Fintech
Steve McLaughlin to Speak at B2B Finance Expo
August 29, 2024Steve McLaughlin will appear on stage at B2B Finance Expo for a fireside chat. McLaughlin is the Founder and CEO of FT Partners and former senior banker at Goldman Sachs covering FinTech and Financial Services for over 20 years. Steve was recently Ranked #1 on Institutional Investor’s “Most Influential Dealmakers in FinTech” report and named “Investment Banker of the Year” and ranked #1 FinTech Banker in Silicon Valley by The Information. FT Partners was founded in late 2001 and has won “Investment Banking Firm of the Year” four times since 2004. Steve has personally led and closed hundreds of FinTech M&A, Capital Raise and IPO Advisory transactions. @ftpartners www.ftpartners.com
Greg Smith, a Managing Director for FT Partners, will also be giving a keynote at B2B Finance Expo.
B2B Finance Expo takes place at Wynn, Las Vegas September 23-24. Registration is still available here. The room block has already SOLD OUT.
MoneyThumb Acquired, Ryan Campbell Takes Over as CEO, and What to Expect
August 29, 2024Ryan Campbell will take over as CEO of MoneyThumb as part of the deal announced earlier today. MoneyThumb is being acquired by an investment group led by Iron Creek Partners LLC that includes Main Street Capital Corporation (NYSE: MAIN). Campbell was for a long time MoneyThumb’s EVP of Sales & Marketing. Ralph Mayer, MoneyThumb’s founder, will move on to an advisory role and retain his board seat.
MoneyThumb is widely known in the small business finance industry for two signature products it offers, PDF Insights, which reads and analyzes financial documents, and Thumbprint, which assesses whether documents have been manipulated and could be fraudulent.
The idea for the company, which originated over a decade ago, came to Ralph Mayer when someone had asked him a basic question, could he convert the data in a PDF file?
“I had been in software my entire career. I was an angel investor and I was looking to get into something a little bit different,” Mayer said of the time when the idea for MoneyThumb came to him. “Originally we got started selling software to accountants.”
MoneyThumb soon encountered a field that seemed to handle an unlimited number of PDFs and was ripe for the product they were building. It was the MCA & revenue based financing industry. MoneyThumb has made a name for itself in it ever since.
Ryan Campbell told deBanked that it’s actually quite common for funding companies to be on the receiving end of manipulated bank statements and that about 6% of the documents they analyze on average end up meeting or surpassing the scoring threshold they’ve built to indicate manipulation.
“It happens a whole lot more than what you would think,” Campbell said.
One major trend they’ve noticed is that before covid 90% of fraudulently submitted bank statements did not even have financial columns that reconciled numerically whereas now most fraudulent ones today do. Today’s fraud, because of how good scammers have gotten, may not even be noticeable to the naked eye which is why their technology has become even more important.
Campbell said that as part of the acquisition it will be business as usual with their clients. The company is keeping its name and Iron Creek is going to continue letting them do what they do best. MoneyThumb is used by both funders and ISOs and Campbell is regularly seen on the industry trade show circuit.
“This acquisition underscores MoneyThumb’s proven technology and strong industry demand, and supports our long-term growth objectives,” Campbell said in an official statement. “This partnership marks an exciting milestone for our company and with the support of Iron Creek, we are well-poised to accelerate our growth, continue to deliver exceptional software solutions for our customers and help lenders manage risk and deliver more capital faster to small businesses.”
Tech Founder Takes Online Business Loan, Grows Massively
February 2, 2024The founder of Testimonial.to took to X to share his story about using a revenue based business loan from Stripe Capital. It worked very well for him. His posts about it are below:
Everyone in the comments missing the point picking on the interest amount. Dude deployed cash to grow his business by $300k ARR.
— Preetam Nath (@hipreetam93) July 27, 2023
Not really to build a business from scratch, but to scale a business that already proved the PMF
— Damon Chen (@damengchen) July 26, 2023
Some marketing expenses and hiring
— Damon Chen (@damengchen) July 26, 2023
I can take $187,300 from Stripe without giving away a single share of my company. The modern-day "VC"! pic.twitter.com/1wiTQsa7KF
— Damon Chen (@damengchen) February 2, 2024
Stripe Capital works similar to how other platforms work in that their product is a loan with MCA-esque features. For example, merchants apply a fixed percentage of their credit card sales toward their loan balance up until the loan is paid in full.
