparing notes and sharing somewhat different views of the marketplace and the future of SMB financing. It is fascinating to see how much each can learn from the other, and to witness how such different financial products are moving towards each. The lesson – adapt or perish.”
The conference was sponsored by Change Capital, Finvoice, law firm Platzer, Swergold, Levine, Goldberg, Katz & Jaslow LLP, Aurous Financial, and Financial Poise.
Lendio Surpasses $1 Billion in Originations
October 16, 2018
Lendio announced today that it has facilitated $1 billion in financing to more than 51,000 small businesses across the U.S. since it was founded 2011. It reached the $500 million mark just a little over a year ago in July 2017.
“We are a marketplace, not a lender, which means we can help a lot more small business owners,” Lendio co-founder and CEO Brock Blake told deBanked. “We can say ‘Yes’ more often because we have more options.”
Brock attributes the company’s recent growth to its marketplace business model, its team and all of its business partners. Lendio works with over 75 lenders on its platform and it also operates a turndown program where participating lenders refer to applications to Lendio that they have declined, but which might be funded by a different lender that Lendio works with.
Lendio also has about 30 franchisees that operate in 50 markers in the U.S. A market could be a single city or a handful of counties, and some franchisees cover multiple markets, according to Blake. Franchisees work with accountants, attorneys and chambers of commerce to inform local business owners about Lendio and ultimately get them to use the Lendio platform when looking for a small business loan.
Lendio has over 150 employees split between its headquarters in the Salt Lake City, Utah area and an office on Long Island.
Prior to co-founding Lendio, Blake created a company called Funding Universe, which connected entrepreneurs to venture capitalists in what he described was like speed dating. But he said that he soon realized that most American businesses need smaller amounts of capital, so he pivoted into small business lending.
“Across 75 lenders and 15 different loan products, it [can be] a challenge to really figure out which business owner fits with which loan product and to help that deal get funded,” Blake said. “But feel like over the last 18 months to 2 years we really have that process down. And now we’re gaining that flywheel effect. We’re continuing to gain more and more momentum. The ceiling is much higher and I’m really excited about the future in front of us.”
OnDeck Launches New Subsidiary
October 16, 2018
OnDeck announced today that it has created a new subsidiary, called ODX, which will help banks become more efficient online lenders. OnDeck’s CEO Noah Breslow told deBanked that ODX is an expansion of OnDeck’s successful partnership with JPMorgan, which started in 2016.
“We created what at the time was I think a pretty groundbreaking partnership with the largest bank in the country,” Breslow said. “Now today, we’re funding loans very efficiently using our platform and [Chase’s] marketing and their balance sheet. And it really is sort of the promise of a fintech working with a bank. So we decided strategically this year to really make a big bet in this area…[and create] a company that’s going to support many banks.”
OnDeck has chosen Brian Geary to serve as president of ODX. Breslow said this is because Geary launched and oversaw the collaboration with Chase, whereby OnDeck built a digital bank originations platform for the bank.
“Geary has really been the focal point of that entire effort,” Breslow said, “so he was a very natural choice to head this up.”
OnDeck has drawn talent from among its existing employees to create this company, but it also hired Raj Kolluri to serve as Head of Product and Technology for ODX. And Geary said they are actively hiring to build the team. Kolluri comes from SS&C Primatics, a software company, where he served as Vice President of Product and Engineering, helping to build the company’s software as a service analytics platform for banks.
When asked if helping banks to become faster online lenders is a way of aiding OnDeck’s own competitors, Geary said he didn’t see it that way.
“We don’t view it as competitive,” Geary said. “The banks and OnDeck are playing in different segments of the market. [Banks] have a tighter risk tolerance and certain customers they can serve. So we’re enabling them to serve those customers more efficiently.”
Breslow said that ODX, which he described as “a company within a company,” will soon be announcing its next bank partnership.
ODX will operate within the offices of OnDeck, including its offices in New York, Arlington, VA and Denver, CO.
The Broker: How Andy Savarese Changes Collars and Closes Deals
October 12, 2018
Title:
I’m the Managing Partner at JustiFi Capital, a brokerage in Farmingdale, Long Island. I started it September 2017 with my cousin, who’s the owner and my best friend. We do mostly MCA, but also some term loans.
His schedule:
I have a part-time/full-time job in the mornings. I work in sanitation for the town of Oyster Bay on Long Island. I typically wake up at around 3:37 a.m. I get into my yard at 4:15 a.m. and I go right into my route. My job is task completion. So the faster you work, the faster you get to go home. You get paid the same. I was fortunate to get on a fast truck, so I’m usually done between 7:45 a.m. and 9:30 a.m.
I go home, I take a quick shower, and I change my outfit. I go from blue collar to white collar. I get into the office around 10:30 a.m. and I start doing more of a mental hustle compared to a physical hustle.
At around 12:45 p.m., I take my lunch and I go to the gym for about 45 minutes. I get back to the office and I keep up the closing, the pitching, the selling, the prospecting. At around 5:30 p.m., I leave the office, I pick up my son from daycare, and since my wife works evenings, I take care of him at night until around 7:30 p.m., and get him ready for bed. The second he hits his crib, I hit my bed and I call it a day.
His background in the business:
About three years ago, I was driving oil trucks after sanitation, and my cousin, who is also my best friend, gave me a call. He knew I was breaking my butt all day. He had a friend that was starting his own ISO. So I did that for a year and I learned the industry. It didn’t really work out there, so I convinced my cousin to open up our own shop, which is JustiFi.
