Industry News
Join Me at Transact 14
April 1, 2014
I’ll be at the ETA’s Transact 14 Conference in Las Vegas next week (Apr 8 – 10) wearing my journalist hat for DailyFunder. DailyFunder is currently the only publication dedicated to merchant cash advance and alternative lending and is a media sponsor of this year’s event. All attendees will be able to pick up a free copy of the latest issue of the magazine at designated distributions bins.
If you’re on the fence about going, allow me to convince you. The Annual ETA hosted conference is more than a social event or meet and greet. It’s a chance to ink deals, forge partnerships, and learn about opportunities that you’ll never hear about from the comfort of your office. Of course you’ll only get out of it what you put into it. The Who’s Who of payments and financing will be all in one place. Are you one of them?
CNBC will be broadcasting the event live. It’s been reported that this year’s show has enlisted a record amount of exhibitors.
Going to be our biggest show in history! MT @MWarehouse: Who's going to #ETATRANSACT next week in #Vegas? pic.twitter.com/5zFiUm8qbY
— Jason Oxman (@joxman) April 1, 2014
I’ll be taking photos and jotting down notes for both the live blog and post show recap for the May/June issue of the magazine. So if you’ve got something cool to show off, email me at sean@merchantprocessingresource.com or sean@dailyfunder.com and I’ll be happy to come pay you a visit.
pre-registration for the event closes in less than 5 hours but you’ll be to get tickets on site.
And of course if you’re planning to bring your wolf pack to Vegas, you might want to read DailyFunder’s helpful tips on how to keep your wolf pack in check. 😉
Hope to see you there.
Errol Damelin’s Legacy
April 1, 2014
Wonga’s been a point of interest ever since they tried to buy OnDeck Capital and set up shop in the United States. Far from your average run-of-the-mill UK-based payday lender, they rode the technology wave to international fame. Founder Errol Damelin doesn’t believe in human risk analysis as I’ve cited several times before. He lives by the law of data and algorithms are his muse.
But It hasn’t been all rainbows and unicorns to get to the top. The archbishop of Canterbury told Damelin that he wanted him competed out of existence. Wonga became a religious issue and then a parental one when parents protested that children were being solicited with payday loan offers. And there was the little problem of the algorithm not delivering flattering results. More than a year ago I wrote of my shock when I learned that their bad debt had risen to 41% of their revenues, an astoundingly poor figure for a system that was being heralded as superior to human risk analysis.
Wonga’s been accused of preying on women and ruining lives. They’ve had their sponsorships protested on religious grounds and Damelin himself has even faced criticism for his own religion from the dark bowels of the Internet.
It’s been said that it was never really about lending for Damelin, who often times categorized Wonga as a technology company (something we’ve heard before in the U.S.).
Despite all the outside criticism, it’s been reported that Wonga’s customers are nearly twice as satisfied with them as they are with their banks and even more so than customers of Apple and Google. Wonga seems to make everyone upset but the borrowers, but it hasn’t been any consolation.
The UK’s Financial Conduct Authority’s intent to regulate them has been the last straw for Damelin. Weary of never ending battle, he is resigning from his post. Though it’s said he will continue to play a role, it’s clear that the mojo is gone. Wonga will be regulated, restrained, and will perhaps endure or be dismantled.
Damelin’s legacy is a 15 minute loan approval that is based off of 8,000 data points. He never proved that algorithms could assess risks better than humans, but he has inspired alternative lenders around the world to pursue ultra lean lending models built for massive scalability.
Great technology exists. Damelin dared us all to use it…
Yellowstone Capital Matures With New Executive Team
March 30, 2014
In an email newsletter that went out this morning, NYC-based Yellowstone Capital announced changes and additions to their executive team.
- Managing Partner Isaac Stern who has long been the public face of the firm is now the Chief Executive Officer.
- Marwan Salem is now the Chief Financial Officer.
- Josh Karp has been named the Chief Operating Officer.
Stern’s partner David Glass will keep his stake in the firm and continue to play an operational role.
The newsletter states, “Gangbuster growth hardly describes what Yellowstone Capital has experienced in the last 12 months. Deal flow has simply been huge.”
Yellowstone Capital was dubbed by DailyFunder to be one of the three most talked about funding companies of 2013. In perhaps recognition of the adage, if it ain’t broke, don’t fix it, the newsletter states, “Yellowstone Capital will continue to pursue less-drastic changes in its capital structure that preserve the winning formula.”
