Fintech
deBanked’s Most Popular Stories of 2018
December 22, 2018
Five of the top 10 most read stories of 2018 were related to the saga of 1st Global Capital; The bankruptcy, SEC charges, the revelation that they had made a $40 million merchant cash advance, and finally the devastating news of that deal falling apart. We decided to lump all of them together in our #1 slot, but first, the following story was the most independently read of 2018:
The Saga of 1st Global Capital
1. Largest MCA Deal in History Suffers Multiple Closures was picked up by ABC News in California, placing deBanked’s website on TV for the first time.
These were the other most read stories related to 1st Global Capital
- 1 Global Capital Files Chapter 11
- Syndication at Heart of SEC and Criminal Investigation into 1st Global Capital
- 1st Global Capital Charged With Fraud by SEC
- The Largest Merchant Cash Advance in History
Bloomberg Businessweek began publishing a series in November about the allegedly scandalous merchant cash advance industry. An initial review by deBanked uncovered questionable holes in their reporting, but when the series’ senior editor thanked a state senator for proposing legislation in response, suspicious ties were uncovered, followed by one Bloomberg reporter wiping his twitter account clean. Bloomberg’s exaggerated series dubbed #signhereloseeverything has spawned a highly popular counterseries that has challenged Bloomberg’s reporting. We call it #tweetherewipeeverything. The following stories were all in the year’s top 12 most read, but we’ve lumped them together here at #2.
The Bloomberg Blitz
2. Multimillionaire CEO Claims Predatory Lenders are Causing Him to Sell His Furniture for Food
The other two were:
Arrested for Data Theft
3. CAUGHT: Backdoored Deals Leads to Handcuffs was the year’s third most read story.
MCAs are Not Usurious
4. It’s Settled: Merchant Cash Advances Not Usurious came in at #4 this year, ending the debate that has persisted in hundreds of cases at the trial court level in New York State.
In October 2016, the plaintiffs sued defendant Pearl in the New York Supreme Court alleging that the Confession of Judgment filed against them should be vacated because the underlying agreement was criminally usurious. As support, plaintiffs argued that the interest rate of the transaction was 43%, far above New York State’s legal limit of 25%. The defendant denied it and moved to dismiss, wherein the judge concurred that the documentary evidence utterly refuted plaintiffs’ allegations. Plaintiffs appealed and lost, wherein The Appellate Division of The First Department published their unanimous decision that the underlying Purchase And Sale of Future Receivables agreement between the parties was not usurious.
Debt Settlement Company Sued
5. ISOs Alleged to Be Partners in Debt Settlement “Scam” in Explosive Lawsuit was #5 in 2018. The lawsuit ultimately settled and resulted in a big payout to the MCA companies.
A Broker’s Bio
6. The Broker: How Zach Ramirez Makes Deals Happen was #6. deBanked interviewed Zachary Ramirez to find out what makes a successful broker like him tick, how he does it, and what kinds of things he’s encountered along the way.
Ban COJs?
7. Senate Bill Introduced to Ban Confession of Judgments Nationwide was #7. Although this is related to the Bloomberg Blitz, the introduction of this bill fits more neatly into a category of its own.
Who’s Funding How Much?
8. A Preliminary Small Business Financing Leaderboard was #8. Despite this being published early in the year and offering detailed origination volumes for several companies all in one place, it wasn’t as well-read as all the drama that unfolded later in the year. Unsurprisingly, a chart of The Top 2018 Small Business Funders by Revenue ranked right behind this one, but we’ve lumped it in with #8 since it’s related.
Thoughts by Ron
9. Ron Suber: ‘This Industry Will Look Very Different One Year From Now’ was #9. Known as the Magic Johnson of fintech, the 1-year prediction by former Prosper Marketplace president Ron Suber, originally captured in the LendAcademy Podcast, resonated all throughout the fintech world. Will he be proven correct?
A Rags to Riches Tale
10. How A New Hampshire Teen Launched A Lending Company And Climbed Into The Inc. 500 was #10.
Josh Feinberg was not a complete newbie when he started in the lending business in 2009, but he also had a long way to go to find success. His dad had been in the business for 15 years and shortly after graduating high school, Josh started to work in equipment financing and leasing at Direct Capital in New Hampshire, his home state. He then had a brief stint working remotely for Balboa Capital, but he wasn’t sure that finance was for him.
He was 19, with a three year old daughter, and he took a low paying job working at a New Hampshire pawn shop owned by his brother and a guy named Will Murphy.
“I was making $267 a week at the pawn shop and I was having to ask friends to help me pay my rent for a room,” Feinberg said. “So at that point, I realized that something needed to change.”
