Business Lending
Why OnDeck Didn’t Sign The Small Business Borrowers Bill of Rights
January 21, 2016
Recent media reports attempting to spin OnDeck’s loan programs in a negative light have been quick to point out that they have not signed on to the Small Business Borrowers Bill of Rights. There’s apparently an obvious reason for that, they weren’t invited to participate in the drafting of it…
In a recent interview with Lend Academy’s Peter Renton, Breslow addressed this even further. “I think if you look at the actual principles and the way the document is written, there is a clear bias towards longer term loans in the document,” Breslow told Renton, pointing out that the group is a small circle of lenders that focuses on 3-year loans. “We don’t think a three-year product is appropriate for many types of small businesses out there, but if you can’t get access to a long term loan we don’t think that means you shouldn’t get a loan at all,” he added. “So what we’d love to see either in the BBOR or some other industry standard that you might see developing over the next year is a broader perspective on what types of financing businesses should have access to and to be clear, we’re very supportive over time, kind of inclusive industry standards that encompass the range of products that we think small businesses should have access to and that access should be fair, efficient and transparent.”
You can listen to the entire interview which covers many more topics below:
Or read the full transcript here.
Renton is a co-founder of the LendIt conference, the biggest marketplace lending event of the year. If you haven’t secured tickets yet to the April conference in San Francisco, you should sign up here before it’s too late. Last year the conference was completely sold out.
Business Lending in Mexico – From the Front Lines
January 20, 2016
It’s no secret that the financial technology (FinTech) industry has exploded and its effects are being felt around the world. With its epicenter in the US (arguably the UK), it quickly caught on in other major markets like Europe, Australia and Canada. The main narrative for the FinTech industry plays as follows: First, a huge local market has incumbents (local banks), which make it hard for the local population to move or obtain capital (payments and loans, respectively). Then, a bunch of clever people arm themselves with tech, tools and capital to come up with a better solution than the incumbents in their markets; and as people in the US are looking west, east and north to see how this tune plays out in different markets, I have seen how the FinTech phenomenon is growing strongly down south, here, in Mexico.
Mexico’s FinTech market is made up of the same parts as in the rest of the world. It has huge potential, but surprisingly only few people know about it. With roughly a third of the population of the US (123 million people), and an economic value similar to that of Australia and Canada, Mexico´s local market is in dire need of financial services. In our company’s market, domestic credit represents a meager 31% of GDP[1]! It’s 69% in Brazil by contrast. The USA has a startling 194%. This means that the Mexican private sector is not receiving enough capital in the form of financial products from local financial institutions. The same phenomenon exists in the payments space. For example, in the point of sale (POS) industry, there are currently 8 POS per 1,000 people in Mexico. The US has more than double that at 21 POS per 1,000 people, and Brazil has 3x at 24 POS per 1,000!
Regarding the incumbents, the banks, Mexico is known as the land of monopolies. While in the US there are literally thousands of banks, in Mexico, there are just over 40 banks, with the top 20% holding close to 80% of the market and its profits. Furthermore, Citibank’s and BBVA´s Mexican operations are some of their most profitable worldwide. Large banks like these enjoy extraordinary profits, and have been slow to adapt to new technological trends, service niche markets and provide services which could cannibalize bank revenues. After all, why would a monopoly innovate if it holds most of the market in its hands?
And then there are the people trying to solve this problem. Many Mexicans travel to study in the world´s top graduate programs and return to Mexico to act on what they learned. Domestically, Mexico churns out 3 times as many engineers per capita than US universities do. So currently there is a boom in the number of start-ups in Mexico[2]. And as start-ups tend to do, they are targeting one of the largest and hairiest problems this country has to offer: Financial Services. As a result, the likes of “500 Startups”, “Tech Stars”, “Village Capital” and “Y-Combinator”, and several Silicon Valley VC funds have turned their attention south. Several Mexican start-ups have been raising increasingly larger rounds from local and US investors to quickly tackle the opportunities in the loans and payments spaces.
