Fintech
Acquisition Costs Compared for GreenSky, Square, PayPal, OnDeck, Lending Club, and Prosper
March 5, 2019
Greensky, a consumer lending company, wants investors to know how low its acquisition costs are relative to the competition. The chart above, which appeared in their year-end earnings report, showed how much lower their sales & marketing expense ratio is versus Square and PayPal.
deBanked examined three additional fintech lending companies and ranked them as follows:
| Company Name | 2018 Sales & Marketing Ratio | 2017 |
| GreenSky | 5% | 5% |
| PayPal | 8% | 9% |
| OnDeck | 11% | 15% |
| Square | 12% | 11% |
| Lending Club | 39% | 40% |
| Prosper Marketplace | 76%* | 72% |
*indicates an estimate
The closeness between Square and OnDeck is notable in that Square markets its payment services first and then offers loans (and other products) as an add-on, while OnDeck only offers loans. Despite that, sales & marketing as a percentage of revenue are still virtually the same for each of them. Square is outspending OnDeck on marketing by more than 10:1, however, and is on pace to surpass OnDeck’s annual loan volume.
Prosper, meanwhile, is doing just as poorly as its wacky ratio looks. The company is losing tens of millions of dollars a year with no end in sight.
Square Capital On Pace to Overtake OnDeck in Small Business Lending
February 28, 2019
OnDeck’s annual loan origination volume has more than doubled since 2014, from $1.2 billion to $2.5 billion, allowing them to retain the top spot in deBanked’s small business funder rankings. But Square Capital, the small business lending division of Square, has grown by 16x since 2014. In the course of 5 years, they’ve gone from being a footnote compared to OnDeck to a fierce rival that is rapidly closing the gap in loan volume.
Square’s secret is the ability to generate loan volume at virtually no cost because the product is merely an add-on to their payments-first business. And that’s a problem for OnDeck, because Square has a lot of money to spend on marketing its payments business. More than $400 million a year to be precise. OnDeck, meanwhile, only spent $44 million last year on sales and marketing.
With OnDeck being outspent by a factor of 10, there is a likelihood that Square will overtake OnDeck in the business loan market within the next two years.
And Square’s strength is the ecosystem it’s building. On the Q4 earnings call, company CEO Jack Dorsey said, “I believe the ecosystem is extremely sticky, because it builds durable relationships. If we’re just focused on providing payments in the Register, certainly, there are so many other competitors out there. But when people come in for payments in the Register and then they use [our] payroll for their restaurant and they use Caviar and are really getting offers from Square Capital, it’s really hard to find that mix anywhere else and that builds durability.”
Small Community Banks Power Fintech Revolution
February 15, 2019
“A few years back there was a lot of disruption talk about how the fintechs were going to destroy the banks,” said Jo Ann Barefoot, co-founder of Hummingbird Regtech and a former deputy U.S. Comptroller of the Currency, which regulates national banks. “There’s much more talk in the last few years about the need for banks to partner [with fintechs].”
This quote was cited in a CNBC story published today and judging from the recent bank partnerships with some of the largest fintech companies – including Square, Stripe and Robinhood – this could not be more evident. The CNBC story points out that most of these fintech/bank partnerships are not with household name banks, but rather with small community banks that welcome the business. These banks, including Sutton Bank, headquartered in Attica, OH, Cross River Bank, headquartered in Fort Lee, NJ, and Celtic Bank, headquartered in Salt Lake City, UT, are handling the banking activities for these growing fintechs – activities like holding customer deposits and underwriting consumer and business loans. And significantly, making sure that everything is up to snuff with government regulations.
A number of fintechs, including Square and SoFi, have tried to take the banking component of their businesses into their own hands by applying to become an ILC bank. But they have been met with tough resistance, much of it coming from, interestingly, community banks.
“No one envisioned when they wrote the ILC charter that we would have fintech companies that finance mortgages and student loans from private equity capital and not deposits,” President and CEO of the Consumer Bankers Association told deBanked last year. “It’s a new world. Like with all rules and regulations, federal regulators should periodically review longstanding policy.”
