Leads vs. Data: Do You Know What You’re Buying?

One important aspect of being a broker is your ability to generate qualified leads. At the core of a broker’s business, he/she is really just a lead generator for their network of funders, functioning as a way to improve their funder’s profitability through the acquisition of new clientele.

While I once questioned if brokers truly knew what they were selling when it came to the merchant cash advance product, my next question is in relation to the purchase of what vendors refer to as “Leads.” I want to know, do you (as a broker) know what you’re buying?

While it’s apparent that you can produce qualified leads internally, can you truly produce the same externally? With the various companies that pop up (seemingly overnight) without domain names, without professionally designed websites or with just the use of a Gmail/Yahoo Email Address, can you truly trust the claims that most of them make in terms of their ability to sell you qualified leads? Maybe so, maybe not, but I believe if we begin with the proper connotation of a “lead” vs. a “data record”, then it might help to truly determine what you’re purchasing from these external sources.

WHAT IS DATA?

Data is business intelligence, which is either generic or specialized information on a business or a group of businesses that are within a sales professional’s generic target market. It would be up to the sales professional to take this data, turn it into a sales pipeline (leads), convert a percentage of those pipeline listings into application submissions, and a portion of those applications into funded deals. Data can come in the form of generic listings such as those from the Yellow Pages or specialized listings such as those from court houses, financing requests and UCC records.

So for example, a UCC record is a data record, not a lead. You would buy let’s say 2,000 UCC records and after running through them via a predictive dialer internally, you might filter off 130 interested prospects which creates your sales pipeline, which is what you would now call “leads.” Then through following up on those 130 interested prospects, you might convert let’s say 20 – 30 of them into application submissions and fund 6 – 9 of them.

WHAT IS A LEAD?

A lead is an actual interested prospect in the services/products that you specifically have to offer. This means they have seen your specific ad or marketing piece, and have specifically expressed interest in what you have to offer. These can only be generated in-house through:

• Running through Data Records as explained above.
• Using other forms of direct marketing such as mailers, email marketing and through directly contracted referral sources who resell your product/company.
• Using indirect marketing options such as banner ads, radio ads, TV ads, print ads, billboard ads, SEO related concepts, and Pay-Per-Click, where the prospect will see or hear the ad and respond to you directly through filling out a form, giving you a call, shooting you an email, etc.

I firmly do not believe you can purchase Leads externally, I believe they can only be generated in-house using direct or in-direct marketing procedures listed above.

HOW TO ADDRESS LEAD GENERATION COMPANIES?

So when a company comes to you selling “leads,” you should ask them are they selling “leads” or are they selling “data” records? Because they can only be selling YOU leads if they have specifically marketed your specific company and products to said generic target market, and generated interested parties to your specific company and products.

So what about companies that generate what they deem to be “leads” for the “service” that you offer in a generic fashion? For example, people that sell insurance would see people selling insurance Leads, people that sell equipment leasing will see people selling equipment leasing leads, and of course people that sell merchant cash advance will see people selling merchant cash advance leads.

I am still of the belief that these are not leads, but data records, it’s just a different type of data record similar to that of a UCC. A UCC is a more specialized type of data record that tells you more in-depth information on the current situation of the prospect in particular, such as the fact that they took out a cash advance on XYZ date with XYZ funder. This is more specialization than let’s just say a basic Yellow Pages listing, which just has the company’s name, address and telephone number. But both the UCC record and the Yellow Pages listing are still data records.

The “product specific leads” that are sold are usually just a listing of individuals who filled out various online forms requesting some type of particular product, service or financing vehicle. In my opinion, these are not leads, but still data records that will list only the generic information on the company and the date/time they requested more information “generically” on the product or service in particular.

You (as the broker) still have to call these leads and sell them on your company, your product, your pricing, your platform, etc. This means similar to UCC records, if you get 2,000 of these records, you might only convert 130 to interested prospects, which would now be the official “leads.” Then of course from there through following up on those 130 interested prospects, you might convert let’s say 20 – 30 of them into application submissions and fund 6 – 9 of them.

HOPEFULLY NO ONE IS OFFENDED

This article might offend some individuals who are in the “Lead Generation” business, but I explicitly want to state that my intention is not to cause distress. I firmly believe that the vast majority of the time, when one is purchasing “leads” from an external source, they are indeed only purchasing data records. As a result, such disclosure should be made and such pricing structures modified.

The purpose of this article is so that brokers can know what they are purchasing ahead of time, to make sure that the price they’re paying fits their ROI analysis.

The last thing any vendor would want (in my opinion) is to have a bunch of angry online reviews from brokers who paid $3.00 a piece for your 2,000 “leads,” that only converted to 130 truly interested parties, and then only produced 20 – 30 completed application submissions.

FinSight Acquires Stake in Fundry, Yellowstone Capital’s Parent Company

Though neither company has made an announcement, deBanked has learned that FinSight Ventures, a venture capital firm that was a late stage investor in Lending Club, has acquired a stake in NY-based Fundry. As reported last week, Fundry is the newly formed parent company of Yellowstone Capital and Green Capital. Combined, they have originated more than $1 billion in small business funding since inception.

It was a small piece of equity, a single digit percentage share of ownership, said a source with knowledge of the transaction. In return, Fundry reportedly got a big boost in their valuation, though we were unable to ascertain a figure.

FinSight participated in Lending Club’s $125 million equity round back in May of 2013 that gave the company a $1.55 billion valuation and put them on track for an IPO. They were part of another equity round with Lending Club in April, 2014.

The transaction with Fundry is a nod to the industry that merchant cash advances have a lot more room to grow and perhaps a signal that Fundry is also on some kind of track.