Financial Service Associations Urge Legislation on IRS Income Verification
January 25, 2024
The IRS doesn’t want financial service companies to be able to verify the income of customers, at least not through official channels like the Income Verification Express Services (IVES) system. On January 2 and 3, the IRS announced it would only allow IVES transcripts to be made available “to mortgage lending firms for the sole purpose of obtaining a mortgage on residential or commercial real property (land and buildings).” Government agencies will also not be allowed to use IVES.
“The IRS is implementing the provisions of the Taxpayer First Act (P. Law 116-25) with increased privacy and security requirements for access to confidential tax information,” it announced. “If tax transcript information is required by your firm for other than securing a mortgage, we recommend requesting it directly from the taxpayer.”
But relying on getting the information directly from the taxpayer defeats the whole purpose in more ways than one, many financial service trade associations say. On Wednesday, a letter jointly signed by the American Bankers Association, America’s Credit Unions, American Fintech Council, Consumer Data Industry Association, Electronic Transactions Association, Financial Technology Association, Innovative Lending Platform Association, Independent Community Bankers Association, Mortgage Bankers Association, Responsible Business Lending Coalition, and Small Business Finance Association urged senior ranking members of Congress to pass H.R. 3335. Dubbed the IRS eIVES Modernization and Anti-Fraud Act, it would “ensure the IRS follows the original intent of Congress to modernize the system and prevent disruptions to the consumer and commercial lending industries.”
Prosper Loan Originations down 50% YoY in Q3
January 17, 2024
Online consumer lending stalwart Prosper Marketplace originated $493.8M in loan originations in its last reported quarter. While it sounds like a lot, the company said that’s a decrease of 53% from the same period in 2022. Prosper originated $1.72B in loans for the first 9 months of 2023 vs $2.5B in loans for the first 9 months of 2022.
“…the mix of personal loan originations on the Prosper platform reflects a significant decrease in investor appetite for whole loan purchases under the current economic environment, specifically for personal loans not assigned Prosper ratings,” the company said in its financial reports. “These personal loans are sold only to institutional investors and based on specific underwriting criteria and custom risk models developed by these investors.”
Prosper Marketplace logged a cumulative net loss of $93M for the first three quarters of 2023.
Conversion Rates on Upstart’s Consumer Loans
November 7, 2023
Upstart is having a tough time in the current interest rate environment.
“In the third quarter, rates were at an all-time high in our marketplace, higher than we expected them to be, reflecting both decades high interest rates and significantly elevated risk in the consumer economy,” said Upstart CEO David Girouard during the company’s Q3 earnings call. “This is not a path we would have chosen and is obviously not constructive to our growth, but it reflects the reality of operating responsibly in this environment.”
The company won’t offer loans above 36% APR which means if the risk models indicate a rate higher than that would be necessary to move forward, they just decline the loan altogether. Notably, this and other economic factors has had a negative impact on their conversion rates.
“I think our [conversion rate] for this quarter was around 8.5%,” said Upstart CFO Sanjay Datta. “So meaning, of all applicants to fill in an application and submit, about 8.5% of them become funded loans. I think at our peak, that number was closer to 24%.”
And of all loans that get approved, only 1/3rd of them fund.
It’s been a rough couple of years for Upstart. The stock is down 92% from its all time high in October 2021. At the time the company was planning to expand into the small business loan market, which it finally did in June 2022. In the subsequent quarter it originated $9M in small business loans. But earlier this year the company suspended it entirely. At the time Girouard said, “This was a necessary step to ensure we can adequately resource the rest of the roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.”
It has not resumed business lending though it continues to cite in its quarterly earnings presentations that the addressable small business loan market numbers $895B.
