Fintech

The PPP Application for Fintech Lenders is HERE

April 8, 2020
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The SBA finally released an individual PPP lender application for Non-Bank and Non-Insured Depository Institution Lenders on Wednesday.

You Can Access it Here

Note that it doesn’t actually say “fintech” anywhere on it but that’s because fintech is a colloquial term. This Non-bank designation and the requirements therein are similar to the SBA guidance published on April 3rd that was widely believed to encompass fintech lenders.

Views from the Small Business Finance Industry, March 27

March 27, 2020
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American FlagAs the coronavirus pandemic continues to disrupt the economy and affect small businesses as well as funders, deBanked will keep up with how various figures from the alternative finance sector are managing under the stresses of covid-19. Ranging from funders, to brokers, to those figures on the periphery of the industry, this series aims to highlight a variety of voices and we encourage you to reach out to deBanked to discuss how your business is doing.

One such voice this week was Shawn Smith, CEO of Dedicated Commercial Recovery. Specializing in debt recovery and legal enforcement, Smith told deBanked that his business has already seen a jump in demand, but that he reckons, for now, most demand will be for modifications on existing deals. According to Smith, many of his clients have explained to him that merchants have been requesting changes to the terms of the financing, either by tweaking the rates or length of repayment.

“Just in two weeks we can see an uptick, but by and large, it hasn’t majorly spiked. I think it’s spiking with the funders or the creditors right now. And we’ll be next on that … a major thing I’m hearing is a dramatic increase in inbound calls to our clients for modifications.”

In Smith’s view, this back and forth between merchants and funders is a better scenario than the alternative, making clear that honest communication is necessary in a crisis like this.

“Hopefully everybody’s working together through this, which does seem to be the case right now. I honestly think we’re past the point of some people calling this a hoax, or it’s not to be taken seriously. And I’m seeing a lot of rallying around the idea of ‘we’re in this together even though we can’t stand next to each other.’ A kind of American spirit of we’re going to beat this, we’re going to get through it.”

For Idea Financial, the idea of working together has manifested, just as it has for many companies across the world, digitally. CEO Justin Leto and President Larry Bassuk explained to deBanked that since their entire company is working remotely, the communication app Slack has stepped in for continual conversation between employees and Zoom is being used to check in with the team multiple times throughout the day.

“In many ways, our teams interact more now than they did when they were in the office together. We hold competitions, share personal stories, and really support one another. At Idea, the sentiment that we feel is that everyone appreciated each other more now than before, and we all look forward to seeing each other again in person soon.”

On Thursday, industry leaders took part in a webinar hosted by LendIt Co-Founder and Chairman Peter Renton. Various subjects relating to Covid-19 were up for discussion by Lendio’s Brock Blake, Kabbage’s Kathryn Petralia, and Luz Urrutia of Opportunity Fund, with the $2 trillion government bill being foremost among them.

Blake, who had been in touch with Senators Romney and Rubio, explained that most small businesses will be eligible for a loan out of the $350 billion fund that would be allotted to the SBA under the $2 trillion bill, saying that “a tsunami of loan applications is coming because almost all small business owners in America will qualify for this product.” The Lendio CEO also noted that business can expect to pay an interest rate of 3.75% on these loans, only a portion of each individual loan may be forgivable, and the max amount loaned out will be two and a half times the business’s monthly payroll, rent, and utilities combined.

Beyond the specifics of the 7(a) loan program, Blake expressed concern over the SBA’s bandwidth, saying that he was unsure whether or not the organization and the banks that it will partner with to deliver these loans will have the capacity to process them, a point echoed by Urrutia. “We’re talking about businesses that are going to need a ton of support,” the Opportunity Fund CEO said. “With these programs, the money doesn’t really get down to the bottom of the pyramid.”

Collectively, the group hoped that the SBA would open up their channels and allow non-bank lenders to use some of the $350 billion to fund small businesses, citing that neither government agencies nor banks have the technology nor processes to hastily deal with the amount of applications that will come. In other words, the SBA is working with “dinosaur technology,” as Blake called it.

One point of concern that continually arose during the conversation was the situation lenders will find themselves in as the pandemic continues. With Blake saying that an estimated 50% of non-bank lenders on his platform have hit the pause button on new loans, each of the other participants expressed worry about lenders being wiped off the map during and in the aftermath of this crisis.

As well as this, Petralia explained that funders can expect to encounter increased rates of fraud during this time: “In times like this, the bad guys come out in force … criminals are very creative and smart, so I promise you they’ll come up with new ways to fraud the system.” Discussing how they are dealing with this, the group mentioned that they were incorporating additional revenue and cash balance checks, as well as social media checks to see whether the business announced that it had closed due to the coronavirus.

Altogether, the conversation was one of uncertainty, but also one of hope to keep the wheels of the industry turning as more and more small business owners look for financing to keep their payroll flowing. As Renton said closing the session, “This is our time to shine, this is fintech’s time to show what it’s been working on for the last decade.”

Can The SBA Handle The Stimulus On Their Own?

March 27, 2020
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old main streetAs the market cheers the upcoming passage of a $2 Trillion stimulus bill that is intended to provide much needed support to small businesses, industry insiders are beginning to raise concerns about the SBA’s infrastructural ability to process applications in a timely manner.

In a webinar hosted by LendIt Fintech yesterday, Opportunity Fund CEO Luz Urrutia estimated that conservatively, it could take the SBA up to two months to even begin disbursing loans offered by the bill. Kabbage President Kathryn Petralia offered the most optimistic estimate of 10 days, while Lendio CEO Brock Blake thinks that perhaps it could take around 3 weeks.

Blake followed up the webinar by sharing a post on LinkedIn that said that small businesses were reporting that the SBA’s website was so slow, so riddled with crashes, that the SBA had to temporarily take their site offline.

Most skeptics raising alarms are not referring to the SBA’s staff as being unprepared, but rather the systems the SBA has in place.

A March 25th tweet by the SBA reported that the site was undergoing “scheduled” improvements and maintenance.

This all while the demand for capital is surging. Blake reported in the webinar that loan applications had just recently increased by 5x at the same time that around 50% of non-bank lenders they work with have suspended lending.

Some informal surveying by deBanked of non-bank small business finance companies is finding that among many that still claim to be operating, origination volumes have dropped by more than 80% in recent weeks, mainly driven by stay-at-home and essential-business-only orders issued by state governments.

It’s a circular loop that puts further pressure on the SBA to come through, none of which is made easier by the manual application process they’re advising eager borrowers to take on. The SBA’s website asks that borrowers seeking Economic Injury Disaster Loan Assistance download an application to fill out by hand, upload that into their system and then await further instructions from an SBA officer about additional documentation they should physically mail in.

Perhaps there’s another way, according to letters sent to members of Congress by online lenders. 22 Fintech companies recently made the case that they are equipped to advance the capital provided for in the stimulus bill.

“We seek no gain from this crisis. Our only aim is to protect the millions of small businesses that we are proud to call our customers,” the letter states.

Members of the Small Business Finance Association made a similar appeal in a letter dated March 18th to SBA Administrator Jovita Carranza. “In this time of need, we want to leverage the experience and expertise we have with our companies to help provide efficient funding to those impacted in this tough economic climate. We want to serve as a resource to governments as they build up underwriting models to ensure emergency funding will be the most impactful.”