Lending Club Threatens The Status Quo
March 20, 2014
In late 2013, consumer peer-to-peer lender Lending Club announced their plans to start offering small business loans. That caused a stir in the merchant cash advance world for a few weeks, but the hype died down. The general consensus was that there would be little to no overlap between the applicants each target.
To this day, I continue to doubt that the overlap will be anything less than substantial. Nik Milanovic of Funding Circle would probably disagree with me. The main argument has been that Lending Club will only target small business owners with good credit, which assumes that businesses with anything less are the only users of merchant cash advances. Not to give anyone’s figures away, but I have seen data to suggest that a large segment of merchant cash advance users have FICO scores in excess of 660. Somewhere along the line we convinced ourselves that merchant cash advances were for businesses with really bad credit. That was never the purpose it was intended for, though it’s true that many applicants have low scores.
Historically, merchant cash advances were for businesses that posed a cash flow risk to banks. Split-processing eliminated that risk by withholding a percentage of card sales automatically through the payment company processing the business’s transactions. Funders today that rely on bank debits for repayment don’t have that safeguard, but they make up for the risk they take by doing something banks don’t do, require payments to be made daily instead of monthly. This allows businesses to manage their cash flow throughout the month and enables the funder to compound their earnings daily. It’s a phenomenon I wrote about in the March/April issue of DailyFunder (Razzle Dazzle Debits & Splits: Daily is the Secret Sauce)
According to the Wall Street Journal, Lending Club will require a minimum of 2 years in business and participation will initially only be open to institutional investors.
Lending Club’s website states that they will recoup funds on a monthly basis via ACH and that interest rates range from 5.9% APR to 29.9% APR + an origination fee. Terms range from 1 to 5 years and there are no early payment penalties.
TechCrunch openly pegs CAN Capital and OnDeck Capital as chief rivals for Lending Club in the space. CAN has enjoyed frontrunner status in the industry since 1998 and while they have been tested in the last 2 years, they haven’t come up against something like this.
In the same Wall Street Journal story, Lending Club’s CEO, Renaud Laplanche lays out who his competitors are with his quote, “The rates provide an alternative to short-term lenders and cash-advance companies that sometimes charge more than the equivalent of 50% annually.”
But will the impact be felt right away? In Laplanche’s interview with Fortune, he claims that it’s very likely they’ll focus on the 750+ FICO segment first, where institutional investors will be comfortable. But make no mistake about it, that will change quick, especially with a probable IPO in the next 8 months.
Is Lending Club really all that big? To draw a comparison, RapidAdvance got a $100 million enterprise valuation when they got bought out by Rockbridge Growth Equity about 6 months ago. Lending Club on the other hand was valued at around $2.3 billion at that time. It took OnDeck Capital 7 years to fund $1 Billion in loans. Lending Club is funding a billion dollars in loans every 3 and a half months. Granted, they’ve all been consumer loans, but let’s not kid ourselves about their capabilities.
Lending Club is funding more consumer loans than the entire merchant cash advance industry is doing combined. Thanks to the peer-to-peer model, they have infinity capital at their disposal. We can pretend that no one with good credit ever applied for a merchant cash advance or we can acknowledge the 3 billion pound gorilla in the room.
Lending Club and other peer-to-peer lenders that follow them will disrupt the alternative business lending status quo.
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Previous articles on this subject:
Will Peer-to-Peer Lending Burn the Alternative Lending Market?
Lending Club Business Loans are Here
Peer-to-Peer Lending will Meet MCA Financing
Join the Industry March Madness Competition
March 11, 2014
Ready to test your NCAA basketball skills against your friends and foes? Join the industry’s 2014 March Madness Competition hosted by Merchant Cash Group! (league password: mcg589)
Merchant Cash Group will be providing a Grand Prize of $250.00* to the overall winner and keeping with tradition all participants will receive a trophy highlighting their not so stellar accomplishments.
I did really well in it last year. How well you ask? So well that Merchant Cash Group bestowed upon me this trophy:
So maybe I didn’t do so great. But I have grand plans in 2014 especially with my alma mater making the tournament for the first time since 1999. I hope you guys are ready for the Blue Hens. I have them making my final 4. Think I’m a fool? Show me up and:
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Merchant Cash Group is a direct merchant cash advance provider and was the awesome co-host of the last 2 industry fantasy football challenges.
*You do not need to be a referral partner of MCG to participate but the Grand Prize of $250 will only be awarded to partners. Non partners will receive $100.00
Is There Cause for Alarm?