Fintech Hasn’t Stopped. There’s Still Room for Constant Improvement in Lending
October 31, 2023
“I think fintech is a broad term,” said Frank McKenna, Chief Fraud Strategist at Point Predictive. “It can apply primarily to technology that enables faster banking, and more digital banking that hasn’t been satisfied with kind of the traditional brick and mortar banks or finance companies. Fintech can be banks, it can be platforms that provide the backbone for that kind of streamline lending. Or it can even be considered companies like ours, technology that helps financial companies make better decisions.”
Fintech, which can take on any one of the forms McKenna described, has been causing transformations for over a decade and yet there are still processes in the lending world still ripe for improvement.
“[Fintech is] growing every day, it will be more because of timing,” said Richard Gusmano, CEO of BCCUSA. “I think we’re going to see more and more people doing it, especially with the SBA opening up lending to non-banks. You’re going to see more of it in many different fashions and derivatives and how they see it is going to continue to emerge.”
Gusmano’s company helps businesses secure bank lines and bank loans, a system that now includes its very own AI-powered solution. He’s already seeing how AI and machine learning technologies stand to disrupt processes in the small business finance ecosystem.
“There’s so many different ways to use it and it is not rocket science,” Gusmano said. “In the MCA space, it’s amount of deposits, it’s average daily balance, it’s business type, and other positions. AI can immediately pick up those things if programmed to do so. I would think that the MCA underwriters over time should be concerned because AI could likely do that and pick that up.”
But it’s not just about replacing manual processes, but also doing it in an efficient manner.
“Since most fintech is dealing in a non-face to face environment, you’re going to have a whole host of risk in fintech, more than you might have in a traditional bank,” said McKenna of Point Predictive, whose company collaborates with lenders to detect potential risks. “I can just name off five or six: you have higher rates of identity theft, use of fake IDs called synthetic identities, you have more falsified documentation, fake employers, people shot-gunning where they’ll go to multiple fintechs the same day and get as many loans as they can, as quick as they can. They call it shot gunning.”
McKenna added that if someone has no knowledge of how to navigate these types of strategies or does not have the right technology to handle it, they may fall victim to them.
The keyword there might be someone, as in a person
“The risks associated is that you still are going to need someone that can make human decisions, even with financial technology,” said Gusmano. “And if you don’t, you’re going to be keeping yourself away from businesses that you want to do business with. It can never be 100% tech.”
The Growth of IDIQ
September 7, 2023
IDIQ is no stranger to recognition. A leader in identity theft protection, the company has earned a spot on the Inc. 5000 list for four consecutive years. Founded in 2009, IDIQ began its journey with a handful of employees in a Southern California home before expanding to an office building in Temecula, CA. The Temecula location grew to seven buildings, opening additional offices in Illinois, Florida, and Arizona, along with hubs in Texas and New York.
“Yes, we’ve grown rapidly,” said Bryan Sullivan, Chief Operating and Financial Officer at IDIQ. “We’ve hired more than 150 employees in the last three years to facilitate our business growth. We currently have about 250 employees.”
According to Sullivan, the COVID-19 pandemic catalyzed two significant trends that contributed to IDIQ’s growth. First, there was a spike in online scams and identity theft. Second, there was an increase in consumer finance transactions, including credit card use, home purchases, and refinances.
Sullivan recalled one case in particular: “We had a member who received an alert that two companies, not accounts but companies, had been opened in a different state by an identity thief using their name and personal information and had applied for business loans,” said Sullivan. “We alerted the member to the fraud and helped them get the bogus companies eliminated.”
“Without these alerts it might have taken years for the victim to find out about the identity theft and bogus companies and loans in their name,” Sullivan explained. “And, once found out, it would take months if not years to recover their identity and credit and cost thousands of dollars in lost wages and other costs.”
An IDIQ customer can be pretty much anybody since they now have several brands. IdentityIQ, which focuses on identity theft and credit monitoring is their flagship. The others include MyScoreIQ, Resident-Link, Countrywide Pre-Paid Legal Services, and Credit & Debt.
In the small business finance industry, IDIQ is used several ways. In one example, brokers can offer merchants access to their credit reports and in turn use that data to help them figure out the best path to pursue for funding.
“Our strategy has been to continually expand our product offerings,” he said. “Adding features and benefits that protect and educate consumers as well as improve their financial wellness and help them meet their financial goals.”