How fast things come together next will be key. The House is scheduled to vote on the Senate Bill today. If a plan to distribute the capital cannot be expedited and the crisis drags on, the consequences could be dire.

“Hundreds of thousands of businesses are going to be out of business,” Urrutia warned in the webinar.

Canadian Lenders Association Announces Creation of Covid-19 Working Group

March 20, 2020
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Canadian Lenders AssociationThe Canadian Lenders Association has announced its establishment of a covid-19 working group to support its members’ response against the coronavirus. The group will act as an advisory committee and resource for CLA members, while also serving as a lobbyist group to various government entities.

“We presently are in an unprecedented period in Canadian business,” CLA President Gary Schwartz said in a statement. “In the weeks and months ahead, CLA members will have an important role to play in supporting small business and in providing much needed credit to consumers across Canada. The goal of this initiative is to engage with and advocate on behalf of all stakeholders across the innovative lending ecosystem to help mitigate the disruption that covid-19 create in Canada.”

The working group will engage Canadian policy makers on key issues relating to small business lenders and small businesses. In a call, CLA Board Member and Merchant Growth Partner CEO David Gens said that “there’s a lot that governments can do to bridge businesses through this, so that once this virus is over, life resembles, as much as possible, what it looked like pre-virus … I don’t think we have seen enough yet in terms of the government response as it relates specifically to mom and pop small businesses … And I think that those businesses, those local storefronts really do make up the fabric of communities.”

2020 and Beyond – A Look Ahead

March 3, 2020
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This story appeared in deBanked’s Jan/Feb 2020 magazine issue. To receive copies in print, SUBSCRIBE FREE

Looking AheadWith the doors to 2019 firmly closed, alternative financing industry executives are excited about the new decade and the prospects that lie ahead. There are new products to showcase, new competitors to contend with and new customers to pursue as alternative financing continues to gain traction.

Executives reading the tea leaves are overwhelming bullish on the alternative financing industry—and for good reasons. In 2019, merchant cash advances and daily payment small business loan products alone exceeded more than $20 billion a year in originations, deBanked’s reporting shows.

Confidence in the industry is only slightly curtailed by certain regulatory, political competitive and economic unknowns lurking in the background—adding an element of intrigue to what could be an exciting new year.

Here, then, are a few things to look out for in 2020 and beyond.

Regulatory developments

There are a number of different items that could be on the regulatory agenda this year, both on the state and federal level. Major areas to watch include:

  • Broker licensing. There’s a movement afoot to crack down on rogue brokers by instituting licensing requirements. New York, for example, has proposed legislation that would cover small business lenders, merchant cash advance companies, factors, and leasing companies for transactions under $500,000. California has a licensing law in place, but it only pertains to loans, says Steve Denis, executive director of the Small Business Finance Association. Many funders are generally in favor of broader licensing requirements, citing perceived benefits to brokers, funders, customers and the industry overall. The devil, of course, will be in the details.
  • Interest rate caps. Congress is weighing legislation that would set a national interest rate cap of 36%, including fees, for most personal loans, in an effort to stamp out predatory lending practices. A fair number of states already have enacted interest rate caps for consumer loans, with California recently joining the pack, but thus far there has been no national standard. While it is too early to tell the bill’s fate, proponents say it will provide needed protections against gouging, while critics, such as Lend Academy’s Peter Renton, contend it will have the “opposite impact on the consumers it seeks to protect.”
  • Loan information and rate disclosures. There continues to be ample debate around exactly what firms should be required to disclose to customers and what metrics are most appropriate for consumers and businesses to use when comparing offerings. This year could be the one in which multiple states move ahead with efforts to clamp down on disclosures so borrowers can more easily compare offerings, industry watchers say. Notably, a recent Federal Reserve study on non-bank small business finance providers indicates that the likelihood of approval and speed are more important than cost in motivating borrowers, though this may not defer policymakers from moving ahead with disclosure requirements.

    “THIS WILL DRIVE COMMISSION DOWN FOR THE INDUSTRY”

    If these types of requirements go forward, Jared Weitz, chief executive of United Capital generally expects to see commissions take a hit. “This will drive commission down for the industry, but some companies may not be as impacted, depending on their product mix, cost per lead and cost per acquisition and overall company structure,” he says.

  • Madden aftermath. The FDIC and OCC recently proposed rules to counteract the negative effects of the 2015 Madden v. Midland Funding LLC case, which wreaked havoc in the consumer and business loan markets in New York, Connecticut, and Vermont. “These proposals would clarify that the loan continues to be ‘valid’ even after it is sold to a nonbank, meaning that the nonbank can collect the rates and fees as initially contracted by the bank,” says Catherine Brennan, partner in the Hanover, Maryland office of law firm Hudson Cook. With the comments due at the end of January, “2020 is going to be a very important year for bank and nonbank partnerships,” she says.
  • “…I’M NOT SURE THEY GO FAR ENOUGH”

  • Possible changes to the accredited investor definition. In December 2019, the Securities and Exchange Commission voted to propose amendments to the accredited investor definition. Some industry players see expanding the definition as a positive step, but are hesitant to crack open the champagne just yet since nothing’s been finalized. “I would like to see it broadened even further than they are proposed right now,” says Brett Crosby, co-founder and chief operating officer at PeerStreet, a platform for investing in real estate-backed loans. The proposals “are a step in the right direction, but I’m not sure they go far enough,” he says.

Precisely how various regulatory initiatives will play out in 2020 remains to be seen. Some states, for example, may decide to be more aggressive with respect to policy-making, while others might take more of a wait-and-see approach.

“I think states are still piecing together exactly what they want to accomplish. There are too many missing pieces to the puzzle,” says Chad Otar, founder and chief executive at Lending Valley Inc.

As different initiatives work their way through the legislative process, funders are hoping for consistency rather than a patchwork of metrics applied unevenly by different states. The latter could have significant repercussions for firms that do business in multiple states and could eventually cause some of them to pare back operations, industry watchers say.

“While we commend the state-level activity, we hope that there will be uniformity across the country when it comes to legislation to avoid confusion and create consistency” for borrowers, says Darren Schulman, president of 6th Avenue Capital.

Election uncertainty

The outcome of this year’s presidential election could have a profound effect on the regulatory climate for alternative lenders. Alternative financing and fintech charters could move higher on the docket if there’s a shift in the top brass (which, of course, could bring a new Treasury Secretary and/or CFPB head) or if the Senate flips to Democratic control.

If a White House changing of the guard does occur, the impact could be even more profound depending on which Democratic candidate secures the top spot. It’s all speculation now, but alternative financers will likely be sticking to the election polls like glue in an attempt to gain more clarity.

Election-year uncertainty also needs to be factored into underwriting risk. Some industries and companies may be more susceptible to this risk, and funders have to plan accordingly in their projections. It’s not a reason to make wholesale underwriting changes, but it’s something to be mindful of, says Heather Francis, chief executive of Elevate Funding in Gainesville, Florida.

“Any election year is going to be a little bit volatile in terms of how you operate your business,” she says.

Competition

The competitive landscape continues to shift for alternative lenders and funders, with technology giants such as PayPal, Amazon and Square now counted among the largest small business funders in the marketplace. This is a notable shift from several years ago when their footprint had not yet made a dent.

This growth is expected to continue driving competition in 2020. Larger companies with strong technology have a competitive advantage in making loans and cash advances because they already have the customer and information about the customer, says industry attorney Paul Rianda, who heads a law firm in Irvine, Calif.

