Loans
Prosper Originates $631.9M in Q1
May 23, 2023Prosper Marketplace originated $631.9M in loans in the first quarter of 2023, up 13% YoY. Ninety percent of Prosper’s Q1 2023 loans were funded through their Whole Loan channel, down slightly from the 92% in Q4 2022. The company generated a loss of $9M on about $38M in revenue.
Prosper is one of the few fintech lenders from the ancient era to somewhat stick with its original business model. Although it moved away from peer-to-peer to Whole Loan sales, it did not become a bank like its competitors LendingClub and SoFi did. Prosper also seems to have stabilized after some tumultuous growth years in the pre-covid era.
SBA Lifts SBLC Moratorium
April 11, 2023
It’s official. The SBA is lifting the moratorium on licenses for Small Business Lending Companies (SBLCs), ending the 40-year pause that began in 1982. The SBA is also adding a new type of lending entity called a Community Advantage SBLC while also removing the requirement for a Loan Authorization in the 7(a) and 504 Loan Programs.
The 37-page rule, which is slated to be published in the federal register on April 12th, included the SBA’s analysis of all the comments it had received, including the criticisms. Some argued, for example, that opening up the doors would allow the unscrupulous world of fintech to participate in the market. The SBA was unmoved by this, countering that existing participants already rely on fintech.
“SBA has for many years provided oversite to non-depository entities participating in the SBA business loan programs,” the SBA said. “This includes SBLCs, non-federally regulated lenders (NFRLs), 504 Certified Development Companies (CDCs), and Microloan Intermediaries. In fact, most all lending institutions incorporate the use of financial technology in their delivery of loans and other financial products.”
One such fintech that has been eager to become a participant, issued a prepared statement on the decision earlier today.
“Funding Circle applauds the Biden Administration for ending the SBA’s 40 year moratorium on licensing additional state and SBA licensed and regulated non-depository lenders thus ending its lender oligopoly in favor of competition and innovation,” said Funding Circle. “This is an opportunity for the more than 8,000 community banks and credit unions that don’t offer 7(a) loans to partner with Fintech lenders to offer affordable loans quickly in underserved communities. Congress should now focus on ensuring SBA has the resources necessary to license more than three new lenders in its SBLC program in order to increase competition and distribution of government guaranteed loans in underserved communities.”
The SBA also published new rules on April 10th that will amend various regulations governing the 7(a) and 504 loan programs.
Canada Reduces Max APR Cap From 47% to 35%
March 28, 2023
The government of Canada announced that it will be reducing the max allowable loan APR under the Criminal Code from 47% to 35%. The startling news was included in the annual federal budget report released on Tuesday as part of the nation’s initiative to “crack down on predatory lending.” It also said that it plans to consider reducing the max cap by even more in the future.
The budget report supported its decision by sharing an anecdote about a fictional single mother name Hannah. In this story, Hannah’s car breaks down and she is unable to get to work unless she comes up with $5,000 for the repairs. It’s then that a “predatory lender” tries to offer her a loan with a 46.9% interest rate, allowing her to fix her car but leaving her in a “cycle of debt.” Fortunately, due to the new APR cap that will be put in place, Hannah will be spared this fate, the government touts. Ironically, it does not consider the possible consequences of receiving no loan at all.
The proposal to reduce the max APR cap had been opposed by the Canadian Lenders Association. It issued an official statement shortly after the new rule was made public.
“This will disproportionately affect low-income Canadians – the segment of the population most at risk given their inability to qualify for credit at prime rates – who struggle to make ends meet by limiting or eliminating entirely their access to credit,” said CLA president and CEO, Gary Schwartz. “In an effort to ease the financial burden on Canadians who need it most, the federal government has achieved the opposite. If you are borrowing at non-prime, you are already facing financial challenges. For potentially millions of Canadians, that burden just got heavier today.”
Marcus Ceases Its Lending Business, Admits They Tried to Do Too Much Too Quickly
January 23, 2023
It’s the end of an era. Marcus, an online consumer lending venture launched in 2016 by Goldman Sachs, is winding down its lending business. Rumors of the shift circulated around the media last month but last week Goldman Sachs made it official.
“We started a process to cease offering new loans on the Marcus platform,” said Goldman CEO David Solomon. “We will likely allow the book to roll down naturally, although we are considering other alternatives.”
Solomon attributed the move to the firm reorganizing itself but elaborated further when pressed.
“…we tried to do too much too quickly,” Solomon said. “And of course, in the environment that we are in, it’s hard to go back when we started in that strategy 6 years ago. We obviously built the deposit business, the loan business, and we talked about a much broader platform and I think we came to the conclusion that there were some changes.”
Solomon added that in trying to do too much, it was affecting their execution and he conceded that they didn’t have “all the talent we had needed to execute the way we wanted.”
Left unsaid about Goldman’s original motivations was a desire to compete with LendingClub, who had blazed a massive trail with peer-to-peer lending and showed the world a market of potential untapped opportunity. The two firms went head-to-head against each other for consumers and LendingClub eventually ditched peers as a source of financing and later became a bank itself. The final destination for both companies brings closure to the twenty-teens where growth of an online lending business at any cost was all the rage.
