Fintech
Ikea Invests in BNPL Service, Will Use Own Brand for Lending
August 31, 2021
Ikea’s majority parent company Ingka Group announced on Tuesday that they will join the buy-now-pay-later (BNPL) space with Jifiti, a group that offers flexible payment options. Jifti will also allow Ikea to keep their name, making it appear to consumers that Ikea is offering the service themselves — not a third party.
What separates Jifiti from other BNPL services is their willingness to allow companies to use their own names in the borrowing process, so the company themselves appear as the lender. This use of their own brand in the checkout process when offering the BNPL service encourages customers to use the service as Ikea’s brand recognition and reputation are universally top tier in their industry. Combined with their business model of cost efficiency and great service through do-it-yourself assembly, customers may be intrigued to use BNPL if they are under the impression that they are borrowing from a company they already trust.
Jifiti will require credit checks, and may charge interest to buyers who choose to utilize the payment options, but Ikea has the option to pay the interest on products financed through these services in a promotional capacity, to encourage customers to use the service to purchase more. By taking a stake of $20 million in Jifiti and not just using their service, Ingka group will be able to see how these tools are utilized and get insight on how the industry works between both the lending process, consumer payback, and default rates throughout Jifiti’s entire book of business.
This is one of the many moves in an exploration of the financial scene for Ikea’s parent company, as Ingka Group acquirred 49% of Swedish Bank Ikano in Feburary. It seems as if as the company is looking to host a full array of financial services both in store and online at Ikea sometime in the future.
Despite offering access to credit for more expensive items previously, Ikea will partner with Jifiti so that consumers can have access to flexible payment options on products that aren’t priced in the thousands. While it may encourage customers to overspend or indulge if they choose to use the service, those same customers will not be able to purchase in the future if they’re still paying off their previous purchases.
Affirm Continues Surge after Exclusive Amazon Deal
August 30, 2021
In a move announced Friday that can change the way consumers interact with the largest online retailer, Amazon and Affirm have partnered together to bring flexible payment options to Amazon customers. A leader in the buy-now-pay-later (BNPL) space, Affirm saw share prices soar as high as 40% Monday morning after inking the exclusive agreement.
According to the deal, Affirm plans to offer financing options for purchases greater than $50 for qualified Amazon customers. Buyers are approved, given the cost of financing and the price of their product prior to purchase upfront, and allowed to make payments via installments on those products. Customers who choose to finance through Affirm will not be charged any late or hidden fees.
“By partnering with Amazon we’re bringing the transparency, predictability and affordability that Affirm provides today to the millions of people who shop on Amazon.com in the U.S.,” said Eric Morse, Senior Vice President of Sales at Affirm in a press release. “Offering Affirm’s alternative to credit cards also delivers more of the payment choice and flexibility consumers on Amazon want.”
After an exclusive deal with Walmart in February of 2019, the company is continuing their attempt at a market takeover by striking a deal with Apple’s Canadian market and Shopify in the states — both within the last month. Affirm is quickly beginning to show dividends by putting together some of the largest exclusive flexible payment option deals out there.
With competition heating up in the BNPL industry, Affirm isn’t the only one trying to incorporate exclusive deals with large markets. Square, a company founded by Twitter’s Jack Dorsey recently acquired the Australian firm Afterpay for $29 billion. Paypal has also made their presence known by offering similar services. With a market cap at over $26 billion, Affirm will be in the fight to compete in the flexible payment option space. With competition from companies like Paypal and moguls like Dorsey, Affirm CEO Max Lechvin is in familiar territory. Prior to starting Affirm, Lechvin was a co-founder at Paypal.
With transparency a major component of their business model, Affirm customers may begin to spend more while initially paying less, a move that can provide a better experience for customers— something that seems like a no-brainer for any company selling pricey consumer-based products.
Robinhood Posts Q2 Net Loss of $502M, Shareholders/Fans Pick Management’s Brain on the Call
August 19, 2021
Robinhood posted a massive net loss last quarter to the tune of $502M on only $565M in revenue.
Following the announcement, the company’s earnings call was a bit unusual, sounding more like a live AMA Reddit thread as the platform’s shareholders were given an opportunity to talk to senior management, a platform usually reserved only for Wall Street analysts. This format led to the submission of 1,300 questions, way more than could be answered in the time allotted, so only the most upvoted were selected to be answered on the call itself.
One person asked if they could get a Robinhood hat and hoody jacket, a surreal insight into how shareholders are thinking about a company that lost $2 for every dollar it brought in last quarter. Another shareholder asked if Robinhood was getting a crypto wallet.
“…I know that there’s been a ton of enthusiasm from the crypto community and the Dogecoin community in particular, on getting access to wallets and it’s something that our teams are working on,” said Robinhood CEO Vlad Tenev.