It’s also harder for merchants to default because these companies are providing them payment processing services and paying them on a daily or monthly basis. This is in contrast to an MCA provider that’s using ACH to take payments out of the merchant’s bank account, which can be blocked by the merchant at any time. “Because of that lower risk factor, they’re able to give a better deal to merchants,” Rianda says.

“THE PRIME MARKET IS EXPANDING TREMENDOUSLY”

Increased competition has been driving rates down, especially for merchants with strong credit, which means high-quality merchants are getting especially good deals—at much less expensive rates than a business credit card could offer, says Nathan Abadi, president of Excel Capital Management. “The prime market is expanding tremendously,” he says.

Certain funders are willing to go out two years now on first positions, he says, which was never done before.

Even for non-prime clients, funders are getting more creative in how they structure deals. For instance, funders are offering longer terms—12 to 15 months—on a second position or nine to 12 months on a third position, he says. “People would think you were out of your mind to do that a year ago,” he says.

Because there’s so much money funneling into the industry, competition is more fierce, but firms still have to be smart about how they do business, Abadi says.

Meanwhile, heightened competition means it’s a brokers market, says Weitz of United Capital. A lot of lenders and funders have similar rates and terms, so it comes down to which firms have the best relationship with brokers. “Brokers are going to send the deals to whoever is treating their files the best and giving them the best pricing,” he says.

Profitability, access to capital and business-related shifts

Executives are confident that despite increased competition from deep-pocket players, there’s enough business to go around. But for firms that want to excel in 2020, there’s work to be done.
Funders in 2020 should focus on profitability and access to capital—the most important factors for firms that want to grow, says David Goldin, principal at Lender Capital Partners and president and chief executive of Capify. This year could also be one in which funders more seriously consider consolidation. There hasn’t been a lot in the industry as of yet, but Goldin predicts it’s only a matter of time.

“A lot of MCA providers could benefit from economies of scale. I think the day is coming,” he says.

He also says 2020 should be a year when firms try new things to distinguish themselves. He contends there are too many copycats in the industry. Most firms acquire leads the same way and aren’t doing enough to differentiate. To stand out, funders should start specializing and become known for certain industries, “instead of trying to be all things to all businesses,” he says.

Some alternative financing companies might consider expanding their business models to become more of a one-stop shop—following in the footsteps of Intuit, Square and others that have shown the concept to be sound.

Sam Taussig, global head of policy at Kabbage, predicts that alternative funding platforms will increasingly shift toward providing more unified services so the customer doesn’t have to leave the environment to do banking and other types of financial transactions. It’s a direction Kabbage is going by expanding into payment processing as part of its new suite of cash-flow management solutions for small businesses.

“Customers have seen and experienced how seamless and simple and easy it is to work with some of the nontraditional funders,” he says. “Small businesses want holistic solutions—they prefer to work with one provider as opposed to multiple ones,” he says.

Open banking

This year could be a “pivotal” year for open banking in the U.S., says Taussig of Kabbage. “This issue will come to the forefront, and I think we will have more clarity about how customers can permission their data, to whom and when,” he says.

Open banking refers to the use of open APIs (application program interfaces) that enable third-party developers to build applications and services around a financial institution. The U.K. was a forerunner in implementing open banking, and the movement has been making inroads in other countries as well, which is helping U.S. regulators warm up to the idea. “Open banking is going to be a lively debate in Washington in 2020. It’ll be about finding the balance between policymakers and customers and banks,” Taussig says.

The funding environment

While there has been some chatter about a looming recession and there are various regulatory and competitive headwinds facing the industry, funding and lending executives are mostly optimistic for the year ahead.

“If December 2019 is an early indicator of 2020, we’re off to a good start. I think it’s going to be a great year for our industry,” says Abadi of Excel Capital.

Intuit Agrees to Buy Credit Karma For $7.1 Billion

February 26, 2020
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Credit KarmaThis week the news broke that a deal had been reached between Credit Karma and Intuit that will see the latter purchase Credit Karma for $7.1 billion, paid for with cash and stock. After rumors of the deal leaked over the weekend, the agreement was confirmed on Monday by chief executives from both companies.

Under the deal, Credit Karma will continue to operate as a stand-alone business and its CEO, Kenneth Lin, will stay on and run the company. Beyond that, some believe that the merger will see Intuit rise as a go-to platform for financial services. Owning TurboTax as well as Mint, tools for filing taxes and budgeting, respectively, the addition of Credit Karma, which allows customers to view their credit score for free, would advance Intuit’s product suite as well as bolster the data it already has on users.

“There hasn’t been that much innovation in the financial services world in the past two decades,” Credit Karma Founder and CEO Kenneth Lin said. “The combination of the two companies will really be able to move consumers forward.”

Credit Karma claims to have 100 million customers, with half of all American millennials being included within that number. It also states that it has over 2,600 data points on each customer, including their social security number as well as loan history. The company makes its money by selling customer information to third parties who advertise new credit cards and loans on the Credit Karma site. Credit Karma also receives a couple of hundred dollars for each card and loan that is acquired through ads on its site. Being one of the few tech startups that actually turn a profit, Credit Karma claimed to have received $1 billion in revenue in 2019.

Speaking on the deal, Intuit’s CEO, Sasan Goodarzi, said that “This is very core to what we’ve declared around helping our customers make ends meet and make smart money decisions.”

LendingClub Becomes First Fintech Lender to Buy a Bank

February 19, 2020
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Scott Sanborn, Lending Club CEOToday LendingClub announced that it has agreed to acquire Boston-based Radius Bank for a purchase price of $185 million, made up by cash and stock. Holding more than $1.4 billion in assets, the merger will enable LendingClub to offer checking accounts and save millions in bank fees and funding costs each year.

Coming one month after LendingClub settled to pay out $1.25 million to resolve allegations that it charged rates in violation of Massachusetts state law, now, more than ever, appears to be a good time for the company to be on its way to attaining a bank and all of the FDIC-approved measures that come with it.

Described as a “no-brainer decision” by LendingClub’s CEO Scott Sanborn, the news comes after the fintech had tried unsuccessfully to get a bank charter. Becoming a popular trend among online lenders and fintechs, with Square having applied for one recently and Varo Money getting approved last week, the merger is the first time that a fintech has actually bought a bank. “Adding the capabilities of a bank charter to the LendingClub mix really changes the game both in terms of what we can do for our customers and what we can do for shareholders,” Sanborn stated.

Having been in discussions with Radius for over a year, it is believed that the purchase was made with the opinion that buying a bank would be less time-demanding than getting approved for a bank charter. The federal banking regulatory approval process is expected to take between 12 and 15 months.

In October 2019, LendingClub VP & Head of Communications Anuj Nayar spoke to deBanked about the company’s future, noting its intentions to broaden its offerings and transition from a product-centric company to a platform-centric company.

“We talk about a customer journey, moving our customers to being visitors, where they basically came to us for a personal loan and then come back to the company a couple of years later for another personal loan, to being much more about lifetime value of the customer and our relationship with the customer.” Nayar said. “The customer experience over the next year is going to change pretty dramatically as we start with bringing some of these new learning products on board but we’ve also been making clear that we’re investigating broader banking services that we’re going to be offering our customers.

Originally valued at $8.5 billion, LendingClub had one of the biggest US tech IPOs in 2014. However the share price has fallen more than 88% over the previous 5 years.

