Industry News
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
On the Road to Recovery? Lending Club Shrinks Quarterly Losses, Announces Major Loan Buyer
November 7, 2016
Is Lending Club on the path to recovery, yet?
The marketplace lending company’s Q3 loss of of $36.5 million paled in comparison to the $81.4 million loss in the previous quarter, but the improvement is not as significant as it looks. That’s because Q2’s extremely poor showing was largely a result of the $35.4 million goodwill write-down of Springstone Financial and one-time “unusual expenses” related to an internal investigation into the previous CEO’s scandalous exit.
The $36 million loss is a far cry from the profit they turned in Q3 of last year however, but that spread is also deceiving. That’s because $20 million of it can be attributed to still more one-time costs related to Laplanche’s departure and an additional $11 million is due to incentives paid out to money managers to buy their loans. They stopped paying out incentives at the end of August.
Operating revenue grew 10 percent QoQ from $102.4 million to $112.6 million, but shrank by 2 percent annually from $115.1 million.
The stock closed up 15% on the day, but it’s still down more than 60% from the IPO price. The day’s rally was bolstered in part by an announcement that a US subsidiary of National Bank of Canada, Credigy, agreed to buy up to $1.3 billion worth of loans through the Lending Club platform over the next twelve months.
Loan originations grew marginally – $1.97 billion, up 1 percent from $1.96 billion in Q2, down 12 percent compared to $2.24 billion last year.
“I am very pleased with our performance in the third quarter. We actively reengaged with investors of all types to deliver on our plan and enable $2 billion in loan originations,” said Lending Club’s President and CEO, Scott Sanborn in a statement. “While we’ve made incredible progress, there is still work to be done. In the months ahead we are focused on increasing the diversity and resiliency of our funding mix, realigning our resources, and regaining our operating rhythm.”
At the Money 20/20 event last month, Sanborn announced that the company will foray into the $40 billion auto refinance market and said that he remains bullish about the company’s future in this new venture. The marketplace lender is offering loans in the range of $5,000 – $50,000 with APRs ranging from 2.49 percent to 19.99 percent for terms up to 72 months.
The third quarter has been an eventful one for the company which saw some management shuffle too. CFO Carrie Dolan was replaced by Thomas Casey, former CFO at the medical device company, Acelity. And, citing high delinquencies, the company also raised interest rates by a weighted average of 26 basis points, with high a concentration on F and G grade loans, in October.
One major cause for concern, however, remains to be the thinning retail investor base. While the company expanded its investor base to 142,000 active individual investors, investment was down to $273 million in the third quarter, from $327 million in Q2.
OnDeck Earnings: Originations Grow 27%, Continue to Predominantly Use Own Balance Sheet
November 3, 2016OnDeck recorded a GAAP net loss of $16.6 million for the quarter ending in September, down from a $3.7 million profit during the same period last year. The firm’s net revenue also plummeted 30 percent to $32.3 million, even though gross revenue was up 15 percent to $77.4 million. The shift is largely a consequence of moving away from gain-on-sale marketplace revenue to interest income. Only 16.6% of term loan originations in the third quarter were sold or designated as held-for-sale through their marketplace.
The company originated more loans this quarter compared to a year ago, with origination volumes rising 27 percent to a record of $613 million. Loans under management also increased 44 percent annually to $1.1 billion.
OnDeck grew its direct and strategic channels by 23 percent year-over-year. Its funding advisor channel grew 40 percent during the same period.
“During the quarter, we continued to diversify and expand our funding capacity, and we are actively engaged in the process of bringing new funding sources online,” said CFO Howard Katzenberg in a statement. “We remain confident in our unique model and track record of performance, which we believe positions us well for further growth, improved operating results and continued access to the capital markets.”
The company also recently lost one of its sales frontmen, senior vice president Zhengyuan Lu who joined Chicago-based alternative finance-focused investment firm, Victory Park Capital.
At Money 20/20 recently, OnDeck chief Noah Breslow said that the company will remain focused on small businesses as the customer and there are no plans to venture into mortgages or student loans like several of their counterparts in consumer lending.
Talking about the partnership with JPMorgan, Breslow said that the deal was still in the “initial rollout” phase, despite being announced almost a year ago.
Square Beats Revenue Estimates with $439 Million; Lending Business Grows 70%
November 2, 2016Square Inc’s stock jumped 7 percent on Wednesday, thanks to upbeat earnings reported Tuesday.