Federal Reserve Governor Lael Brainard Speaks About Alternative Lenders

Federal Reserve Governor Lael Brainard gave the September 30th closing keynote address at the Community Banking in the 21st Century 2015 Conference and here are some of the highlights of what she had to say about online lenders and merchant cash advances:

The data that are available suggest that the various types of online alternative lenders have captured a small but rapidly growing share of lending since the financial crisis. In aggregate, the outstanding portfolio balances of these lenders have doubled every year since the mid-2000s. It is estimated that online alternative lenders originated $12 billion in 2014, with unsecured consumer loans representing $7 billion and small business loans accounting for approximately $5 billion.13 While this amount represents only a small fraction of U.S. unsecured consumer and small business lending overall, the rate of growth is notable.

Although rates vary by platform and borrower characteristics, when taking into account origination fees and repayment periods, the average annual cost of borrowing, or APR, associated with loans and credit products offered by online alternative small business lenders tend to be higher than those associated with traditional bank products. Reports suggest that some borrowers are willing to pay a higher price in exchange for an easy application process, a quick decision, and rapid availability of funds.

While some see online alternative lenders as a disruptive threat to traditional lenders, banks increasingly are finding ways to partner with online alternative lenders, including through loan purchases and referral agreements. Loan purchases by community banks of loans originated by online alternative lenders have been focused on unsecured consumer debt. As the percentage of unsecured consumer debt outstanding held by community banks has been declining in recent years, several banks have partnered with online alternative lenders to grow and diversify their portfolios of unsecured consumer debt.

In contrast to the consumer loan activity, the small business partnerships that have developed so far are largely fee-based referral partnerships. In these partnerships, banks refer to online alternative lenders some of their small business customers who are usually seeking loan amounts that the referring banks may see as too costly to underwrite and service, particularly in the size range below $100,000.

Across the Federal Reserve System, we are actively following developments in the alternative online lending space and have engaged with several alternative online lenders over the past few years to learn more about the industry, the technology, and the business models as well as engaging with bankers to understand how these developments are affecting their markets.Most recently, several alternative lenders have participated in events where we have joined with community development finance experts to discuss ways to adopt platform lending technology to better serve low- and moderate-income borrowers and small business owners.

We want to better understand the opportunities presented by technological advances that may bring new data to bear and help lenders make available credit to a more diverse set of small business borrowers. In some cases, partnerships between community banks and online platforms may help expand access to credit for consumers and small businesses, and help banks retain and grow their customer base.

As regulators, we also want to help the various stakeholders anticipate and carefully manage the associated risks. Of course, third-party and vendor risks are factors that banks should always take into account when introducing new products and services. Taking the time to identify and mitigate risks is a prudent step that banks can take to avoid unintended consequences when entering into partnership agreements with alternative online lenders. In addition, banks should consider whether the partnerships provide new opportunities to diversify their portfolios if they are purchasing loans, and whether the partnerships provide opportunities to offer new products that are a good strategic fit for their bank and their customers.

It is also important for banks to carefully consider regulatory compliance. When purchasing consumer loans originated by online alternative lenders, banks should examine whether fair lending or unfair or deceptive acts or practices issues result from the origination and underwriting methods used by online alternative lenders. To the extent that the underlying algorithms used for credit decisionmaking use nontraditional data sources, it will be important to ensure that this does not lead to disparate treatment or have a disparate impact on a prohibited basis.

Aside from these risks, banks should consider a variety of others, including the implications of credit risk stemming from the purchase of loans and reputational risk if referrals to online alternative lending platforms end badly.

The risks I have described so far have primarily been from the perspective of banks considering partnerships with online alternative lenders. Another important set of concerns are focused on the small business borrowers who may be considering online alternative loans. Some have raised concerns about the high APRs associated with some online alternative lending products. Others have raised concerns about the risk that some small business borrowers may have difficulty fully understanding the terms of the various loan products or the risk of becoming trapped in layered debt that poses risks to the survival of their businesses. Some industry participants have recently proposed that online lenders follow a voluntary set of guidelines designed to standardize best practices and mitigate these risks. It is too soon to determine whether such efforts of industry participants to self-police will be sufficient. Even with these efforts, some have suggested a need for regulators to take a more active role in defining and enforcing standards that apply more broadly in this sector.

You can read the entirety of her speech here

The Bad Merchant Database is Free, But Not the One You’re Thinking Of

Now you can find out if merchant cash advance and business loan applicants have engaged in suspicious activity with other funders for FREE.

For years, the only way to access such a database was through the Small Business Finance Association (SBFA but formerly known as NAMAA) and doing that hasn’t exactly been cheap or easy. As the SBFA describes itself as a not-for-profit trade association representing organizations in the United States and Canada, acceptance comes with adherence to certain trade association rules and fees often too high for smaller companies.

Just about every merchant cash advance company is aware of the SBFA’s shared database of bad actor merchants. It’s widely viewed as the biggest benefit to being an association member. It’s exclusive, almost too exclusive, many would say.

Enter DataMerch, the startup that’s disrupting it all by making the system open to funders… for FREE. Founded by merchant cash advance veterans, the company’s co-founders have replicated a product that the industry loved, but many could not afford or be accepted into.

deBanked has learned that DataMerch already has an active community of funding companies submitting suspicious merchant activity to the database.

Naturally, DataMerch’s tech-based platform made it a suitable fit to integrate the deBanked’s news feed into its member dashboard. The companies announced completion of the integration earlier this morning.

To sign up for DataMerch, contact support@datamerch.com