The Fintech Legal Outlook for 2020: Top 3 Insights from Todd Hamblet

February 18, 2020
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Todd Hamblet - FundboxWe recently sat down with ​Todd Hamblet, Fundbox’s new Chief Legal Officer​, and asked his thoughts about what legislative or legal issues would be shaping the fintech industry this year. Between presidents and precedents, decisions are coming down within the next 12 months that will have a significant effect on the way Fundbox and other fintechs do business. Here’s what Todd had to say:

Q: What key issues or predictions do you see when it comes to legal compliance in the fintech industry in 2020?

A: ​My basic view is that I expect to see continued efforts to regulate the financial services industry and fintech. These regulations are likely to focus on protection of consumer and commercial borrowers, privacy, or data protection. That said, I don’t think that innovation and regulation are incompatible. I think that there is sensible regulation that can achieve the goals of protecting consumers of financial services without completely stifling fintech innovation.

I think the outcome of the election will have a significant bearing on how active regulators are in the fintech space. In the absence of leadership from Washington, I’m concerned that we’re going to continue to see state-by-state legislation instead of a federal overlay. California and New York are two states actively working to fill this void. State versus federal regulation creates the challenge of needing to comply with 50 state requirements, which sometimes might be at odds with each other, as opposed to a more unified regulatory regime. You just have to spend a lot of resources in researching, staying up to date, and modifying what in many cases is a fairly streamlined product offering to comply with different state laws.

I worry that too disparate of a regulatory regime can, in fact, stifle innovation. It won’t stop innovation, but it can make it more challenging. I am certainly not opposed to sensible regulation, but sometimes the best intentions can lead to anomalous outcomes. You always have good actors and bad actors, and in our space, for example, we’re trying to disrupt a very traditional way of underwriting and lending in a commercial space that just hasn’t been compatible with or user friendly for small businesses.

The small business community is under-served, in part because you’re talking about smaller dollars than your traditional banks are even willing to underwrite. You’ve started to see community banks and credit unions step in a bit, but even in those cases, the lending model is still paper-heavy. It’s not optimized for all the data that’s out there, the ability to use technology, or alternative data sources. I think that fintech companies like Fundbox are serving and filling a niche that is really valuable for small businesses. Think about a mom-and-pop shop. They need to be able to run their business. They don’t need to spend all their time going back and forth with their bank, trying to get a loan. They need quick access to capital that may be just to solve a short-term problem. It may be to meet payroll during a slow month. That’s the problem we’re trying to solve, and also doing it in a way that is bringing it into the 21st century. This means using alternative data sources and machine learning, not relying exclusively on credit reports or FICO scores, and using other metrics to look at the credit worthiness of an enterprise.

I find it really exciting. It’s really satisfying to know that we’ve helped a lot of small businesses at the heart of our economy. So I think additional regulation is inevitable, but I hope it’s reasonable and sensible, and that it serves the purpose of protecting the borrower but doesn’t impose so many requirements or obligations that it makes it impractical for a fintech company to try to serve that population.

Q: Is there anything else you see happening in the realm of compliance?

A:​ I think we’re going to continue to face additional regulation in the areas of privacy and data protection. In California, we have the ​California Consumer Privacy Act​ (CCPA) that came online on January 1st. This is a good example of how, in the absence of federal action, states are going to take up their own legislation. California is the first to have enacted a comprehensive privacy act that companies are now trying to deal with. It impacts not just California companies but ​any c​ompanies dealing with California residents.

We’re tracking legislative developments in other states who are looking to implement their own privacy acts. Absent some sort of harmonized federal overlay (such as the ​GDPR​ in Europe), if you have 50 states with disparate privacy regulations, it just becomes very challenging. Of course, we will do everything we can to be compliant, but we have limited resources—we’d love to dedicate our resources to developing and improving products for our customers, instead of worrying about whether we’re tripping up a novel requirement of a particular state’s privacy law. So a federal framework would be really helpful. I already mentioned regulation in the context of the next election, and I think whether there is interest in Washington with a federal privacy law will depend on that outcome.

Q: Aside from the 2020 election, what other issues is the fintech industry keeping an eye on?

A: ​There have been some interesting cases out there in the fintech space. There’s one case in particular that has created some uncertainty and confusion: ​the Madden case​. Although the case was decided a few years ago, it looks like federal regulators are trying to take steps to clarify the ruling. I hope that 2020 brings better visibility into what’s going to happen there, since the uncertainty is impacting the financial services industry and fintechs.

Generally, Madden is a case that dealt with the “valid when made” concept. When a bank makes a loan, there are various usury laws that can be applicable, depending on the state in which the loan was originated. Under federal law, an FDIC-insured state chartered bank can originate a loan using the maximum rate of interest permitted in the home state of the bank and then “export” that rate into another state, regardless of the state where the borrower is located. Some states have higher usury rates than others, so the maximum rate can vary. It is well settled that when that loan was initially made by the bank, it was “valid when made.” But what happens if that bank decides to sell off that loan to a third party in another state? The Madden case (read broadly) calls into question the “valid when made” doctrine. It said that if the loan had an X percent interest rate when it was originated, but it was sold to a third party in a state that had a usury rate lower than X, that original interest rate may not be valid anymore because of the transfer. Studies have shown that this ruling has led to a decrease in the availability of credit in the states affected by the decision.

Banks have to rely on being able to originate and sell loans—this is a well-settled concept. The question is whether the Madden case is distinguishable enough from the traditional practice that it applies only to a particular scenario (a sale of debt) or whether it is calling into question the broader concept. The reason this impacts fintechs is because a lot of us rely on bank partnerships in order to serve customers in all 50 states. Through these partnerships, fintechs may acquire the receivables on loans originated by partner banks. The question for fintechs in the context of Madden is: when the fintech acquires a receivable, does the interest rate originally offered by the bank partner continue to be valid…or because the fintech is a third party, does some other interest rate cap apply depending on where the borrower is located?

Congress and some other federal regulators are working to clarify that the Madden case should be limited to a narrow set of facts, and that it should not serve as a precedent for disrupting the traditional understanding of “valid when made”. This would be welcome relief to the entire financial services industry, including fintechs. We hope to have this clarification in 2020.

N26 Exits UK Market Citing Brexit as Reason

February 13, 2020
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N26The challenger bank N26 pulled out of the UK market this week, citing Brexit as the reason for its departure. Saying that it will no longer be able to service Britain now that it has left the European Union, N26 has stopped onboarding new customers and will be closing all British accounts on April 15th.

The news came as a shock to many N26 users as the company has, as recently as October 2019, published multiple blog posts assuring customers that Brexit will not disrupt their service. These posts have since been deleted.

In a statement, the neobank advised its UK customers to empty their N26 accounts before April 15 and apologized for the inconvenience. “With the UK having left the European Union, N26 has today announced that it will be leaving the UK market. The timings and framework outlined in the Withdrawal Agreement mean that the company will in due course be unable to operate in the UK with its European banking license.”

Having its headquarters in Berlin, the neobank holds a German banking license. Under EU law, passporting rights enable any banks that hold a charter granted by an EU member state to operate in any other EU country. And while this of course means that N26’s license will no longer be enough for the UK market, temporary permissions exist that allow EU fintechs and financial services companies to continue operating under the same rules until December 31st, 2020, allotting time to draw up new deals and ink new charters.