2019 Alternative Finance Predictions
December 21, 2018
With 2019 approaching, deBanked asked executives in the funding and payments industry if they had any predictions for the new year. We kept it pretty open-ended and received forecasts regarding technology, regulations, and the evolving relationship between fintech companies and banks. And yes, we also asked a few lawyers in the small business lending space for their two cents. Below is what they had to say:
“The hype around cryptocurrencies is nearly gone, and it’s time to focus on the more interesting part of it – the blockchain technology. In 2019 we expect to see first use-cases of such technology for logging and sharing data among lenders. There is a true potential for real-time data sharing which will help lenders avoid lending to clients which just took similar loans from other lenders, in a decentralized and anonymous way. This will allow the industry to overcome one of the challenges quick loan approvals bring: real time loans stacking.”
Ido Lustig, Chief Risk Officer, BlueVine
“We look forward to big changes coming. Four years ago banks still were not sure about Fintech firms. Now the banks are approaching alternative lenders trying to figure out various partnership options. We think in 2019 we will see banks engage in various levels of mutually prosperous partnerships…We believe new products will be launched in 2019 that will continue to support small business growth. And as the Alt Lenders are able to access cheaper cost of capital, it will give more options to small business owners.”
Robert Gloer, President and COO, IOU Financial
Given the explosive growth of MCAs and the fact that MCAs have evolved from an early stage industry to a mainstream industry – MCAs have been around for decades – we expect regulation of the industry to become a reality. At 6th Avenue Capital, we believe regulation will be healthy for the industry and will reduce the industry’s bad actors, allowing those institutions that practice transparency and industry best practices to thrive.
As a former Chief Compliance Officer, I set up the company with regulation in mind. In fact, we are the only firm to be a member of both ILPA and SBFA, both organizations that are active participants working with regulators to help create a regulatory environment beneficial to both SMBs and SMB funders. The need for alternative credit, and access to fast capital, continues to grow and the industry is not going away with regulations. The winners in the MCA space will be those that adopt sound practices early.
Christine Chang, CEO, 6th Avenue Capital
“We will likely continue to see state efforts to enact disclosures in MCA and small business lending transactions. We will also likely see efforts at the state level to ban practices viewed as aggressive by elected officials. These efforts will lead to a weeding out of the weaker players in the space and will strengthen the companies dedicated to compliance and customer service.
Catherine Brennan, Partner, Hudson Cook
“A business slowdown (possible but hard to predict, at least by me) will test the effectiveness of algorithm-based credit granting. I am not optimistic. Mid-market banks might start to purchase MCA-type technology and try their hand at selling it, albeit at a lower cost.”
Robert Zadek, Of Counsel, Buchalter
“Older, more traditional SMBs will broaden their lending horizons. In 2017, 30% of business owners looked for a small business loan online. The 70% who didn’t are predominantly older, and more traditional in their approach to seeking financing. In 2019, we will see a more aggressive push by SMB lenders to tap into a more mainstream audience of business owners who have not been looking online for financing options. This will be driven in part by increased competition between the SMB lenders, and a larger push by those lenders to market themselves to a broader audience of SMBs.”
Charles Amadon, VP of Business Development & Strategic Partnerships, BlueVine
“In 2019, we’ll see more and more retailers offer flexible, pay-over-time financing options and promotional 0% tools to drive sales and make gifting more affordable for customers. As customers continue to look for online pay-over-time options, we can expect to see savvy [merchants] taking advantage of these trends to both improve performance and meet the expectations of the modern shopper.”
Kate Levin, Vice President of Merchant Success, Bread
“Large corporations, from card payment organizations right through to banks, are making significant investments in reinventing themselves. I think some of them will be very successful in doing this…like Marcus by Goldman Sachs and also First Data’s Clover product. These both demonstrate that long-established companies are starting to really get it right when it comes to being innovative with fintech. I believe in the next five years, we’ll see other huge companies begin to get it right with fintech.”
Simon Black, CEO, PPRO
Entegra Bank Chooses Velocity Solutions to Power Its Small Business Digital Lending
December 18, 2018
Velocity Solutions announced today that its Akouba digital lending platform was selected by Entegra Bank to power the bank’s digital lending for its small and medium-sized business customers. Akouba provides community and regional banks with origination and underwriting services.
“We selected Akouba not only for their cutting-edge technology and willingness to work with us, but for the very positive impact we believe this will have on the bank’s bottom line and on the customer experience,” said Charles Umberger, Executive VP and Chief Lending Officer for the Franklin, NC-based Entegra Bank.