March 8, 2014
Brick and mortar chain stores died this week, after a long illness. Born along Main Street, raised in shopping malls across post-World War II America, the traditional store enjoyed decades of good health, wealth and steady growth. But in recent years its fortunes have declined. Survived by Amazon.com and online outfits too numerous to list.
– CNN 3/7/14
Just a day after Jeremy Brown’s new CEO Corner post appeared on DailyFunder with an overt bubble warning, CNN’s Chris Isidore alluded that the era of brick & mortar retail may be drawing to a close. In Isidore’s brief sensational article, he fingers an overabundance of retail space, a weak economy, and the Internet as the culprits behind Main Street‘s decline.
In the broad alternative business lending industry, the sentiment is quite the opposite. Small business demand for working capital is surging and no one is predicting anything less than stellar growth for the foreseeable future. But is the growth real?
Jeremy Brown is the CEO of Bethesda, MD-based RapidAdvance and he explains the growth may not be what it appears to be on the surface. Some cash providers are overpaying commissions, stretching out terms longer than what their risk tolerance supports, and are growing by funding businesses that have already been funded by someone else (a practice known as stacking).
If the industry collectively booked 50,000 deals in 2013 and increased that to 100,000 deals in 2014, you’d have 100% growth, or at least it would appear that way on the surface. What if the additional 50,000 deals funded this year were not new clients but rather additional advances and loans made to existing clients? It’s a lot easier to give all of your clients money twice instead of acquiring new ones.
This all begs the question, is demand for non-bank financing really growing by leaps and bounds? Or does it just appear that way because those that have already utilized it are demanding more of it?
Brown left his readers with this conclusion, “There will be a rebalancing at some point. And it will not be pretty.”
Chime in with your thoughts about this on DailyFunder.
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When Will the Bubble Burst? by Jeremy Brown will also appear in the next print issue of DailyFunder. If you haven’t subscribed to the magazine already, you can do so HERE.
Lending Club Business Loans are Here
January 19, 2014
As mentioned in a thread on DailyFunder, I have personally seen evidence that Lending Club is already doing business loans. The loan was issued this month in the amount of $35,000 and disbursed to a business, not an individual.
I have been very outspoken about my belief that peer-to-peer lenders will compete directly against merchant cash advance companies and their short term lending counterparts. I am now absolutely positive that will be the case as the first merchant I saw to receive a Lending Club business loan was a former user of merchant cash advances.
One has to ask themselves if Lending Club will be targeting UCCs, particularly those of their new closest competitors in the space, OnDeck Capital and NewLogic. I was not able to determine the terms of the Lending Club loan but it is still my expectation that it will be a 3-5 year deal with automated monthly payments. Compare that against the industry’s dominant short term lenders that do 1 year deals with automated daily payments.
You can argue that there will be very little overlap in the merchants these companies target but I have seen overlap right out of the gate.
I expect we’ll all see a lot more of this.
Industry Fun Leads to Charity Funds
January 15, 20142013’s alternative business financing fantasy football competition came to a close near the end of the regular NFL season. There were some tough matchups and upsets, but two Florida based companies pulled through to win it all. The league raised a total of $9,000 from its participants and as per the rules, must be donated in equal halves to non-profit organizations selected by the two winners.
Financial Advantage Group selected the Spring of Tampa Bay, a noble choice since their mission is to prevent domestic violence, protect victims and promote change in lives, families and communities. DailyFunder, the trustee of the competition reached out to the organization late last month and made the donation in a low-key manner as per their request. They did express their gratitude to Scott Williams of Financial Advantage Group on their facebook page however:
Business Financial Services selected Wounded Warrior Project. They wrote their own post about the organization and why they are proud to support that cause on their website here: http://www.businessfinancialservices.com/blog/fantasy-football-for-charity/
Wounded Warrior Project accepted their donation with some pizazz, holding a giant check for a photo-op at the organization’s Jacksonville, FL office.
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I personally would like to thank Heather Francis of Merchant Cash Group for being a great competition co-host this year as well all of the participants that contributed funds to make these donations possible:
- Merchant Cash Group
- Benchmark Merchant Solutions
- Yellowstone Capital
- Raharney Capital
- Strategic Funding Source
- Sure Payment Solutions
- Pearl Capital
- United Capital Source
- NVMS
- Entrust Merchant Solutions
- Financial Advantage Group
- Snap Advances
- Business Financial Services
- Integrity Payment Systems
- DailyFunder
- Capital Stack
I’m already looking forward to next season!