This detail, as well as the fact that none of N26’s competitors, Revolut, Starling Bank, and Monzo, have announced their exit, has led commentators to reason that the high investment cost associated with applying for a UK banking charter is influencing the decision to pull out, rather than the feasibility and process required.

Speaking to deBanked, a spokesperson for Starling said that “We’re not affected by N26’s decision. Some digital banks appear to have been focusing on growth at all costs. At Starling, we’ve always gone for sustainable growth and have long mapped out our path to profitability. We expect to hit breakeven by the end of 2020 and to turn a profit by the end of 2021.”

Having entered the UK market in October 2018, more than two years after the leave vote, N26 will be cutting service to its +200,000 UK customers. Most of the dozen or so staff members the neobank had in Britain will be repositioned elsewhere in the company, which has offices in Berlin, Barcelona, São Paolo, Vienna, and New York.

The challenger bank has been available in the States since August 2019, garnering over 250,000 customers in the market since then. Valued at $3.5 billion in its July funding round, N26 has received investments from Peter Thiel’s Valar Ventures, Li Ka-shing’s Horizon Ventures, and China’s Tencent Holdings Ltd.

Varo Receives FDIC Approval for Bank Charter

February 12, 2020
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VColin Walsh Varoaro Money, the company that has been providing customers with app-based banking since 2017, has just received approval from the FDIC to take deposits. Having been working towards this for the previous three years through various rounds of applications to the FDIC, Varo CEO Colin Walsh told CNBC that “it was a long process – for this to finally see daylight is a big deal for the industry.”

Fintechs such as Varo, like Revolut, N26, and Chime, rely on partnerships with banks to provide financial infrastructure in the absence of such FDIC approval. This decision is a first for the fintech space and it means that all accounts with Varo’s partner, Bancorp, will transfer to Varo in Q2 of 2020, so long as the company passes final regulatory tests.

Robinhood, a startup that offers options to invest in stock through its app, previously applied for the same charter but pulled out in November, while the payments titan Square has applied for a different charter for a specialized industrial loan company license.

“Receiving an official bank charter has been part of Varo’s vision from the very beginning, and we are excited to progress through the necessary steps to accomplishing that goal,” Walsh, who is a former American Express executive, said in a statement. “Despite historic economic growth, only 29% of Americans are considered financially healthy. Varo is committed to creating inclusive financial opportunities that deliver measurable benefits to all consumers. Becoming a fully chartered bank will give us greater opportunity to deliver products and services that impact the lives of everyday people around the country.”

Varo has stated that it has ambitions to provide additional services that are typical of banks, eg. credit cards, loans, saving products, but these are of course pending charter approval.

Ocrolus Partners with Kiva to Provide Funding and Publish its Customers’ Stories

February 6, 2020
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OcrolusOcrolus has announced a partnership with Kiva, the Californian non-profit that provides loans to entrepreneurs in countries underserved by funding options. The deal comes after news of Ocrolus’s partnership with Plaid in December, a venture that helped launch the Ocrolus+ platform.

As part of Kiva’s work to help global small business owners, it publishes the stories of those entrepreneurs, charting how they set up their business and what led them to do it. Ocrolus will follow Kiva’s suit with this partnership, as it plans to publish the stories of its own fintech customers. Aiming to highlight the biographies of those businesses and entrepreneurs that have excelled in the alternative finance and fintech industries, Ocrolus will provide $5,000 for Kiva-backed loans for each story published to its site. If the published business chooses to match this funding, Ocrolus will put forward a further $5,000, bringing the total appropriation for Kiva to $15,000.

Speaking on the partnership, Ocrolus’s COO Vikas Dua told deBanked that the inspiration for the deal came after listening to a podcast that featured one of the co-founders of Toms, a company known for its ‘one for one’ policy which sees a pair of shoes being donated to children in need for every pair bought.

“The best part of Kiva is the types of folks you’re helping and the impact you can have. They do a great job of sharing stories of entrepreneurs and folks in need,” Dua said in a call. “Everyone’s incentives are tied together. Overall, we’re just very excited about the mission and very excited not only to tell our customers’ stories, but also to highlight some of the things we’re doing for the folks that Kiva interacts with and they fund. They have some wonderful stories there and we’re excited to share those as well.”

Open Banking: Canada Might Not Be Able to Make Up for Lost Time

January 22, 2020
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open banking
Over the last two years, open banking has become a matter of public conversation in Canada. Most would agree there is overwhelming support for the implementation of an open banking regime. So why has nothing concrete happened yet?

2019 turned out to be an exciting, yet painfully underwhelming year for open banking in Canada. The news media finally caught on to the movement and started publishing stories on the rise of robo-advisor apps, or how small and medium-sized businesses would be impacted, and so forth. Experts and industry leaders pitched in with a massive volume of op-eds, most of which were in support of open banking, and with many deploring Canada’s slowness. Some came to our podcast to discuss their perspective (spoiler: customer-centricity is a very big theme.)

Another telling sign of the importance of open banking is the fact that at the federal level, both the legislative and executive arms of the government have become actively engaged in the public conversation. The Senate of Canada’s committee on Banking, Trade and Commerce produced a well-researched report — perhaps the most valuable contribution to the conversation. This report calls for swift action on the part of the federal government to advance a regulatory framework for open banking. In parallel, the Department of Finance’s appointed advisory committee on open banking held a consultation with key stakeholders and should publish its own report in the near future.

Even to a casual observer, there was an obvious sense that Canada is ready to embrace open banking.

But here’s the thing: despite all this work and evidence of widespread support, Canada didn’t move the needle on open banking in any concrete way.



Who’s leading?

The UK has already implemented a comprehensive open banking regime, and continental Europe is close behind. Dozens more countries are working toward their own versions. Among the various geographies moving in this direction, some are opting for a government-led approach, the UK probably being the best example. Others, like the US, tend to be more market-driven. In Canada, the main stakeholders are still largely hesitant about where to strike the balance between the two approaches — and the result is that so far, both have failed to provide the leadership that would allow open banking to move forward.

The Department of Finance’s advisory committee was tasked to study the “merits of open banking”. This line of inquiry feels very old, and for good reason: to question whether we should have open banking or not is a false debate, and a time-wasting rabbit hole. The real question Canada should be asking itself when it comes to open banking is, “what is the objective we want to achieve here?”

Let’s take a few steps back to realize just how important this question is.

The UK had a very clear vision for their open banking regime. The Competition and Markets Authority had assessed that the oligopolistic dynamics of the banking sector were putting consumers at a disadvantage. Thus, the UK set on their open banking journey with a very precise objective in mind: make it easier for consumers to switch providers. While some take great pride in criticizing the UK’s implementation — stating that its objective was either wrong, too narrow, or poorly executed — the fact remains that they are ahead of the pack. And the UK’s leadership in this area still persists, with the Financial Conduct Authority now studying the question of extending the current open banking regime into a holistic open finance regime.

Canada FinanceMeanwhile, in Canada, the government is trying to wrap its head around the big questions, such as the liability framework that should be put in place for an open banking regime to be viable. (In other words, in a system where financial services are decentralized, how do we go about making the consumer whole when something goes wrong?) However, without a decision on what end state we are looking to achieve with open banking, these conversations are doomed to keep looking exactly like they’re looking now: a bunch of market actors with conflicting interests pretending they know what’s best for consumers. Conversations happening in industry groups aren’t much more productive, with the “trench war” dynamics being the trend there as well.