When the shareholders’ turn was over, the analysts took control, asking more pointed questions, like what happens when Robinhood runs out of potential customers that have so far comprised the demographic that led to the company’s early success.
Tenev said that “I think more and more, you’re going to see Robinhood, particularly with our mobile first platform and ease of use, be become incredibly attractive to folks that haven’t previously considered Robinhood, is the go to place. So we’re pretty optimistic about the opportunity ahead of us. And that’s limiting the response to investing. I think there’s a lot more that we can do, when we talk about being the single money app for our customers.”
The company’s stock went down slightly after earnings.
AMEX: Kabbage to be the “Landing Point” for Small Businesses
August 5, 2021
Now that American Express has put “Kabbage to work” with a business checking account offering, the company shared what’s next during the Q2 earnings call.
“..what you’ll see ultimately is the Kabbage platform being the landing point for small businesses,” AMEX Chairman and CEO Steve Squeri said. “And the way you want to think about this is fintech with scale. And so when you think about Kabbage, which is a pure-play fintech in the small business space and you think about American Express and the small businesses, and you combine that together, you have a fintech at scale. Not a fintech growing at scale, a fintech growing from scale with a balance sheet. And so that has always been the vision of Kabbage. As you bring Kabbage into the bank holding company structure, you have to do some other things to future proof it, if you will, and that’s what we’ve been doing. But that’s what you will see.”
How to Think About Credit Invisibility
July 29, 2021Authored by:
Lily Cook, Researcher at Canadian Lenders Association
Tal Schwartz, Senior Advisor at Canadian Lenders Association
Recent research by PERC has highlighted the issue of credit invisibility in Canada, defined as “persons with either no account payment history in their credit report (referred to as “no files”) or fewer than three accounts in their credit report (referred to as “thin files);”
In Canada, credit scores are calculated using payment history, outstanding debt, credit account history, recent inquiries and types of credit. However, according to research from Cornerstone Advisors, the ‘on-ramps’ to being credit visible are limited and come with challenges. The most common paths are:
- Credit cards:
- Collections: Collections as a point of entry into a credit system immediately sets the consumer at a disadvantage, since the first thing to identify them is a negative characteristic.
In general, Canadians under 25 tend to use credit cards at far lower rates. Those in that age group who do have a credit history have the highest percentage of credit scores below 520, according to Equifax Canada.
The rate and impact of credit invisibility in Canada is significant:
- 35.3% of Canadians are credit invisible vs. 19.3% in the US.
- the issue disproportionately affects immigrants, minority communities or younger individuals.
How are fintechs addressing this?
1. Access to alternative data
Canadian data aggregators provide lenders with access to non-traditional credit information that advanced firms can apply ML to in order to better adjudicate credit.
- Open banking data providers like Flinks and Inverite provide consumer transaction history information that allows fintech lenders to underwrite credit invisibles based on their cash flow instead of their credit score.
- Commercial data providers like Forward AI, Boss and Railz pull financial data from accounting systems, payroll, and point of sale terminals in order to give lenders a more fulsome picture of a businesses health.
2. Make alternative data mainstream
PERC Canada recommended that the CFPB explicitly include non-financial institutions in their definition of a ‘creditor’ in order to report positive payment data to credit bureaus. Credit reports that could ‘reward’ customers for paying telecommunications bills on time, for example, could make the credit system more forgiving in the future.
- Billi, for example, a Canadian fintech allows users to integrate on-time payments for their Amazon Prime and Netflix accounts into their credit reports in order to improve them.
Canadian credit bureaus have also taken active steps to being more inclusive of alternative data. A prime (no pun intended) example is Landlord Credit Bureau’s (LCB) and Equifax’s partnership to allow rent payments to count towards credit scores.
- Both as a way to reduce risk for landlords and give tenants a leg up in the market, this shared use of alternative data is “ninety-plus per cent….positive in nature, so overwhelmingly landlords use this to reward tenants,” LCB’s CEO, Zachary Killam said.
3. Create a better on ramp to credit building
Credit building loans can unlock credit for those with minimal histories or challenging track records. These are installment loans that only pay out once the customer has paid them off, and are offered by fintechs like as Spring, Marble and Refresh.
Essentially reverse loans, the reverse structure protects the lender, in the event that the customer doesn’t make all their payments. Over the course of the loan term, the customer’s payments are reported to the credit bureaus. Borrowell, which recently acquired Refresh’s credit building loan portfolio, is now one of the largest providers of this service in Canada.
So what’s the solution?
In order to drive meaningful change on the issue of credit invisibility, fintechs must continue to enable lenders to challenge the limitations of the credit system – by improving access to alternative data, normalizing its use and building better on-ramps to the credit system than collections and credit cards.