These Mexican companies are developing solutions for the national problems and they know how to do it with the local culture in mind. Even though the US and Mexico share one of the longest borders and a huge migrant flow, they have developed at different speeds, which present different challenges. Two examples of this divergence: The FICO credit score, created in 1970s in the US, barely made its way down to Mexico some 4 years ago. However in terms of regulation, Mexican banks have been quicker to meet regulatory compliance (Basel I/II) than most of their US counterparts[3]. So the new players up to bat here at home, the online lenders, merchant lenders, mobile POS, remittances, bitcoin exchanges, peer-to-peer market places and the like, are raising capital both locally and abroad to create the technology to service the large Mexican financial services market. And in many cases, they are trying to get the formula right to create a beachhead to jump into a larger and broader international Latino market.
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Footnotes
[1] – In other words, how much capital is being provided by all the private financial institutions in the country to all the private interests (consumers and companies) in comparison to the GDP. A lower number means that the private sector is not providing enough capital to match the countries production. A higher means the private sector is matching or exceeding the capital needs of the private interests.
[2] – A few months ago “The Economist” made a small homage on the Mexican start up scene – http://www.economist.com/news/business/21647624-nascent-tech-hub-may-succeed-solving-local-problems-techs-mex
[3] – The high compliance of the Mexican Banks has been a byproduct of the boom and bust cycle that the country has had. So more than a voluntarily action, the central bank forced the local players to meet the international requirements.
Loan Brokers: Fight Back and Defend Your Brand
January 16, 2016
LIFE DOESN’T PLAY FAIR AND NEITHER DOES YOUR COMPETITORS
Let’s face it, a big part of our job is customer service. As a direct funder or lender, or as a large or small brokerage, a big part of our job is to service our existing customers, partners, vendors and suppliers with the utmost integrity, efficiency and ethics. But even the best of customer service intentions can become scarred when those who compete against you, choose to compete unfairly through vile fabrications, defamations and falsehoods.
MORE MONEY, MORE PROBLEMS
Not many people (including myself) are too fond of hip hop music as most of the time the lyrics are questionable, but in 1997, everybody agreed with The Notorious B.I.G. when he touched on the concept of making more money and having to subsequently deal with new problems.
The bigger and more exposed you get, the higher the probability that you’ll have a run-in with dissatisfied merchants, partners, vendors and suppliers. This is common knowledge, as many of the largest ISO/MSPs and MCA firms are all over the ripoff reports in one form or fashion, with current and prior customers blasting the companies over sometimes legit issues, and other times issues of a petty nature that could have been resolved in means of a lesser depiction. But continuing on, the bigger you get, the bigger your “haters” will get as well. The rise of the internet has multiplied the presence of haters and trolls to a population standing taller than ever before. These haters love to use online discussion boards, social media, blogs, and review sites to spread their lies, hatred and vile.
JUST BECAUSE YOU SMELL SMOKE, THAT DOESN’T MEAN THERE’S A FIRE BURNING
I’m not sure who the author of this quote is, but it says the following: People will question all the good things they hear about you, but believe the bad without a second thought. Haters know this quote to be true and are quick to spread their venom knowing that if it’s coming from multiple sources, then far too many people will take them at their word using the flawed logic of “where there’s smoke, there must be fire.”
Well, I say just because you smell smoke, that doesn’t mean there’s a fire burning. Instead, you could more than likely have a group of haters who have perfected the art of blowing smoke, which is to make unfounded or exaggerated claims. As a result, you need to protect your brand against haters. There are those of you who believe that if you just ignore them then they will go away. Well, I disagree with that notion and so does Motorhead’s Lemmy Kilmister. “I don’t understand people who believe that if you ignore something, it’ll go away,” he was once quoted as saying “That’s completely wrong because if it’s ignored, then it gathers strength. Europe ignored Hitler for twenty years, as a result he slaughtered a quarter of the world!”
LOOK AT DONALD J. TRUMP
If he wins the candidacy or not, Donald Trump will go down as perhaps the most fiery presidential candidate of all time. When Trump believes something, he says it, without filter and without care of political expediency. When Trump is “attacked” by the media or one of his fellow GOP opponents, he fires back. On the O’Reilly Factor after the final GOP debate of 2015, Trump clarified that if the media or one of his GOP opponents makes a valid criticism about him, he’s perfectly fine with that, but what he has a problem with is when they flat out lie about something he’s said, done or believes in.