The irony is that the technical aspects of open banking can be dealt with easily. From a technical standpoint, financial data-sharing APIs have proven their effectiveness, and coming up with a shared technical standard should not be too difficult. The real challenge is coming up with a framework everyone — incumbents and new entrants alike — can rally behind, something industry groups have largely been ineffective at.

Canada’s highly concentrated financial services sector is a stable one, but incumbents are not likely to open themselves up to disruption. This is the part where bold political leadership is required.



The clock is ticking

Data sharing is nevertheless picking up, as 4 million Canadians (and counting) have made fintech apps a part of their financial lives. Consumers and businesses who want the benefits of on-demand data sharing must rely on the current generation of financial aggregators, like Flinks. This system may work as a de facto connectivity layer, but the lack of standards results in a clumsy patchwork of bilateral deals between aggregators and banks. It just isn’t a viable way to achieve an open banking regime that levels the playing field when it comes to data portability.

In its report, the Senate’s Committee on Banking, Trade and Commerce states that Canada “risks falling behind” if it fails to implement open banking, and that “without swift action, Canada may become an importer of financial technology rather than an exporter.” It is true that if we keep delaying open banking, our slowness will prove to be a very stingy and lasting price to pay for the Canadian society; this is why we need bold action now. We can’t afford the comfort of waiting until we’ve figured out the 100% perfect solution.

There’s nothing like a real-world example: 2020 opened with a seismic shift when financial giant Visa acquired Plaid, one of the largest US financial aggregators, for over five billion USD. This is hinting at a new phase where markets will consolidate around a few large players; Canada can either ride the tide or get towed under.



It’s time to be bold

In the end, what needs to happen for Canada to move forward with open banking?

Our financial services sector can be compared to those of the UK and Australia, where a few powerful banks control a very large portion of the market. In those two countries, open banking was designed to stimulate competition, and government action was necessary to get things moving.

Right now, the question politicians ought to ask shouldn’t be if — or even how — but why. A why will pave the way and provide a natural direction to sort out the how. In 2019, discussions around open banking lacked this fundamental feature: political leadership centered on a bold, ambitious, consumer-centric mission statement. A why.

So here’s one for 2020: open banking will increase consumers’ choice when it comes to financial services. That would be a good start — and while good is not perfect, it still beats nothing by a landslide.

Visa Acquires Plaid in $5.3 Billion Deal

January 14, 2020
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visa plaidYesterday it was announced that Visa and Plaid, the financial services company that helps business connect with customers’ bank accounts, have penned a deal that would see Visa purchase the San Francisco-based startup for $5.3 billion. The purchase price is roughly double Plaid’s previous valuation of $2.7 billion after its 2018 Series C investment of $250 million. Pending regulatory confirmation, the acquisition is expected to be completed in 3-6 months.

Founded in 2013 by Zach Perret and William Hockey, Plaid’s API enables companies to easily link with customers bank accounts and connects to a host of apps, such as Venmo, Robinhood, Coinbase, TransferWise, and Acorns. The company claims to have connected to one quarter of Americans with bank accounts and has expanded to both the UK and Canada.

Not being Visa’s first interaction with Plaid, the startup had previously received investment from its new owner, along with other recognizable names like Mastercard, Goldman Sachs, Citi, and American Express.

“This fits well, strategically,” commented Al Kelly, Visa’s CEO, in a call with investors on Monday. “We’re excited about new business and the ability for this to accelerate our revenue growth over time.”

Speaking to CNBC, Perret told CNBC that “We feel fortunate to have been there for the early days of fintech, and to have helped develop that ecosystem … This represents an important milestone, and the ability to work with Visa to make our products much bigger and better – both domestically and internationally.”

Whether such developments mean added features, further expansion to new territories, or something else entirely remains unclear. However, much like Google’s acquisition of Fitbit late last year, this merger witnesses the passing on of a treasure trove of data, with the curtain being pulled on the financial details of millions of transactions between startups and consumers; leaving Visa better positioned to understand and pre-empt what exactly is happening in industries where unpredictable disruption is valued above all else.

deBanked’s Top Ten Things of 2019

December 20, 2019
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In this video, I break down deBanked’s Top Ten Things of 2019. Happy holidays and have a Happy New Year from all of us at deBanked!

christmas lights
christmas lights

Re-read the top ten stories of 2018 HERE.

Ocrolus Announces Premium Fintech Platform, Ocrolus+ at New York City Event

December 12, 2019
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Ocrolus EventLast night Ocrolus, the New York-based fintech infrastructure company that specializes in document verification and cash-flow analytics, announced its latest product, the Ocrolus+ platform from Chelsea’s Glasshouses.

Following a series of testimonies from companies such as BlueVine, OnDeck, and Enova, Ocrolus’s CEO, Sam Bobley took to the stage to run through what the new platform means for customers before thanking everyone for coming out.

Speaking to deBanked earlier that day, Bobley explained that Ocrolus+ expands upon two of the services available to customers already, its Capture and Detect products. In their ‘+’ iterations these services will now offer the ability to upload documents and connect digital data sources to them as well as utilize advanced file tampering protection via their new partnerships with Plaid and SentiLink, respectively.

Bobley asserts that the development is partly due to Ocrolus’s customers and their evolving needs. “Our growth and our success is largely driven by our customers. We’re in the fortunate position where our customers have helped us build our product road map … They challenged us to improve our platform and provide additional services. And these were two areas that seemed absolutely critical.”

“ONE THING WE’RE WORKING ON AS A COMPANY IS TO TRANSFORM FROM A COMPANY THAT ANALYZES FINANCIAL DOCUMENTS TO A COMPANY THAT PROVIDES FINTECH INFRASTRUCTURE”

And looking forward, Ocrolus plans to continue to offer advanced services through their platform, with Bobley revealing that a third product is in the works, Analytics+, which will focus on cash flow. And as well as this, the CEO and Co-founder noted that additional digital data sources may be added in the long term.

“One thing we’re working on as a company is to transform from a company that analyzes financial documents to a company that provides fintech infrastructure, end-to-end fintech infrastructure, so by bolstering up our fraud detection capabilities and also including the ability to connect to bank accounts for confirmatory and ongoing monitoring, we’ve been able to solve additional problems that our customers are asking for.”

Hedge Fund Billionaire With Fintech Focus is Buying The New York Mets

December 4, 2019
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New York MetsSteve Cohen, the hedge fund billionaire behind Point72 Asset Management, is reportedly buying a majority stake in the New York Mets.

After a long infamous run at the helm of S.A.C. Capital Advisors, Cohen founded Point72 and with it, an early-stage venture capital fund that focuses on areas like fintech and artificial intelligence. Among the many investments the fund has already made have been in Nav and Acorns.

Nav, you may already know, has made a big name for themselves in the small business lending industry.

Point72 invested in Nav alongside Goldman Sachs in a $38M Series B round in 2017. At the time, Nav CEO Levi King told deBanked that “[Point72 is] a smart advisor for us from a data perspective – a quant hedge fund that’s best in class on data. We get free advice along the way. That’s part of the deal.”

Nav went on to raise even more money earlier this year from Point72 in a Series C round that was joined by Experian Ventures, Aries, and CreditEase Fintech Investment Fund.