Coincidentally, The Federal Reserve is now investigating Goldman Sachs’ use of appropriate safeguards in its Marcus lending division, according to the WSJ.
The Marcus online savings account product is reportedly remaining active.
Financing Fertility
January 6, 2023
Ever heard of financing in vitro fertilization? LendingPoint offers financing opportunities for IVF to help women trying to get pregnant. On average IVF can cost anywhere from $15,000 to $30,000. That’s not cheap. LendingPoint is widely known in the consumer lending space but the range of why borrowers are looking for financing is wide.
“We have some really impactful financing opportunities where we’re financing IVF programs for women to get pregnant, which is probably some of the most lovely stories that we get to hear and an impact that we get to do on someone’s life,” said Amanda Flashner, Chief Experience Officer at LendingPoint.
Different treatments have different price points and different needs. LendingPoint partners with many merchants so that they can offer their own customers what they need at the point of sale. Other types include medical, dental, and home improvement businesses, for example.
Flashner was recently appointed Chief Experience Officer (CXO) which is a new executive position for the company altogether. Advocating on behalf of their customers, she is responsible for their beginning-to-end experience, making sure it’s personalized to the customer centricity that they’re building.
“It’s a really exciting time. I like to say our customers have always been the heart of our company and they are, and our CEO (Tom Burnside) has been an incredible advocate for the customer experience practice that I helped build here from the ground up at LendingPoint, but now our customers really have a seat at that table, helping make big decisions on their behalf, so that’s really exciting.”
CXO is not commonly heard of like CFO or COO but Flashner said she does see this role becoming more important in an executive committee of other companies.
Borrower Didn’t Make Their Payment? Maybe They Just Forgot
November 18, 2022
When borrowers gets squeezed, who will they pay first? According to a survey conducted by Lexop, American respondents ranked mortgage and rent payments as having the highest priority among recurring bills. Utilities (water, electricity, and gas) came second, car loans third, phone/internet bills fourth, and personal loan payments dead last. That may not be what lenders want to hear but the information could prove helpful in preparing for an economic downturn.
Notably, a missed payment may not even be a sign of financial stress. According to the same Lexop survey, 34% of respondents stated that the primary reason they had for being late on a bill was that they simply forgot. A majority also disclosed that they were late in paying because of other non-financial issues like invoicing errors, not having access to the bill, payment method issues, and more.
These seem like addressable issues especially since 35% of respondents wanted digital reminders via text or email. Less than 10% preferred they be reminded via phone call or snail mail.
“Empowering consumers to work with collectors toward meeting their payment goals is the best way to foster healthier business-customer relationships that will ultimately result in increased debt recovery and customer retention,” said Amir Tajkarimi, Chief Executive Officer and Co-founder of Lexop, in a published statement related to the findings. Tajkarimi was a panelist on The Need for Speed in Payment & Collection at the Canadian Lenders Summit in Toronto this week. There, he explained that his firm was hyper focused on improving the collections user experience and emphasized that a missed payment is not always the result of a borrower not having the resources to pay.
The data revealed from the study is timely since 60% of respondents also shared that they were concerned about their ability to pay bills over the next 6 months.
Upstart Hit With Another Lawsuit
October 13, 2022A new lawsuit brought by a shareholder of Upstart is also being brought derivatively on behalf of Upstart. That’s because plaintiff alleges that the Directors of the company would otherwise have to sue themselves or the company’s executives for the damage caused, a highly unlikely course of action.
Plaintiff alleges the company or certain directors and executives violated Section 14(a) of the Exchange Act, breached fiduciary duties, were unjustly enriched, abused their control, grossly mismanaged the company, wasted corporate assets, and violated Section 10(b) and 21D of the Exchange Act.
Things are not exactly great in shareholder land. The company’s stock as of May 4th close was $93.57 and is now currently hovering around $24.49. The plunge began when the company released its poorly-received quarterly earnings on May 9th. For a long time, the company had asserted it was not a balance sheet lender, but a shift in economic conditions was causing that to change.
The unwelcome quarterly earnings report was coincidentally timed after Upstart CEO David Girouard had sold more than $200M worth of company stock in the previous 8 month span and co-founder and SVP Paul Gu sold $140M worth over nearly the same time period.
Then, in August, Girouard said, “In the last few months, lenders and institutional credit investors reacted more quickly and abruptly than we anticipated. Despite the fact that our bank partners have seen consistently strong credit performance, meaning portfolios performing at or above plan across quarterly cohorts, several of them have paused or reduced originations due to fear about the future of the economy.”
Plaintiff alleges that false and misleading statements allowed the stock price to be propped up while insiders sold their stock on material non-public information. The full complaint can be viewed here.
This lawsuit is separate from a securities class action filed earlier this year.