While I’m an Independent and not sure who I will support for the 2016 Presidential election, I find myself in agreement with Trump on a number of things, including how Trumps responds to “haters.” My stance is that if you have a valid criticism about something I’ve said, done or believe in, then I’m all ears! But when you flat out lie about me, now you are going to tick me off.
GET MAD, GET MAD!
One of the reasons for Trump’s surge in the polls is the fact that a lot of people are angry at leaders in Washington and aren’t going to “take it” anymore. Trump’s fiery persona attracts people to the real estate tycoon, causing him to have a massive lead in the Republican race. Like Trump, you should get mad as well if you have worked to build your brand, resumé and marketplace standing, and then all of a sudden here comes some anonymous troll spitting out all types of defamations across the internet:
- Don’t work with XYZ Company, they are a scam!
- XYZ Company stole my money!
- XYZ Company’s President is a criminal!
- XYZ Company backdoors deals!
The definition of libel is to write something about an individual or a company that is defamatory, which is a statement that is false but written in a way to convince the public that it’s true. The internet has increased the presence of libel so much, that insurance companies market their personal umbrella policies as a form of insurance in case you are sued for libel. Some people don’t realize that typing something on the internet can get you in trouble if you are lying about the person or the company in question. Now, I’m not advising you to run out and sue everybody who lies about you online, as that would be very costly, however, I am advising you to get mad by fighting back and doing some of the following to protect your brand.
FLOOD THE MARKET WITH TESTIMONIALS
Begin to flood the market with positivity. When a prospective client searches for your company in Google and finds the negative reviews, they can also see the various videos, blogs and review sites where your customers, partners and vendors are praising you. You can always say: Look at the many customer testimonials that we have and look at the size of our customer portfolio, clearly more people are satisfied with us than dissatisfied.
THE BETTER BUSINESS BUREAU
The BBB will provide you an “A+” or “A” rating as long as you respond to any complaints filed in a timely manner. You can use your “A” rating status in marketing and in response to prospective clients inquiring about negative reviews. You can always say: We have an A+ rating with the BBB, we must be doing something right.
PUBLIC RELATIONS
A lot of direct funders and large brokerages have large sources of operating capital to play with, so why not hire a PR Team? Have a PR Team speak with the media often to generate as much positive press as possible to help balance out the negative press. In addition, have the company CEO and other high ranking officials do various forms of PR when available.
TAKE THE FIGHT TO THE TROLLS
Go to the discussion board, social media post, blog post, vlog post, or website, and directly respond to the person creating the negative press. Debate your points, prove them to be wrong, show them to be a liar, and encourage your employees, vendors and partners to join in on the fight. Silence can be taken in one of two ways, either people will think you are “too big” for this petty non-sense, or they will think that you are silent because you are guilty. I say take the fight to the trolls, debate your points and then move on after you’ve put the verifiable truth on the table.
THE FINAL WORD
Some people will already know something is a lie, but choose to believe it anyway because they want it to be true regardless. Sean Parker’s character from the Social Network said that, “even if you’ve managed to live your life like the Dalai Lama, they’ll still make things up because they don’t want you, they want your idea.” The honest truth is that most of your haters are just jealous of you because, you have something that they want but don’t have. So, don’t allow them to throw you off your game.
As a quote I read the other day from some unknown source said, “you should never hate people who are jealous of you, but instead respect their jealousy as they are the people who think that you’re better than them.” Having haters is a sign that you’re doing something right. Your prospective customers and partners with good judgment should be able to read between the lines to see the truth, and for those that can’t, well, maybe they are too gullible (and stupid) to be doing business with anyway.
OnDeck and Bank Partnership Concept Debated on CNBC
January 13, 2016On CNBC’s Squawk Box, OnDeck CEO Noah Breslow responded to questions about why the fintech goal post of putting banks out of business has seemingly been readjusted. Breslow said that their mission all along has been to extend the market for credit, namely by originating small dollar loans (under $1 million) that banks can’t or have been unwilling to do. He supported that by saying that this market has always historically been underserved and is not just a consequence of the last recession.
More importantly though is the debate over whether or not banks should build, buy or partner with alternative lenders. (Hello marketplace Lending Hunger Games!) OnDeck believes their 8-year head start is an attractive reason as to why banks should “partner” with them.
On regulation, Breslow classified OnDeck as a “non-bank commercial lender,” which may be true from a regulatory perspective, but it’s a big departure from the sexy technology marketplace platform characterization that they’ve historically campaigned under.
