Industry News
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.
Brief: Cross River Bank Raises $28 Million in Equity
November 1, 2016
New Jersey-based Cross River Bank, a marketplace lending partner bank, secured $28 million in equity, led by Boston-based investment firm Battery Ventures, along with Silicon Valley venture capital firms Andreessen Horowitz and Ribbit Capital.
The capital will be used to expand the bank’s technology and product-development teams, invest in compliance infrastructure and plan new business lines to the online lending industry. Battery General Partner Scott Tobin will also join the Cross River board of directors.
Cross River originated over $2.4 billion loans in 2015 and partners with over 15 online lenders including Affirm, Borrowers First, Marlette Funding, Rocket Loans and Upstart.
Letter From The Editor – Nov/Dec 2016
November 1, 20162016 didn’t produce the robots, laser beams and interplanetary colonization I jokingly predicted in the final issue of last year. Instead, the year was rife with terrestrial matters like profitability, sustainability, legal compliance and adjusted expectations. The advances made in financial technology revealed their vulnerabilities and in some cases, their mortalities. But those still standing at the end of 2016 may be better prepared for the future than when they started. Change, in whatever form it may take, can be good.
You need not look further than Mark Cerminaro, the chief revenue officer of RapidAdvance who once aspired to play football in the NFL. Change came for him in several forms, from a sports injury to a harrowing experience in the World Trade Center on 9/11. Today, he’s a major mover and shaker in alternative finance, having made it on the Commercial Finance Association’s 2016 “40 under 40” list of achievers. In this issue, you’ll learn more about Mark and his rapid advance with RapidAdvance.
Change for another fellow came at a more significant cost. In October, an MCA broker turned-debt negotiator was arrested and charged with mail fraud. It’s alleged those debts he offered to negotiate didn’t actually get negotiated and he left a trail of damaged merchants and funders in his wake as a result. But that’s just the tip of the iceberg, you’ll learn, as the scheme descended into a legal war that involved Native American tribes, fake names and phony lawyers. It’s a side of the story that even federal agents left alone.
Change was also once promised by a man known as Senator Barack Obama, many years ago. Did he accomplish it? One thing for certain is that a bigger change, a “yuuge” change even, is coming in the form of a President Donald Trump. He has pledged to repeal and replace Dodd Frank, a bold intention made by an even bolder man. Trump is the curveball that breaks predictive models, a force that could be really good or really bad. Most of the advances in fintech have only known a world in which Obama is President. Is the industry ready for Trump?
It’s difficult to project what will happen in 2017, but in this issue, funders bid adieu to 2016. See you next year.
What Next? SoFi Wants to Sell Life Insurance
October 31, 2016After student loans, mortgages and parent loans, Sofi is making a new leap into life insurance.
The company is set to launch a life-insurance product in partnership with Protective Life Insurance Co, that was acquired by Japanese life insurance company Dai-ichi, last year. The Wall Street Journal reported that SoFi obtained licenses to operate as an insurance broker in states including Arkansas, California, Florida, Massachusetts, New York and South Dakota.
According to KPMG and CB Insights report ‘Pulse of Fintech 2016,’ the first two quarters of 2016 saw $1 billion in VC investment, making insurance “ripe for disruption.”
“Insurers across the world are struggling with a myriad of challenges: low levels of consumer trust, high competition, a low interest rate environment, shrinking profitability and legacy IT issues. Addressing these challenges and creating opportunity for growth can be difficult as any solutions, especially those involving technology, can be complicated, expensive and potentially high risk,” the report said.
Founded in 2011 by Mike Cagney and his fellow classmates at Stanford School of Business, SoFi started refinancing student loans with a pilot loan program of $2 million. Since then, the company has branched out into mortgages, personal loans, parent loans and wealth management services.
Coming Soon: The OCC’s Fintech Innovation Office
October 27, 2016Coming soon: An innovation office to work with fintech upstarts poised to disrupt to the industry.
The Office of Comptroller of the Currency that regulates and supervises banks plans to set up a dedicated “fintech innovation office” early next year with branches in New York, San Francisco and Washington.
In an attempt to “identify, understand and respond” to the changing banking landscape, the OCC said that the unit will establish an outreach and technical assistance program for banks and nonbanks, conduct research and promote inter-agency collaboration and act as a point of contact for information and requests.
“By establishing an Office of Innovation, we are ensuring that institutions with federal charters have a regulatory framework that is receptive to responsible innovation and the supervision that supports it,” said OCC chief Thomas Curry.
Last month, Curry said that his office was evaluating the “unique risks” fintech companies might pose to the banking system under a less favorable credit cycle. The OCC also plans to release a paper in the next two months raising issues with a limited-purpose charter for nonbanks similar to credit card banks and non-deposit taking entities.
Brief: Lendio Raises $20 million for Growth Marketing
October 25, 2016
Salt Lake City-based loan marketplace Lendio raised $20 million in new funding through a round led by Comcast Ventures and Stereo Capital. Other participants included Napier Park, Blumberg Capital, Tribeca Venture Partners and North Hill Ventures, all of whom were exiting investors. Lendio plans to use the funds towards growth marketing.
“Over the past year, we’ve been busy testing new customer acquisition strategies. With this new round of capital, we now have the resources to launch these exciting new initiatives that will help us to expand our brand awareness and help small businesses find the best loan for any situation,” said Lendio CEO Brock Blake.
Lendio is a loan marketplace that has done partnerships right. The company’s three lucrative deals with American Express, GoDaddy and Staples fueled $63 million in Q3 funding. Last month, the company added Detroit-based working capital financing company Supplier Success to its platform, to improve capital access to businesses owned by minority and women owners.
“Lendio’s success securing meaningful partnerships and impressive year-over-year growth shows the company is poised to go big,” said Dave Zilberman, managing director of Comcast Ventures, who will join Lendio’s board of directors as part of the transaction.
Total Merchant Resources Obtains California Lending License
October 17, 2016Piscataway, N.J. – October 17th 2016 – Total Merchant Resources, a Piscataway based business funder and a veteran in the merchant cash advance space, has obtained their California Lending License to capitalize on providing businesses with working capital in the Nation’s most populous state. This new designation allows TMR to quickly and easily extend money to small and medium sized business throughout the Golden State.
“We are thrilled to have access to this very important market. In addition, TMR is now perfectly positioned to do business in California as we await the imminent and necessary regulation of the industry,” said TMR Co-Founder and CEO Jason Reddish.
Reddish and co-founder and CFO Val Pinkhasov, who were recently featured on CNBC’s ‘Shark Tank’, were among the very first business lenders to enter this space. They are a respected name in the industry and thanks to their major prime time TV appearance, have brought attention to this underutilized model for businesses to obtain working capital.
For more information contact Gary Lane, Director of Business Development at (212) 220-9872.