Meanwhile, Acorns, another major Point72 investment, is the only micro-investing account that allows consumers to “invest” their spare change into ETFs. The company has signed up more than 4.5 million users to-date.

More recently, however, Point72 jumped into the small business lending market in Mexico via a collaborative $42M Series B investment with Goldman Sachs into Credijusto. Credijusto has already originated $90 million in loans and equipment leases to small businesses. The loans range in size from $20,000 to $500,000.

All of which to say is that even if the Mets do not improve anytime soon, they at least could very well find themselves at the forefont of financial technology in Major League Baseball.

Canadian Lenders Summit Recap

November 23, 2019
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canadian lenders summit 2019The Canadian Lenders Association’s largest annual event brought together hundreds of executives from the fintech and lending industries. It was hosted at MaRS, a dedicated launchpad for startups in Downtown Toronto that occupies more than 1.5 million square feet and is home to more than 120 tenants, many of which are global tech companies.

After OnDeck Canada CEO Neil Wechsler was introduced as the new chairman of the association, the day kicked off with a presentation by Craig Alexander, the Chief Economist of Deloitte Canada. Alexander explained that after some major warning signs sounded off late last year and early this year, Canadian growth and positive economic indicators have returned. He opined that politics in Canada and the United States will play a strong role in the economic outcomes of both countries going forward.

Panels on a variety of topics dominated the rest of the day with an interlude keynote from author Alex Tapscott who spoke about the financial services revolution.

The sessions concluded with an award ceremony focused around the Top 25 Company Leaders in Lending and the Top 25 Executive Leaders in Lending. The Canadian Lenders Association will make videos of the sessions available online. deBanked was in attendance.

Top Canadian Companies of the year

Google to Begin Offering Checking Accounts in 2020

November 16, 2019
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G PayThis week Google announced that it plans to offer checking accounts to customers in 2020. The news comes after the release of the Apple Card, Apple and Goldman Sach’s controversial joint project, in August; this week’s release of Facebook Pay; and the mass exodus by payments companies from Facebook’s Libra Association last month.

Titled as Google’s ‘Cache’ project, the accounts will be the result of a partnership between the tech giant and a selection of banks and credit unions. Thus far, Citigroup and a credit union based in Stanford University have been confirmed as partners, with more to be announced. Speaking on the venture, Citigroup spokesperson Liz Fogarty said the “agreement has the potential to expand the reach and breadth of our customer base.” Whereas Joan Opp, President and CEO of Stanford Federal Credit Union, remarked that the deal would be “critical to remaining relevant and meeting customer expectations.”

As of yet, not much is known beyond these partners and that the checking accounts will be in some way “smart” according to Google spokesperson Craig Ewer. Whether or not there will be fees attached to the accounts, or who will be the target audience remain unsure. The latter especially given Google Pay’s poor take up in America.

As well as all this, it is equally unclear what exactly Google will be bringing to banking that is new. In his statement, Ewer said that “we’re exploring how we can partner with banks and credit unions in the US to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools while keeping their money in an FDIC or NCUA-insured accounts.” Such “insights” and “tools” are yet to be expanded upon and may give cause to alarm, as the company has recently come under fire for its questionable use of data after it was revealed that Google has secretly gathered the personal medical data of 50 million Americans from healthcare providers; and has recently been accused of using both human contractors and algorithms to tweak search engine results, potentially exhibiting favoritism as well as a willingness to change results related to at least one major advertiser.

When asked by CNBC about Google’s plans to enter finance, Senator Mark Warner (D) was apprehensive, remarking that “large platform companies have not had a very good record of protecting the data or being transparent with consumers.” Warner, who was a tech entrepreneur before entering politics, believes more regulation should be in place as the number of tech companies looking to enter finances continues to increase, saying, “once they get in, the ability to extract them out is going to be virtually impossible.”

Such comments come in the wake of Facebook CEO Mark Zuckerburg’s testimony to Congress last month, in which he told the representatives: “I view the financial infrastructure in the United States as outdated.” Just how outdated Zuckerburg and his contemporaries believe it to be will become clearer as more of these Big Tech-Wall Street hybrids are released.

Apple Card Under Investigation by State Financial Regulator

November 14, 2019
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apple cardApple and Goldman Sachs came under fire this week after numerous users of the Apple Card, a joint venture by the two companies, took to social media claiming that the algorithm used to determine credit limits discriminated against women.

It began when Danish tech entrepreneur and racecar driver David Heinemeier Hansson wrote up an expletive-laden teardown of the card and the companies behind it after he discovered that he had access to twenty times more credit than his wife, despite the couple having filed joint tax returns. Following the twitter thread’s viral surge, other men came forward with similar stories, some noting that their wives had better credit scores than themselves.

Upon dealing with Apple’s customer service, who gave Hansson’s wife a “VIP bump” to her credit limit, raising it to match her husband’s, the entrepreneur lamented the giant’s response to his questions about the decision-making process behind Apple Card.

“Apple has handed the customer experience and their reputation as an inclusive organization over to a biased, sexist algorithm it does not understand, cannot reason with, and is unable to control,” Hansson wrote after being told by two Apple representatives that they were unable to explain the reasoning behind the inequity other than say that “it was just the algorithm.” Hansson went on later to criticize the implementations of algorithms that incorporate “biased historical training data, faulty but uncorrectable inputs, programming errors, or malicious intent” as a whole, pointing to Amazon’s recent use of an algorithmic hiring tool that taught itself to favor men.

And in a surprise twist, Apple Co-founder Steve Wozniak weighed in, saying, “The same thing happened to us. I got 10x the credit limit. We have no separate bank or credit card accounts or any separate assets. Hard to get to a human for a correction though. It’s big tech in 2019.”

Over the weekend word came from the New York Department of Financial Services that it would be investigating the practices behind the Apple Card to determine whether or not such an algorithm discriminates on the basis of sex, which is prohibited by state law in New York. This is the second such investigation recently, with the NYDFS announcing last week an investigation into the healthcare company UnitedHealth Group and its use of an algorithm that allegedly led to white patients receiving better care than black patients.

“Financial service companies are responsible for ensuring the algorithms they use do not even unintentionally discriminate against protected groups,” wrote NYDFS Superintendent Linda Lacewell in a blog post that explained the decision to investigate and called for those who believed they were affected unfairly by Apple Card to reach out. “[T]his is not just about looking into one algorithm – DFS wants to work with the tech community to make sure consumers nationwide can have confidence that the algorithms that increasingly impact their ability to access financial services do not discriminate and instead treat all individuals equally and fairly no matter their sex, color of skin, or sexual orientation.”

In their response, the Goldman Sachs Bank Support twitter account posted a note listing various factors that come into consideration when determining a person’s credit limit, asserting that they “have not and will not make decisions based on factors like gender.”

And it would appear that this is correct, at least in the literal sense, as the application process for the Apple Card does not include any questions relating to gender.

Bruce Updin of Zest AI, a company that provides machine learning software for underwriters, said of the controversy that “there’s bias in all lending models, even human lenders … race, gender, and age are built into the system. It can show up just due to the nature of the credit scoring system as FICO scores at the end of the scale can correlate to race.”

Explaining that there are connections between identity and information many humans might never perceive without machine-learning algorithms, like Nevada license plates being an indicator of the likelihood of someone’s race, Updin asserts that such links need to be weighed, balanced, and supervised by those in the banks. For Updin, transparency and explainability are the real problems here rather than the algorithms themselves.