His process:
At JustiFi, we’ve been growing. We’re just grinding it out and things are going really well. We have four brokers and we keep it tight. We keep it small so that everybody is inundated with files and everybody’s making money and everybody’s happy. We don’t have any processors or chasers. We do it all on our own. We’re working the deal from beginning to end. My cousin has devised a pretty strategic marketing plan that inundates us with leads all day. I disperse them and I follow up with my guys and see how I can help. I overlook all of the closings and make sure that everything than can get worked is getting worked.
His biggest challenge as a broker:
A lot of people will say getting good leads and keeping your brokers happy. What I found is the most challenging part of being a broker in this industry is keeping a really level head and keeping your emotions out of the game. It’s a very tumultuous industry. One day, you could have 12 deals in the funding chute, the next day, your pipe could be dry. You could have a deal you think is going close and something happens on the funding call and it gets derailed. The point is that you’ve got to stay positive, you’ve got to stay confident, and you’ve got to roll with the punches. If not, you’re going to lose it and you’re going to get eaten alive. Because it’s a battlefield out there. You’ve got to keep your composure, no matter what the size of the deal. You’ve got to just keep pushing through. Because if not, you’re not going to make it.
His largest deal funded:
$250,000. And I made $38,000.
His advice for brokers:
When I go to close a good sized deal, or a tough deal, I don’t like to come off as a salesman. I’ll never do that. I’m going to come off as an advisor. I’m going to come off as a partner with you where I’m going to explain the ins and outs of the deal. I’m going to explain how it benefits you. I’ll never put on pressure or talk slang. I’m going to be a professional. You’ve got to kind of put yourself in [the merchant’s] shoes and you’ve got to see that it really makes sense for them. Because when it makes sense to you and it makes sense to them, you’re going to close the deal and you’re going to move forward.
But there are always deals that will never close, deals that you can’t sell. So you can’t be too hard on yourself. You’ve got to stay positive. You can’t beat yourself up if you don’t sell something. You’ve got to just do your best, stay neutral, and just talk to clients how you want to be talked to.
What he does to pump himself up for a deal:
If I know my day is bringing a big deal that I have to sell and I’m a little uneasy about it, I have an advantage. I’m on the back of a garbage truck all morning and I focus on what’s in store for me that day. If I have a big deal, I recite in my head [from the truck] how I’m going to report to my client. So when I get into the office, I dial up and I already know how the conversation is going to go. I have my rebuttals in my head, I have the direction, I have everything ready to go so that when I get on the call, I’m fully prepared.
Will you quit your morning job?
No. When my pension kicks in, I’ll leave. But I told myself the day I started this and the day I started seeing the return, “I’m never leaving sanitation. I won’t.” I made that promise to myself. There’s been days when I’ll have a five figure commission day and the next morning it’ll be pouring rain out, and I’ll say to myself, “Man, I just want to take the day off.” But no, I made a promise. I go in.
Why?
It keeps me grounded, it’s a stress relief. It’s what I am. It’s what I do.
Yoel Wagschal Becomes Last Chance Funding’s CFO
October 10, 2018
Yoel Wagschal, an accountant who specializes in servicing MCA funding companies, told deBanked today that he will now be the CFO for Last Chance Funding (LCF), which has been one of his clients for about five years. Wagschal said he will maintain his private accounting practice, spending half the week working for LCF and the other half running his own business, serving other clients, mostly in the MCA space.
“I always treated my clients like I was a part time CFO,” Wagschal said. “Yes, it’s a little different to be the officer of one particular company, and that’s why I feel it’s important to make this announcement so my clients or prospective clients know that I am an officer, officially, of Last Chance. You can either embrace it, or not.”
For those who might see this arrangement as a conflict of interest, he argued that this has essentially always been the case since he has two dozen MCA clients.
“If the accountant is honest and doesn’t exchange information from one client to another, his knowledge will only be better, and [the client] will gain from having an accountant with other clients in the same space.”
Wagschal said he believes that every company needs a CFO. And being a part-time, per diem CFO, largely in the MCA space, has been his niche for the past 15 to 20 years.
Already, Wagschal has eliminated some jobs in LCF’s accounting department by creating a more efficient system, he said. (No one was fired; a few employees were just moved elsewhere). Wagschal believes that many accounting departments are often too big and that great leadership actually frees up time for a company.
“If you have proper accounting procedures in your company, then the compliance and the reporting comes so easy, it’s a piece of cake,” Wagschal said.
LCF’s owner and CEO Andy Parker is very excited about Wagschal’s new role at the company.
“I have never come across a more talented accountant in the MCA space,” Parker said of Wagschal.
Parker said that since he co-founded the Long Island-based company in 2011, they have seen triple digit growth year after year.
“As we continue to grow, we really needed a serious level accountant and we’re glad Yoel accepted the position,” Parker said.
Wagschal’s introduction to the MCA industry was a dramatic one. As a forensic accountant, he had contacts with tax attorneys, one of whom introduced him to the owner of an MCA firm whose partner had made a really costly mistake. Instead of sending an agreed-upon $9,600 to a merchant, he accidentally added an extra zero to the end and $96,000 was sent to that merchant. In what Wagschal described as a “very intense” experience, Wagschal drove to the town where the merchant operated from and said he rescued the money within 48 hours of being contacted.
But beyond this initial Indiana Jones-esque introduction to the MCA industry, Wagschal said that he began to see a void.
“It was a very new industry. People were confused, and I saw an opening,” Wagschal said.
