Industry News
Online Loan Middleman Just As Culpable As the Lenders, Federal Court Rules
November 21, 2016A CFPB lawsuit against a payday loan lead generator survived dismissal last week, despite the US Court in the Central District of California acknowledging the company’s role as a “middle man” in the lending process. T3Leads and several people connected to the company are alleged to have deceived consumers, in part such that “they allowed consumers to be exposed to lenders that could cause them substantial harm.”
The court ruled that T3Leads was a service provider as contemplated by the Consumer Financial Protection Act and is therefore bound to the laws therein. The case will now proceed to discovery.
Notably, the court also agreed with the recent opinion of the D.C. Circuit in finding the CFPB’s structure unconstitutional. Nonetheless they did not believe the remedy was to toss this case or prevent the CFPB from carrying out its operations. Instead, they ruled that the CFPB’s director must report to the President of the United States to come into compliance with Article II of the US Constitution. The CFPB has refused to comply and is already appealing the D.C. Circuit’s decision.
The CFPB’s quest for power however, may come at a cost. That’s because President-elect Trump has pledged to repeal and replace the Dodd-Frank Act, the law through which the CFPB’s power is vested.
Despite the Consumer Financial Protection Act’s exemption on vendors that simply provide advertising space, a decision Google made earlier this year to ban all payday lenders could have something to do with their fear of being labeled a middle man and covered service provider.
Don’t Write Off Marketplace Lending Just Yet; Silicon Valley Just Made a Big Bet
November 18, 2016
Don’t lose all hope on marketplace lending yet. Silicon Valley just made a big bet on one startup.
Silicon Valley’s leading venture capital firm Andreessen Horowitz invested $15 million in PeerStreet, a marketplace for secured real estate loans. PeerStreet was founded in 2013, by former Google employee Brett Crosby and former real estate attorney Brew Johnson, who oversaw the sale of travel website VirtualTourist to Expedia/TripAdvisor for $85 million. The Manhattan Beach, CA-based company’s crowdfunding platform offers investors secured real estate loans that it sources from local real estate lenders across the country.
“This round of funding will help us further execute on our goal of building a world class investment platform for real estate debt,” said co-founder and CEO Brew Johnson.
To date, it has funded over $165 million in loan investments with $50 million in returns to investors and has 50 lenders on the platform. The company has secured funding from marquee Silicon Valley investors including Michael Burry of The Big Short fame who predicted the 2008 subprime crisis and Adam Nash, former CEO of Wealthfront. Alex Rampell, general partner at Andreessen Horowitz and co-founder of consumer lending Affirm Inc led the investment and will take a seat on PeerStreet’s board.
“They (PeerStreet) have a unique distribution model that allows them to leverage existing lending networks to lower loss rates, and grow without direct marketing,” said Rampell in a statement.
Marketplace Lender P2Bi Raises $7.7 Million In Venture Funding
November 18, 2016
Denver-based crowdfunding marketplace lender, P2Binvestor has raised $7.7 million in Series A1 funding led by a Colorado-based angel investor network, Rockies Venture Club and a Japanese venture firm Future Venture Capital Co, its first investment outside Japan.
The P2Bi platform currently has 150 investors – both institutional and retail and it plans to fund 112 new borrowers, up from the current 80 borrowers, by Q1 next year. The proceeds will be used to boost sales and marketing efforts and grow the company’s operations towards this target.
Founded in 2012, P2Bi provides revolving lines of credit of up to $10 million to businesses. With an average line of $1 million, the company’s customers include businesses in retail, manufacturing and consumer goods packaging. It has originated $350 million since 2014 and it is on track to hit $8.2 million in revenues this year.
“We’re seeing more interest in our model as venture funding hits a two-year low and more entrepreneurs are looking for ways to grow their business while preserving their equity using good-quality, flexible debt,” said CEO Krista Morgan in a press statement.