Lastly, the OnDeck – JPMorgan Chase deal apparently does carry exclusivity and it is possible for them to engage in other partnerships.
Full video on CNBC below:
Bernie Sanders is Probably Not the Marketplace Lending Candidate of Choice
January 6, 2016
Perhaps the fastest way for Americans to become deBanked is to elect Bernie Sanders as President. In a proposal he laid out on Tuesday, Sanders pledged to break up commercial banks, shadow banks and insurance companies that he believes are “Too-Big-to-Fail.” While not everyone would be especially sad to see something like that happen, there’s a whole bunch of other reasons Sanders might not be the marketplace lending candidate of choice.
Here’s a summary of what he said:
- The Business Model on Wall Street is Fraud.
- All consumer loans should have an interest rate cap of 15%.
- Lenders who charge more than 15% are awaited in the Seventh Circle of Hell.
- Quote: “Today, we don’t need the hellfire and the pitch forks, we don’t need the rivers of boiling blood, but we do need a national usury law.”
- Big banks need to stop acting like loan sharks and start acting like responsible lenders.
- Post offices should become government banks so that free market lenders will go out of business.
While Sanders admittedly said we don’t need the rivers of boiling blood, a large portion of lenders, marketplace lenders included, apparently have a special place in hell reserved for them. His over the top statements come on the heels of a gaffe, in which he revealed very publicly on twitter his ignorance over how loan underwriting actually works.
Will you be voting for Bernie Sanders this primary season?
Meet the Lending Platform With 0% Interest (Kiva)
January 6, 2016
Chany of Angela’s Boutique in Philadelphia, PA needs $5,000 to help purchase new signage and lighting to improve her storefront. She’s been turned down by banks even though she’s been in business for more than five years. 61 participants have already contributed to her loan thanks to a marketplace lending platform, which puts her very close to her goal. If it funds, all of the participants will get back their principal from her payments over the next 24 months and NO interest.
Meet Kiva Zip, the anti-Lending Club because the borrowers are far from anonymous and the yield delivered to investors is negative due to inflation.
Angela’s Boutique, which is a real prospect on the Kiva Zip platform, includes a picture of the owner, her bio, endorsements, and comments from supporters.
According to Jessica Feingold, Kiva’s East Coast Manager of Development, “Kiva is the world’s first and largest crowdfunding platform for social good with a mission to connect people through lending to alleviate poverty and expand economic opportunity.”
And just like Lending Club, contributions as small as $25 are accepted. Obviously structured as a non-profit, “Kiva and its growing global community of 1.2 million lenders has crowdfunded more than $775 million in microloans to over 1.7 million entrepreneurs in 83 countries, all the while maintaining a 98% repayment rate,” according to Feingold.
Normally thought of as an overseas endeavor, Feingold said that “in 2011, Kiva launched Kiva Zip, a pilot program in the US that provides 0% interest crowdfunded loans to small business entrepreneurs.” Their underlying purpose and target market sounds very much like those being served by for-profit alternative lenders. “Kiva doesn’t require a minimum FICO score, collateral, or a minimum operations period for the business,” Feingold said.
Since inception they’ve made loans to over 1,800 borrowers in 47 days states, Peru, and Guam.
Notably, Lending Club promises borrowers that their “identity will at all times remain confidential and not be disclosed to anyone,” according to their website. Kiva by contrast is looking to “instill empathy” in their lenders. “We want to show that whether in East New York or Uganda, underserved entrepreneurs are credit-worthy, and will pay you back,” Feingold said. “All of these features on the Kiva websites enhance our ability to do so.”
While there is definitely a certain allure about being able to see the borrower for yourself, the concept seems to fly in the face of Dodd-Frank’s Section 1071 which stipulated that lenders are prohibited from knowing the sex and gender of business loan applicants. While the CFPB is not currently enforcing the law until the rules can be clarified, Democratic members of Congress have been pushing them to take action.
According to the law, no loan underwriter or other officer or employee of a financial institution, or any affiliate of a financial institution, involved in making any determination concerning an application for credit shall have access to any information provided by the applicant about whether or not the business is women-owned or minority owned.