According to the Velocity Solutions statement, Akouba is the only small business digital lending solution endorsed by the American Bankers Association (ABA). Akouba was endorsed by the ABA back in February 2017.
“The ABA’s endorsement will give lending institutions the assurance that Akouba’s solutions meet the highest standards,” said CEO of Akouba Chris Rentner, when they received the endorsement from the ABA. “In a rapidly changing lending environment, and with marketplace lenders disrupting the business lending space, our platform will help banks bring their customers the technology they have been lacking.”
In the same way that OnDeck’s ODX is trying to improve online lending for large banks, like Chase and PNC, Velocity’s Akouba does the same thing for regional banks.
“The small business loan application process is very time-sensitive and costly for banks, and there is a need to simplify and accelerate the process,” said Bryan Luke, chairman of ABA’s Endorsed Solutions Banker Advisory Council.
Velocity Solutions, which operates Akouba, is based in Fort Lauderdale, FL and employs over 100 people, according to Crunchbase. Entegra provides personal and business banking serves at 20 retail branches throughout Georgia, North Carolina and South Carolina.
Cross River Bank Raises $100 Million
December 11, 2018Cross River Bank, which provides banking services to fintech companies, announced last week the completion of a funding round of roughly $100 million. This was comprised of a $75 million equity investment from KKR, along with capital from Andreessen Horowitz, Battery Ventures, Rabbit Capital, and funding from new investors CredEase and Lion Tree. This adds to a $28 million raise a little over two years ago.
Cross River, which originated more than $5 billion in loans as of the end of August 2018, has developed partnerships with fintech leaders to build fully compliant and integrated products within the lending marketplace and payment processing spaces. They have about 15 lending platform partners, including fintech clients Affirm, Best Egg, RocketLoans, Coinbase and TransferWise.
According to the announcement, this new capital will be used to allow Cross River to continue building a complete banking platform where fintech companies can leverage best-in-class banking technology coupled with compliance.
“Cross River offers solutions to fintech companies by giving them access to a full suite of banking solutions and services in a single, fully compliant and innovative platform, making it an increasingly attractive and valuable franchise in a dynamic marketplace,” said Dan Pietrzak, Member and Co-Head of Private Credit at KKR, Cross River’s leading investor.
According to its website, Cross River was named “most innovative bank” by LendIt in 2017 and 2018. Founded in 2008, the Fort Lee, NJ, business-oriented bank has more than 180 employees.
Finitive Appoints Neil Wolfson to Board
December 10, 2018
Finitive announced today that it has appointed Neil Wolfson to its Board of Directors. Wolfson also serves on the Board of Directors at OnDeck.
“Finitive has established an innovative platform to provide institutional investors with direct access to alternative lending investments,” said Wolfson. “Finitive’s platform brings further transparency to this asset class.”
According to an April 2018 deBanked story, Finitive was founded in August 2017 and has two kinds of clients: institutional investors and alternative lending companies. Back in April, the company had only four alternative lender clients. Today, they have eight.
“We are very selective [with our lending clients],” Finitive founder and Executive Chairman told deBanked. “We are not a list service.”
Wolfson spent the last decade as President and Chief Investment Officer of SF Capital Group, a private investment group for high net worth families. There, he invested in over 30 direct debt and equity investments in emerging technology companies with a focus on FinTech companies.
Prior to this, Wolfson spent five years as Chief Investment Officer and President of Wilmington Trust Investment Management, a $40 billion investment management firm, and before that, he was the National Partner in charge of KPMG’s Investment Consulting Practice, representing over $100 billion of assets.
“Neil’s experience investing in global technology companies, coupled with a deep understanding of alternative lending markets, makes him an ideal fit for Finitive’s board,” said Barlow.
Finitive is based in New York and has more than 10 employees.
Signature Bank Partners with trueDigital
December 4, 2018
Today, Signature Bank unveiled a proprietary digital payments platform for its commercial clients, according to a statement released by the bank. The platform, called Signet, is designed to allow Signature Bank’s commercial clients to make real-time payments in U.S. dollars, every hour of the year.
“The ability to transmit funds between approved, fully vetted commercial clients of the bank at all times is very valuable, especially in light of the increasing speed and frequency at which they conduct their business,” said Joseph J. DePaolo, President and Chief Executive Officer at Signature Bank. “Signature Bank has made a commitment to invest in its technology infrastructure, and the Signet Platform is indicative of this investment,”
This commitment by a bank to embrace technology is consistent with other banks of late. Chase and PNC have partnered with OnDeck’s ODX to streamline their online lending processes and other banks have partnered with fintechs recently as well.