Credit invisibility is caused largely by structural issues within Canada’s data markets, but fintechs are starting to fill these gaps.
deBanked TV Surpasses 400 Helpful Videos on Small Business Finance and Fintech
July 23, 2021
deBanked TV surpassed 400 total videos this week in its free library of content. More than 40 such videos contain basic tutorials and terminology definitions for folks in the SMB lending and MCA industries.
“The content is highly focused,” deBanked President Sean Murray said. “It’s small business lending, real estate, MCA, etc. There’s content for newbies and seasoned veterans aimed at brokers, lenders, and more.”
deBanked has produced more than a dozen original videos as part of an industry docu-series that began in 2020.
Murray also airs live on deBanked TV every Monday and Wednesday at 12:15pm ET where he discusses industry news and offers informative advice.
Fraudsters May Leverage Their PPP Approvals to Get Business Loans and MCAs
July 21, 2021
A small business finance underwriter torn between approving or declining an applicant probably should not consider whether or not that business got PPP funding as evidence of the applicant’s legitimacy.
A new alert put forth by Experian claims that “greater than 75% of PPP loans originated by commercial fintech lenders were NOT run through a fraud screening and have a greater probability of containing bad actors.” Experian says that “lenders will need to be more vigilant as they assess these businesses for future offers of credit.”
Experian cites data from the FTC that shows fraud and identify theft have surged since the pandemic started, climbing to even higher levels in 2021 over 2020.
Fraudsters that successfully obtained PPP loans with altered documents, for fake businesses, or on behalf of real businesses using stolen identities, may now use those as leverage to obtain additional money, particularly through sources where the perceived consequences of being found out are low. Non-bank funders and fintech lenders are an attractive target.
Just because an applicant got a PPP loan, underwriters should not assume it has passed a fraud check.
Cross River Bank Makes Moves as Fintech Acquirer, VC
July 13, 2021
Known in the space as the fintech partner bank, Cross River took another step down the path leading the industry: Last month, the bank bought PeerIQ, a company that does data analytics for loan underwriting. The bank also launched a venture capital arm to continue investing in startup fintechs in a more formalized way- though they have been partners for years.
“PeerIQ is a company we’ve known for a number of years; we’ve been working with them, partnering with them and in various ways for two or three years,” Phil Goldfeder, Senior Vice President of Public Affairs at Cross River, said. “We recognized that we would probably better serve our customers and partners if we came together, so we’re happy that we’re able to acquire Ram [Ahluwalia, CEO of PeerIQ] and his team at PeerIQ and we’re excited about the collaboration moving forward.”
PeerIQ will function as a part of Cross River, bringing intelligent analytics to every transaction. Cross River, located 14 floors up just across the George Washington Bridge in New Jersey, has about $13.5 billion of assets and has originated more than $46 billion in loans since 2008, Bloomberg estimates. The way forward, as Goldfeder said, was through innovation, leveraging tech and teams like PeerIQ’s to better serve clients. That also means using the formal VC branch to help new firms grow their platforms and future acquisitions.
“Number one is to grow on PeerIQ’s core business, providing data analytics, and creating technology in the secondary market, but more importantly, for Cross River to help our partners and our clients serve,” Goldfeder said. “There’s, no question that we will continue to explore companies that would help strengthen Cross River and the fintech ecosystem and provide additional services to our partners.”
The bank has over 15 partnerships with top fintechs, like publicly traded Affirm, Rocket Loans, Coinbase, and private firms funded through VC rounds like Stripe. The bank most recently became a significant part of the PPP government emergency loan program. Ranking among giants like JP Morgan and Bank of America, Cross River ranked 6th overall for dollar amount approved. According to the bank, they doled out 490,000 PPP loans for a total of $13 billion, making up 4% of the entire program volume.
The way forward is clearly through embracing what it always has been at its base: the bank across the Hudson that is willing to partner with upstart brands and help them take over the world. With a flurry of consolidation purchases in the “post-pandemic” world (if that isn’t too early to say) that are only going to increase, Cross River seems to be on to something. Goldfeder said that Covid showed the rest of the world what the fintech space has known for ten years, that added value for customers and partners means innovation.
“Post-pandemic, where I think there was a larger recognition from the financial services industry of the need to innovate,” Goldfeder said. “Cross River is always known that we need to innovate… The post-pandemic dynamic we recognize that there’s tremendous value in creating a more formal venture arm to examine, explore companies that we can invest in to help them grow, help them succeed, and …. increase our support of our partners.”
Bloomberg reported Cross River is in secret talks to raise $200 million of funding at a valuation of $2.5 billion or more. The bank previously raised $100 million in 2018 in a round led by KKR, deBanked reported, and in 2016 raised $28 million.