So far, the opposition has been relatively successful but time will tell if it keeps up. Square and SoFi withdrew their ILC loan their applications, but Square eventually reapplied. At the 2018 Money 2020 conference in Las Vegas, SoFi CEO Anthony Noto said he would entertain seeking ILC bank status.
Fintech Inevitable, But Petrou Says Risks Abound
February 12, 2019
At the end of last week, two large regional banks, BB&T and SunTrust announced that they are merging. The entity will be the sixth largest U.S. bank and the largest bank merger since the 2008 financial crisis. A MarketWatch story yesterday indicated that large bank mergers are part of a somewhat recent trend, citing the mergers of Chemical Bank with TCF Bank, and Key Bank with First Niagara, both in 2016. (The number of bank acquisitions have been static in 2017 and 2018, with 252 and 253 banks, respectively, according to American Banker.)
If large bank mergers are a trend, Managing Director of Federal Financial Analytics Karen Petrou told MarketWatch that this is in part because banks realize that they can combine resources to develop mobile banking capabilities to compete with online banks.
“If banks don’t come up with ways to innovate, they die,” Petrou told MarketWatch yesterday. “Then consumers are left to do their banking with nonbanks.”
Federal Financial Analytics, where Petrou is the managing director, is a Washington, D.C.-based consulting firm and Petrou is a highly regarded voice in the financial regulation space.
While Petrou acknowledges that online banking is the only alternative if traditional banks don’t innovate, she sees serious problems in fintech which she outlined in a paper published earlier this month, according to American Banker.
For instance, she wrote about the danger of a company like Amazon getting into banking and being able to charge individuals different amounts for the same item based on its knowledge of how much money the customer has. Or, the implementation of better banking policies for people who exercise and eat healthier. Petrou says this favors wealthier people with more time for exercise and greater access to more expensive, healthier food.
“I am all for technology,” Petrou said. “But I spent a lot of time when I was a student at MIT studying tech policy, and there is one after another example of seemingly promising technologies with terrible, unintended consequences.”
Liquid FSI to Augment Healthcare Lending Platform with Blockchain Technology
February 11, 2019Liquid FSI announced today that it has entered into an agreement with TVS Next, an IT company, to build a blockchain platform to enhance its healthcare lending capabilities.
“Our Blockchain solution solves a myriad of issues including the privacy of provider [typically medical office], biller, payer, patient and bank data,” said Liquid FSI President and CEO, Frank Capozza. “Blockchain will also support our on-demand payment offering Convert2Pay…and we believe that TVS Next has the depth of resources we need to serve the $3.6 trillion healthcare market.”
The is an improvement of Liquid FSI’s Convert2Pay offering which can provide cash in as little as 24 hours to medical offices with insurance claims.
“Instead of waiting 45 days or 60 days to get paid, [the doctor] can get paid in 24 hours because we’ve done all the analytics, and we’re scored [the medical practice] on a scale from 1 to 10,” Capozza said. “If he’s a solid performer and he’s using our platform to level out his peaks and valleys in cash flow, we see all of that in the system.”
The new use of blockchain, a decentralized system that logs information anonymously into a ledger, should give increased confidence to Liquid FSI’s medical office clients, Capozza said.
Capozza said he has excellent relationships with a number of brokers who send him clients. But as evidence of the privacy problem, he said that he will occasionally get applications from some brokers that include patient names, addresses, and social security numbers. This information isn’t stolen, but can be released by a medical practice if it needs money urgently. Capozza said he would rather see less of this and is confident that the new blockchain technology will significantly reduce any privacy lapses.
“It’s the same product, but it’s improving the privacy for everyone involved,” he said.
He also said that they are in talks with three banks that will be able fund on the Convert2Pay platform and will be comforted by the increased privacy afforded by the blockchain technology to be used by Liquid FSI. Capozza said Liquid FSI has plans to offer credit to doctors and sees itself as a VISA for the healthcare industry.