Got a Mantle, Bryant, or Mahomes Card? This Company Wants to Fund You
September 12, 2022
Last month, an anonymous bidder paid $12.6M for a 1952 mint condition Topps Mickey Mantle baseball card, the highest amount ever fetched for a piece of sports memorabilia at an auction. Understandably, the news electrified a fast growing market of collectors, traders, and financiers that predicted the next big asset class wasn’t just going to be real estate or crypto or NFTs, but physical sports trading cards.
The value of the Mantle sale came as no surprise to one budding entrepreneur in South Florida. On Instagram, he’d been talking about Mantle cards for weeks, even going so far as to hold up another ’52 Topps Mantle card to the camera to promote what his company can do, which is provide quick cash advances to owners of valuable sports cards.
The entrepreneur’s name is Edward Siegel, CEO of Card Fi. Siegel’s no stranger to the alternative finance space because he spent about a decade in the MCA industry, most recently as the founder of Bitty Advance, which he sold in 2020. Since then, Siegel returned to his roots and early passion of his youth.
“I had a background in sports cards as a collector, you know as a kid, but then in my early twenties, I was promoting card shows at malls,” Siegel said. “I was heavily into the hobby, setting up the card shows and promoting them and doing player appearances where players come in and do an autograph appearance.”
That was back in the late 80s, early 90s, according to Siegel.
When Covid hit and he exited his most recent company, he noticed a massive resurgence in the sports trading card market. His next business ultimately became Card Fi, a company that will evaluate the market value of a card and make an advance against it. There’s obviously risk involved so they take possession of the card for the duration.
“We have to get a hold of these cards and we’re responsible for them and then we vault them in our in-house bank vault,” Siegel said. The cards are stored in a highly secure climate controlled environment. Card Fi shows the vault off frequently in its Instagram videos.
Such a business requires large amounts of capital so Siegel went searching for investors, a pursuit that led him to a unique place, an Instagram Live pitch competition hosted by famed CEO and reality TV star Marcus Lemonis. Siegel entered himself in as a contestant, knowing full well that the odds of even being chosen to present his business to Lemonis were about a million-to-one.
Somehow, he was called up to pitch.
“So [businesses] went on there during the quarantine and you pitched your business,” Siegel explained. “I went on there and I pitched it […] And he understood it and he thought it made sense.”
The moment eventually led to a deal with Lemonis’ company and Card Fi was on its way.
Siegel, meanwhile, dispels the notion that the burgeoning trading card industry or his business hinges upon old vintage cards or that it’s a baseball-card-centric universe.
“If we look at it, there’s two different markets, you have the modern card market [where] I would say it’s basketball [that leads the pack],” he said. “For the vintage card market it’s baseball.”
Football is huge as well, he explained. A Patrick Mahomes rookie card, for example, an NFL Quarterback that’s still currently playing, recently fetched $861,000. There are only one of five like it in the world, the scarcity playing a major role in the value. Meanwhile, a Justin Herbert rookie card, an NFL Quarterback who’s only in his third year was already receiving bids above $1 million at the time this story was being written.
“It really depends on the card itself,” Siegel explained. “Some players might be known for having better careers but then you have cards that have more scarcity to them. Something that’s a one of one or maybe a very low populated card and a graded PSA 10 could very well be worth more than a [Michael] Jordan rookie because it has scarcity in it.”
PSA refers to cards that have been verified as authentic and graded on the condition of the card itself. Ten is the highest level a card can receive. Card Fi will only work with graded cards to avoid any funny business when it comes to advancing funds based upon the value.
Siegel explained that Card Fi’s average advance is about $40,000 – $50,000. The max right now is $500,000. There’s a big market for this type of funding it turns out because Card Fi’s much larger rival, PWCC, just raised $175 million to make similar offerings to sports card owners.
“This financing benefits the market as loans and cash advances have become an increasingly asked-for offering among trading card collectors,” said Chad Fister, PWCC’s CFO in a story that originally appeared on Sportico. “Enabling our clients to access liquidity through a menu of capital offerings is key as trading cards continue to prove themselves to be a valuable tangible asset class.”
For Card Fi, customers that take an advance can track everything through an online portal, including details about their cards, payments, and balance.
“We want to note that we built a full-service automated underwriting and collection platform to where, whether it’s the customer or the broker, they can log into our system and put the description of the card into the system and it’s going to automatically underwrite it and price it out,” Siegel said.
That description sounded like something straight out of the fintech industry of his past, especially the component about brokers.
“Just like the MCA space, we have a whole partnership side, a broker side, where brokers can refer us customers just as an affiliate where they just send the info over,” Siegel said. Similarly, they can earn a commission if a transaction is completed, he explained.
In this industry, brands like Topps, Upper Deck, and Panini have become the bread and butter for Card Fi. Even though it’s all business for Siegel these days, he couldn’t help but mention a particular card he had a personal attachment to.
“My personal favorite card in my collection is the 1965 Topps Joe Namath rookie card,” Siegel said. “Of course being a die hard New York Jets fan, that has to be my favorite card.”