As small businesses often celebrate the heritage of their founders, and at times that can be the entire reason customers buy from them in the first place, the law has presumably put the small business lending world in an awkward position (and that’s why the law should be repealed). Non-profits like Kiva have embraced the very things that make a small business bankable outside of a credit score, like the owner, their background, and their story.
Borrowers on the Kiva Zip platform don’t raise all the money from strangers though. Their credit-worthiness is based on their ability to recruit friends and family to fund a small portion of their loan. The other lenders though of course may make their decisions based on the numbers or entirely on the perceived cultural, racial, or gender values of the borrower, all of the things that the CFPB is attempting to eradicate in the for-profit arena.
I didn’t ask Kiva any questions about Dodd Frank or Section 1071, but many people might empathize with their empathy approach as a way to fund small businesses that otherwise don’t qualify for bank loans. Its reminiscent of the subjective underwriting that a lot of alternative lenders and merchant cash advance companies employ to get deals done that banks won’t touch.
Not so coincidentally, Fundry, Yellowstone Capital’s parent company, donated $25,000 to Kiva just last month to support their cause.
Kiva’s Feingold (pictured at center above) said in regards to that, “Kiva is thrilled to receive a grant from Fundry to further our work to make credit more affordable.”
deBank the World: See the Times Square Ad Campaign LIVE
January 1, 2016If you didn’t make it to Times Square for the New Year’s Eve celebration, you’re probably a lot better off. But if you’re not going to be in that neighborhood any time soon either, you can still catch a LIVE glimpse of three very important company logos that are broadcasting on a video billboard above 43rd and Broadway. (hint: look at the top left)
The deBanked ad in particular, which only makes a handful of appearances every hour in the rotation, can be viewed in the continuous live stream hosted by Nasdaq. (Update: The ad was retired in early 2016)
What isn’t visible is the half of the screen that wraps around the building. On that side is the story produced by BizBloom, the company behind the campaign. In the video above, you will occasionally see the logos for deBanked, BizBloom, and Quick Bridge Funding in the top left hand corner. The live stream has the ability to rewind up to the previous 3 hours. So if you don’t want to wait, rewind to different parts until you spot them.
Below is the video footage you can’t see that wraps around the other side of the building:
The purpose of the campaign, according to BizBloom’s Thomas Costa, is to tell the story of the American Dream, particularly the struggles and accomplishments of entrepreneurs.
Happy New Year.
‘Twas the Day Before New Year’s for Funders
December 31, 2015
‘Twas the day before New Year’s, and all through the floor
The staff was busy catching up, but being pushed for more
Submissions kept coming, most missing some stips
The most simplest of standards, the brokers always miss
The underwriters were dizzy, crunching numbers for hours
Getting hustled for approvals because they hold all the power
And management holding meetings, going over collections
Returns and defaults, and next year’s projections
When out of the blue, there arose such a clatter
The originators sprung up to see what was the matter
An announcement being made, attentive they listened
“Employees of the company!” said a face that glistened
With cheer in his eyes, and a non-familiar glow
Everyone was excited and frightened at the same time to know
He continued to explain, news that was both bad and good
Reflecting on the year, in terms they understood
With a lot of fluff talk, numbers, and percents
They knew at that moment, how it all made sense
Understanding their roles, and those who contribute
Appreciating their time and how they distribute
Now, closers! Now, admins! Now, marketing and relations!
Now, underwriting and sales! Anyone who had patience!
To the breakroom! To the breakroom with you all!
And they all huddled in, without an argue or a brawl
There on the table sat a wonderful spread
Snacks and desserts, more than enough to be fed
Stuffing their faces with enough food for two
The staff laughed and chatted though there was so much to do
“We can’t take a break! there’s so much to complete!”
“Though this is more than I ate all this week!”
This much is true- as many don’t know
They don’t leave their desks often, like elves at the North Pole
So back to their seats, with plates by their side
Back to reality, but they did it with pride
The realization of all of their hard work
It isn’t all that bad when you look at the perks
As the manager swung by to view his whole team
He realized it too, what isn’t always seen
It takes more than just one, it takes more than just vision
It takes a plan and people, to carry out the mission
As the time grew later, he knew what to do
Since nothing was funding in the late afternoon
He had another announcement which he said with great cheer
You’re all getting out early and have a Happy New Year!