Software exists that can pinpoint which variables are producing results that, for example, skew to prefer women over men, and can remove such factors and run the tests again, probing for differences. The trouble arises when banks find themselves unable to communicate such details for whatever reason, be it an inherent misunderstanding of their own programs or an unwillingness to explain why some of their models prefer certain groups over others.

It’s really a case of “giving up a little bit of accuracy for a lot of fairness” when choosing to remove variables that are proxies for gender, race, age, or a variety of other identifying features, according to Updin. “It’s just a lot of math, it’s not magic. The more you automate the tools, the easier it is.

“I’m convinced in 5-10 years every bank will be using machine-learning for underwriting … we don’t need to throw out the baby with the bathwater.”

2019 Top 25 Executive Leaders in Lending – Canadian Lenders Association – Presented By BMO

November 11, 2019
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Leading Lenders CLAThe Canadian Lenders Assocation (CLA) received 124 nominations for these awards from leaders in lending across the country. The CLA’s goal is to support access to credit in the Canadian marketplace and champion the companies and entrepreneurs who are leading innovations in this industry.

The Top 25 finalists in this report represent various innovations in the borrower’s journey from innovations in artificial intelligence powered credit modelling to breakthroughs in consumer identity management using blockchain technologies. These finalists also represent solutions for a wide spectrum of borrower maturity and needs, ranging from consumer credit rebuilding all the way to senior debt placements for global technology ventures.

See The Leading Companies Report Here

See The Leading Executives Report Here

Mark Cashin

CEO of myBrokerBee | Ontario

After a career in commercial finance and being CEO of Transpor, Mark Co-founded myBrokerBee a mortgage broker platform that provides transparency to private lenders and their clients.

Avinash Chidambaram

CEO of Ario Platform | Ontario

Through his experience as Product lead at Interac and Blackberry, Avinash has helped bring together an accomplished and talented group of experts in Data Science, Machine Learning, Security, Software Development to successfully develop this banking services software platform Ario.

Evan Chrapko

CEO of Trust Science | Alberta

Evan is the founder and CEO of Trust Science, a leader in organizing alternative credit data. As a saas founder and CEO, Evan has done over 500mm in startup exits.

Kevin Clark

President of Lendified | Ontario

Kevin is a recognized leader in the financial services industry with over 30 years of experience. Kevin has helped create the voice of Canada’s SME lending ecosystem through his leadership of Lendified and the CLA.

Jerome Dwight

VP of Cox Automotive | Ontario

Jerome established Nextgear Capital in Canada to become the largest specialty finance company in the automotive sector. Jerome is a Globe & Mail 40 under 40 winner and previously lead RBC’s international wealth management, private banking and asset servicing business.

Saul Fine

CEO of Innovative Assessmer | Israel

Saul is a licensed organizational psychologist and psychometrician, and a former lecturer in psychology at the University of Haifa. Saul is a global leader in the use of psychometric data for credit scoring and financial inclusion.

David Gens

CEO of Merchant Growth | BC

David is the Founder and CEO of Merchant Growth, which grew from its humble beginnings in his apartment to offices in both Toronto and Vancouver. David now leads one of Canada’s largest online small business finance companies.

Bryan Jaskolka

COO of CMI | Ontario

Nominated for the 2018 Mortgage Broker of the Year, Bryan Jaskolka is an expert in Canadian mortgage financing with a particular focus on the alternative lending space and mortgage investing.

Peter Kalen

CEO of Flexiti | Ontario

Peter is a leader in Canada’s retail financing market. Before founding Flexiti, Peter was in senior leadership positions at Citi, PC Financial, and Sears Canada. Flexiti was recently named #7 on the Deloitte Fast50.

Yves-Gabriel Leboeuf

CEO of Flinks | Quebec

Yves-Gabriel Leboeuf is the co-founder and CEO of Flinks. Under his leadership, Flinks has become a Canadian leader in banking data enablement.

Derek Manuge

CEO of Corl | Ontario

Derek, also known as the “the quant from Canada” is the founder of the data-driven venture firm, Corl. Corl is one of Canada’s leaders in the use revenue-share financing models.

Keren Moynihan

CEO of Boss Insights | Ontario

Keren Moynihan is co-founder and CEO of Boss Insights, a company that uses big data and AI to accelerate lending from months to minutes. With a Joint JD/MBA, Keren has a diverse background as a commercial banker, wealth manager and former founder of an impact startup.

Jason Mullins

CEO of Goeasy | Ontario

Jason is President and CEO of goeasy, a publicly listed consumer lender. Jason has lead the company to become one of the largest and most innovative lenders in the country.

Paul Pitcher

CEO of SharpShooter Funding | Ontario

After founding First Down Funding, an alternative lending firm for SMEs in Baltimore, Paul expanded his business to Canada through the subsidiary Sharpshooter Funding.

Brendan Playford & Cate Rung

Co-Founders of Pngme | USA

Cate, ex-Uber and Brendan, a blockchain and agro-finance entrepreneur are the co-founders of Pngme, an alternative lending platform for financial institutions in emerging markets who serve Micro, Small, and Medium-sized Enterprises.

Wayne Pommen

CEO of Paybright | Ontario

Wayne is the President and CEO of PayBright. Wayne is also a director of IOU Financial Inc and of HBC. Previously, Wayne was a Principal at TorQuest Partners, one of Canada’s leading private equity firms, and a management consultant with Bain & Company in the UK, the US, and Canada.

Adam Reeds

CEO of Ledn | Ontario

Adam is a pioneer and thought leader in the digital asset backed lending space. Ledn is focused on building innovative financial products in the emerging digital asset space, with a focused mission to help people save more in bitcoin.

Adam Rice

CEO of LoanConnect | Ontario

Adam has played a pivotal role in building one of the largest online markets in Canada for unsecured loans.

Mark Ruddock

CEO of BFS Capital | Ontario

Mark is an experienced international CEO with two successful exits and over 20 years of experience at the helm of VC backed technology and fintech startups. In 2019 Mark announced BFS Capital’s expansion to Canada with a new 50 engineer data science hub in the heart of Toronto.

Vlad Sherbatov

President of Smarter Loans | Ontario

Vlad Co-founded Smarter Loans in 2016 with the goal of helping Canadians make smarter financial decisions. Since then, Vlad has grown the platform into one of the go-to resources for Canadian borrowers.

Steven Uster

CEO of FundThrough | Ontario

Steven is the Co-Founder & CEO of FundThrough, an invoice funding service that helps business owners eliminate “the wait” associated with payment terms by giving them the power and flexibility to get their invoices paid when they want, with one click, and in as little as 24 hours.

Dmitry Voronenko

CEO of Turnkey Lender| Singapore

Dmitry, CEO and Co-founder of TurnKey Lender, holds a PhD in Artificial Intelligence. Dmitry was recently named SFA’s Fintech Leader of the year.

Neil Wechsler

CEO of Ondeck Canada | Quebec

Neil briefly practiced law before becoming President and CEO of Optimal Group Inc. where he grew the company from a start-up to a leading NASDAQ-listed self-checkout and payments company. Neil later co-founded Evolocity, which in 2019 became OnDeck Canada.

Michael Wendland

CEO of Refresh | BC

Michael has led Refresh Financial’s rapid growth since its founding in 2013, including a recent ranking of number 40 on Deloitte’s Fast 500.