The Jack Dorsey-led company recorded a loss of $32 million for the third quarter, compared to $52 million in the comparable period last year, and beat analysts’ revenue estimates of $430 million, with a 32 percent jump in revenue totaling $439 million.
Square processed $13.2 billion worth of transactions through its point of sale devices, up 39 percent since last year and the company’s lending business, Square Capital grew 70 percent annually, extending $208 million through 35,000 loans. With this, it has originated over $1 billion in two years.
Square Capital loans are made by Celtic Bank and loan offers are presented using the Total Cost of Capital method, where cost is disclosed as a precise dollar amount so that potential borrowers will know exactly how much they will have to pay. By enforcing a fixed 18 month term, Square differentiates its loan product from a merchant cash advance or a purchase of future sales.
Square CFO Sarah Friar told CNBC that there is still a lot of room for growth in the Square ecosystem with existing merchants, even as the company extends credit to businesses that do not use Square for payments. Friar also said that the company is “executing on all cylinders” to beat estimates for revenue and growth.
A GIANT BUFFALO ‘BILL’: Fake Debt Settlement Company Allegedly Defrauded Merchants, Business Lenders and MCA Companies Out of Lots of Cash
November 2, 2016
Several companies controlled by an alleged fraudster run out of western New York, promised merchants they could settle MCA agreements and alternative business loans for cheap.
Sergiy Bezrukov AKA John Butler AKA Thomas Paris AKA Christopher Riley was arrested last week after being charged with mail fraud. A joint investigation between the Department of Homeland Security, the IRS and the US Postal Inspection Service concluded that he scammed more than 100 victims and caused damages in excess of over $500,000.
“The victims and losses are the direct result of Bezrukov’s scheme involving the mailing of thousands of fraudulent solicitations to vulnerable small business owners, luring them into paying him for a service he never intended to provide, and resulting in hundreds of defaulted loans, worth hundreds of thousands of dollars,” an affidavit signed by Postal Inspector Clinton E. Homer states.
$400,000 in hidden cash was seized by investigators. The prosecution argued he was a great flight risk after it was discovered Bezrukov has dual Ukranian citizenship and that an identical copy of his US passport exists which he claims is missing and cannot forfeit. That combined with his propensity to use fake aliases resulted in his bail being denied and his being detained pending trial.
Bezrukov is currently being charged with mail fraud.
Records, surveillance and witness interviews confirmed that he paid to have 75,000 mailings sent out to advertise his service just between the first week of August and the first week of October 2016. Those services allegedly included an offer to reduce a small business owner’s short term debt by as much as 75% in just 6 to 12 hours.
One small business owner said that after signing up, they were directed to send an initial $1,250 to Corporate Restructure, Inc. via wire transfer. It was suspicious bank activity like this that would ultimately play a role in the scheme unraveling.
“The Postal Inspection Service received a referral from a fraud investigator for Citizens Banks related to multiple accounts with suspicious activity,” Federal Agent Homer wrote in his affidavit.
Bezrukov is alleged to have used over 30 different company names, numerous banks, post office boxes, UPS Store boxes, and employees in an effort to ensure the success of his scheme, and in an effort to hide his true identity and location of operations. Most of the locations were in upstate New York, specifically in Salamanca, Jamestown, Irving, West Seneca, Cheektowaga, Buffalo and Sanborn.
Two other individuals were also charged in connection with the activity, Mark Farnham of Buffalo and Dustin Walker of Salamanca. Farnham is referred to as the Vice President of Bezrukov’s company, Corporate Restructure, Inc., while Walker was the Chief of Security. They are alleged to have committed bank fraud. More than $125,000 was deposited in their accounts just between June 21st and August 12th of this year.
Bezrukov himself was no stranger to alternative business finance. Numerous complaints online date back to his role in a company known as SBC Telecom Consulting, a purported business funding company that was also referenced in the affidavit attached to the criminal complaint against him.
Even in that business, Bezrukov who went by alias John Butler at the time, was known for being outrageous. Last year, shortly before he ventured into the alleged debt settlement scheme, his company filed a $45 million lawsuit against a former sales rep for among other similar claims, allegedly violating a non-compete agreement.
The Buffalo News reports that Bezrukov is being represented in his criminal case by Scott F. Riordan, who declined to comment on the allegations.