Aside from working with broker partners, Liquid FSI also works with medical billing companies to obtain clients, like pediatrician or dentist offices. Founded in 2014, the company has made some key recruitments to its overall team over the past year, including the addition of Barry Blecherman, professor of Finance and Risk Engineering at the NYU Tandon School, to its Board of Advisors.
deBanked CONNECT Miami 2019 Photos
January 28, 2019
Joust Launches Banking Platform for Entrepreneurs
January 17, 2019
Lamine Zarrad, CEO, JoustThis week marked the launch of the Joust iOS app, a platform for freelancers and small businesses that provides banking, payments, collections and invoice factoring solutions. The Android App is scheduled for release on February 1, 2019.
“We straddle three different domains: payments, merchant processing, and factoring, all in one app,” said Joust co-founder and CEO Lamine Zarrad. “Most freelancers have a bank account, then add a payments account using Stripe or Paypal, or both.Then you need an invoicing tool. Now you’ve accumulated three or four different tools to bill your customers. What Joust did, in partnership with [our banking partner], is we were able to consolidate all of these tools.”
Zarrad said that Joust has three categories of customers: traditional small businesses, part-time freelancers, and full-time freelancers, or “solopreneurs” – people who dedicate all of their efforts to their entrepreneurial endeavors.
Some of the most common financial problems among solopreneurs that Joust aims to fix are stabilization of cash flows, gap financing, and integration of payments and banking.
In conjunction with an online banking platform, called Cambr, Joust provides customers with a bank account as well as a merchant account, which gives them the ability to accept credit cards directly into their account, Zarrad said. Cambr was created by StoneCastle, a technology enabled financial services company managing over $15 billion on behalf of its clients. It stores cash within a network of 850 community banks in all 50 states.
Another significant pain point for freelancers is collection of unpaid receivables. Zarrad said that entrepreneurs in general lost 14% of their receivables to non-paying or extremely delayed paying clients in 2018. The Joust platform/app also includes a collections service, which is a series of five emails strategically spaced out.
“Most bills don’t get paid not because people don’t want to pay, but because it’s been de-prioritized,” Zarrad said, “and having a third party act on behalf of a freelancer is immensely more powerful.”
If there is no response after the fifth email, Joust then outsources the collections. Having a Joust bank and merchant account is completely free, with the exception of credit card processing fees, which Joust passes on to the customer. Joust anticipates making money in part by bringing business accounts to StoneCastle and primarily from its factoring capabilities. Zarrad said they make 1 to 6% on guaranteeing invoices.
LendUp Gets a Shake-up
January 11, 2019
Among other company news, LendUp announced yesterday that it has formed a separate company called Mission Lane that will be devoted to scaling its credit card business. LendUp will continue to operate under its name and will focus on personal loans, education and savings opportunities, according to the announcement. Along with the division of LendUp, company co-founder and CEO Sasha Orloff is stepping down and is being replaced by Anu Shultes, the former General Manager of LendUp Loans.
“Both organizations are focused on helping get consumers on a path to better financial health,” Shultes said of LendUp and Mission Lane, “one will do this through offering loans, and the other through credit cards. I appreciate the Board’s confidence in me and am excited to lead this fantastic organization,” said Shultes.
According to the company announcement, Orloff, who co-founded the company with Jake Rosenberg, will remain involved in LendUp as a board member and in Mission Lane as an advisor. LendUp’s office is in Oakland, CA while the Mission Lane team is in San Francisco.
“Anu brings the perfect combination of background, skills and vision to her role as CEO,” said Orloff. “She’s an absolutely fearless leader, and she’s the right person to shepherd LendUp through its next stage.”
Shultes didn’t say if the company headcount has changed as a result of the creation of Mission Lane, but she said that they plan to grow both businesses. Former Chief Operating Officer of LendUp is interim CEO of Mission Lane, while the company looks for a permanent CEO.
Additionally, with the creation of the new company, LendUp announced that they had received an investment for an undisclosed amount that will be used to scale Mission Lane. The investment was led by LL Funds LLC and Invus Opportunities.
LendUp provides unsecured loans of up to $1,000 to subprime borrowers who might otherwise go to payday lenders. Last year, Orloff told deBanked that one’s credit score is based primarily on two factors: on-time repayment and access to credit that you don’t use.
“So we design our loans and our card products to help people make sure they’re paying on time and make sure that they’re only using the credit that they need.”
Orloff also said that LendUp places an emphasis on financial education and offers customers more money at lower rates if they take the company’s education courses.