“The partnership between trueDigital and Signature Bank will quickly prove to be extremely beneficial and revolutionary for clients globally as they will now be afforded the opportunity to make instantaneous USD payments to one another in real-time at no cost per transaction,” said Sunil Hirani, Founder of trueDigital.
The new Signet platform uses blockchain technology and can be used to make payments across a wide variety of industries, initially focusing on power, shipping, real estate, auto and digital assets where costs, delays, operational risks and counter-party risks are significant, according to a trueDigital statement.
The platform is not designed for a very small company as transactions made on the Signet platform require a minimum account balance of $250,000. Also, the companies exchanging money must both have an account at Signature Bank.
The New York State Department of Financial Services has approved the Signet platform and deposits held on the platform are eligible for FDIC insurance, up to the legal insurable amounts defined by the FDIC.
Signature Bank is a New York-based full-service commercial bank with 30 private client offices throughout the New York metropolitan area. This year, the bank opened a full-service private client banking office in San Francisco. Signature Bank’s specialty finance subsidiary, Signature Financial, LLC, provides equipment finance and leasing. trueDigital is a New York-based fintech company that provides solutions to financial markets by utilizing blockchain-based technologies.
SoFi CEO Reiterates Company’s Low Appetite for Risk
December 3, 2018
In an interview late last week on Jim Cramer’s “Mad Money” TV show, SoFi CEO Anthony Noto said that when he took over as CEO in March, his number one priority was focusing on “quality of loans over quantity.”
“We have really strong risk controls,” Noto told Cramer. “Knowing that the [changed] interest rate was coming, we wanted to focus on per-loan economics for two reasons: one, we wanted the loans that we created to be great investments for our asset-backed security investors, but also if we keep them on our balance sheet.”
SoFi started out offering college loans and has since developed a wide product offering, including mortgages, personal loans, wealth management and a product designed for parents paying for their children’s education.
During an interview in October at Money 20/20, Noto told the audience that he was accepted to Ivy League colleges, but didn’t take out any loans because he was uncertain if he could afford to pay them back. Instead, because of his academic and sports accomplishments, he was recruited to West Point, the elite U.S. military academy where he attended for free.
SoFi’s typical customer has an average FICO score of 720, Noto said at Money 20/20.
“Higher interest rates have made our underwriting more conservative,” he said.
He also said at Money 20/20 that he believes SoFi ought to eventually open some physical locations, like ATMs, for people who get paid in cash. Additionally, the release of a digital currency product is likely on the horizon in 2019, Noto said.
Earlier last week, Cramer pointed to some non-bank lenders, like Quicken Loans, as posing a risk to the broader economy. But he was supportive of SoFi, telling Noto that he signed up for a SoFi account in 10 seconds.
“It was quick and easy, which is just what [millennials] want,” Cramer said.
Numerated to Improve Online Lending for Regional Banks
November 30, 2018
On Wednesday, Numerated announced that it had closed $8 million in financing, bringing its total to $17 million. Numerated is a platform that helps banks make automated credit and lending decisions.
“We’ve seen a tipping point in the market, with banks across the U.S. focused on digitally serving their business segments and out-competing national and global lenders,” said Numerated founder and CEO Dan O’Malley. “And we look forward to continuing to develop a platform that drives real growth for them.”
Like the recently launched ODX, which grew out of OnDeck’s success helping Chase with online lending, Numerated was first developed in 2015 by Eastern Bank to improve its online lending capabilities. In 2017, it was spun out as an independent company by O’Malley, who had been Chief Digital Officer at Boston-headquartered Eastern Bank.
A new investor who contributed to Numerated’s latest round is Raj Date, the founding Deputy Director of the Consumer Financial Protection Bureau (CFPB) and the current Managing Director at Fenway Summer Ventures. Date will also join Numerated’s Advisory Board.
“The industry has been sorely lacking a solution designed specifically for community and regional banks to compete and win against giant global banks and alternative lenders in business banking,” Date said. “Numerated has quickly grown to become the market leader in business lending with its real-time fintech platform, and I look forward to advising the company as it continues its growth.”
While OnDeck’s ODX and Numerated have similar offerings and objectives – to help banks become faster and more competitive online lenders – Numerated’s focus seems to be on servicing smaller regional banks. Some of its clients, according to its website, include Seacoast Bank, Franklin Synergy Bank, Eastern Bank and MidFirst bank.
Meanwhile, ODX services Chase and it announced in October that its first client as an independent entity was PNC Bank.
“We’re looking at the top 200 banks first,” OnDeck CEO Noah Breslow told deBanked in October.
Numerated was launched in 2017 by O’Malley and is based in Boston.