P2Bi has been bullish about fundraising and diversifying its capital sources. Less than two months ago (September 20), it closed a $10 million credit facility with Pittsburgh-based mortgage service company Urban Settlement Solutions and in April this year, through a partnership with New York-based hedge fund, MW Eaglewood Americas, the company raised $50 million in debt.
Prosper Files 10Q, Revenues and Originations Shrink
November 17, 2016
The slight delay with Prosper’s 10-Q filing is over. The company originated $311.8 million in loans in Q3 versus $445 million in the previous quarter. Revenues were $24 million, down from $28 million in Q2.
The filing delay was said to have been attributed to a recent arbitration decision. That decision and financial impact were disclosed in their report. “On November 17, 2016, Prosper and Colchis [one of their earlier loan buyers] entered into a Settlement and Release Agreement, pursuant to which Colchis has agreed to terminate the Colchis Agreement and waive all rights conferred under such agreement in exchange for a $9 million cash payment by Prosper and equity. Prosper expects to make the $9 million cash payment in the fourth quarter of 2016.”
$9 million is a lot for Prosper who reported only $31.8 million in cash on their balance sheet.
The company has run up a $70 million loss on just $108 million in revenues so far this year, compared to a $17 million loss on $140 million in revenues for the first 9 months of 2015.
Revenues in Q3 year-over-year are down by nearly 60% while originations are down by more than 70%.
Earlier this week, Prosper’s CEO, Aaron Vermut, and executive chairman, Stephan Vermut, both stepped down from their posts.
UK’s P2P Pioneer Wants to Be a Bank. Who’s Next?
November 16, 2016
UK’s P2P pioneer Zopa is changing its stripes to turn into a bank.
The 11-year-old company, upbeat about the regulatory environment in the UK that is looking to bring innovation and entrepreneurship to banking, will apply for a license soon. “Zopa has a history of creating innovative retail-facing financial services, driving consumer choice and transparency. We are responding to the positive regulatory environment and building on our experience to bring yet more choice to the market,” said CEO Jaidev Janardhan in a press release.
The new Zopa Bank will be a retail bank and provide deposit and savings accounts, thereby giving the company a stable funding source for its P2P platform.
This trend has also picked up pace across the pond, at home. For online lenders like SoFi that are adding lending products faster than they can secure sources of capital, the prospect of becoming a bank may now be more tempting than disrupting them. Marketplace lending companies in the US including Avant, Prosper and Lending Club are struggling to retain and grow investors on their platforms.
While tightening credit and raising rates to prevent delinquencies is one way to keep investors, some companies like SoFi have also started hedge funds to buy up their own loans. The advent of online lending promised to offer alternatives to the already chunky, fragmented banking system which was further straitjacketed by regulation like the Dodd-Frank Act which mandated banks have stricter lending standards. However, the rapid proliferation of the industry has brought forth concerns like fast depleting capital and waning investor interest.
Will alternative lenders in the US also drink the kool-aid and become the entity they intended to overhaul?
Kabbage Appoints Payments Industry Veterans as CTO and Data Officer
November 14, 2016
Small business lending marketplace Kabbage appointed a new CTO and chief data officer last week.
The Atlanta-based company that uses technology and data to underwrite loans hired Amala Duggirala as the new CTO. Duggirala is a two decade industry veteran and prior to this, was the executive vice president of global software development and implementations services at ACI Worldwide. There, she was responsible for developing end-to-end payment technology between consumers and retailers and accountable for the architecture, development and delivery of nearly 30 payments products. At Kabbage, she will lead the automation of the Kabbage platform and developing new products for growth.
The company also appointed the former head of analytics and insights at eBay, Rama Rao as the chief data officer. Rao also brings 20 years of experience in analytics, risk and payments. Rao holds a Ph.D. from MIT and built the risk analytics team at PayPal to manage its global risk policies. At Kabbage, he will lead the strategy for data, decision science, analytics and risk.
“We’re thrilled to have Amala and Rama join Kabbage to help us achieve our mission of sitting at the center of small business existence, both directly and through our partnerships globally,” said Rob Frohwein, co-founder and CEO of Kabbage.
This Startup Wants to Bring Realtime Payments to Medical Claims
November 14, 2016New York City-based fintech startup Liquid FSI unveiled its first product, Convert2Pay, a platform for claiming medical bills.
Liquid FSI was founded in 2014 and after two years of development and testing, the company launched its first white label solution, Convert2Pay, a platform where healthcare professionals can verify and claim medical invoices and get paid in real time.
Founder and CEO Frank Capozza wants to tend to the alternative finance opportunity in healthcare. “The SMB financing industry is reaching maturity with high cost of customer acquisition, declining renewal rates, ISO channel conflict, and stiff competition from new market entries like PayPal, Square, and American Express,” Capozza said.
“Since our strategy is to integrate our ‘View, Verify, Convert’ technology into the healthcare practice and lab management ecosystem, it’s a win-win for lenders and borrowers,” Capozza said in a statement. The Company will offer the product as a ‘white label’ solution to an alternative lending company.
i2B Capital Provides $4 Million Revolving Line of Credit to CFG Merchant Solutions
November 8, 2016NEW YORK–(BUSINESS WIRE)–i2B Capital (www.i2bcap.com), a provider of direct financing to niche-market financial entrepreneurs, is pleased to announce the closing of a $4 million asset-based revolving line of credit with an accordion to $6 million with CFG Merchant Solutions (CFGMS). CFGMS is a privately owned and operated specialty finance company focused on providing working capital to small and mid-sized businesses (Merchants) in the U.S. that are historically underserved by traditional financial institutions.
Said Mr. Larry L. Curran II, CEO of i2B Capital, “CFGMS gave us the perfect opportunity to apply asset-based lending principals to non-traditional receivable assets in an early stage specialty finance company. CFGMS is a new division of an established finance business with traditional bank financing; however, these receivable assets were excluded from the existing borrowing base. The CFGMS management team is seasoned, backed by private equity, and enabled with technology—exactly what we look for in our target customer. Additionally, they have grown their financed receivables more than 500% since beginning the process.”
Barbara Anderson, Chief Operating Officer at i2B Capital commented, “Our goal over the initial 18-month funding commitment is to prepare CFGMS for more traditional institutional financing in the future. To accomplish that we will provide the growth capital along with our commercial lending expertise to help them prepare for the disciplined reporting requirements and credit processes at the next level.”
William Gallagher, President of CFGMS said, “Obtaining an asset-based loan against our non-traditional asset class within our first year of operation is instrumental in allowing us to execute on our growth strategy, and achieve some very aggressive portfolio and revenue targets. We had to work through several considerations with i2B due to the age and size of the portfolio, but through mutual collaboration we were able to put in place a facility that will enable us to take our business to the next level.”
CFGMS is a subsidiary of CapFlow Funding Group, a commercial finance company that offers an array of products such as factoring, purchase order finance, and asset-based loans. Both companies are headquartered in Rutherford, New Jersey. CFGMS with additional offices in New York City is a direct funder providing working capital to small businesses. They are entrepreneurs who understand first-hand the challenges of acquiring flexible and timely financing. CFGMS combines proprietary analytics and technology, with common sense underwriting to provide fast and efficient access to capital. Programs include Small Business Advance, Merchant Cash Advance, and Invoice Factoring. For more information about CFGMS contact William Gallagher at wgallagher@cfgms.com or visit www.cfgmerchantsolutions.com.
i2B Capital is headquartered in Fort Collins, Colorado with offices in Herndon, Virginia. The company provides senior debt and direct asset investments for growth capital to qualifying entrepreneurs and equity-backed emerging specialty finance companies throughout the United States. For more information about i2B Capital contact Barbara Anderson at 703-871-3993 or banderson@i2bcap.com, or visit www.i2bcap.com.
Contacts
i2B Capital
Barbara Anderson, 703-871-3993
banderson@i2bcap.com
