Online Lending
Prashant Fuloria Explains Why Fundbox Has Been Successful in 2020
September 28, 2020
When Prashant Fuloria joined Fundbox as Chief Operations Officer in 2016, the San Franciscan firm was a three-year-old startup with less than eighty employees. By the time Fuloria moved into the office of CEO this July, the small business credit and invoice financing company had grown exponentially, with more than $430 million in raised capital to date and triple the number of employees.
At the height of the pandemic, many firms halted funding or shuttered their doors for good. Meanwhile Fundbox kept lending, and outperformed the market, Fuloria said.
“It’s become very clear to us that we have greatly outperformed the market,” Fuloria said. “In terms of delivering value to customers, and also in terms of our business performance.”
In the toughest weeks of the pandemic, he said that Fundbox’s loan delinquency rose to 8-9%, up from a “low single-digit number” pre-pandemic. In comparison, the industry standard according to Fuloria, was a delinquency rate of 30-40%, including from larger firms and more traditional lenders like big banks.
“I think we’ve performed extremely well during COVID; the numbers just validate the investment we’ve made, especially in data,” Fuloria said. “That puts us in a very good position because a number of folks have exited the market and the need, the demand has not gone away.”
The number one thing you can do to perform well in a recession is to have a strong business going into it, Fuloria explained. Fundbox attributes part of its strength to its data. Nearly a fourth of Fundbox’s capital goes toward data assets, Fuloria said.
“If you add it all up, we’ve invested a little over $100 million in our data asset,” Fuloria said. “It’s a big investment for anybody- particularly a big investment for a mid-sized company.”
Fuloria said this money goes toward collecting customer information, which is processed by in-house tech and a talented team of engineers who can turn data into valuable information for serving SMBs.
“Small businesses,” Fuloria said, “they have the complexity of enterprises but the scale of consumers.”
Coming from twenty years of tech and product managerial experience at firms like Google, Facebook, and Yahoo, Fuloria knows a thing or two about scale. He said he found his roots at Google, working when it was just a small team- by the time he left six and a half years later, Google had 35,000 employees.
When it came to joining Fundbox in 2016, Fuloria said he was attracted by the company’s mission, the talented team there, and how in just three years, the small firm had demonstrated how it could help SMBs.
“Fundbox as a company said ‘We are a financial services platform that is powering the small business economy with new credit and payment solutions,'” Fuloria said. “And that mission was very strong: it made sense to me, and it resonated with me.”
Nav CEO Talks About Platform Enhancements
September 28, 2020
“Our news is really about improving and enhancing our platform to use real-time business data to uncover and align qualifications for small business owners to the best financing options available to them,” said Nav CEO Greg Ott about a recent announcement.
Nav is a small business information service that connects borrowers to lenders across the entire finance industry, from SBA loans, major credit cards, to nonbank lenders, and more. This new enhancement streamlines the finance process for both sides of the transaction, Ott explained.
“Historically, the model is inverted disproportionately against the small business owner, in that they can’t see what they’re qualified for until after they apply,” Ott said. “By using real-time business analysis and dynamic financing profiles, Nav is the only place that can show them what they can qualify for before they apply.”
Nav is also adding a new service team that connects to small businesses through the digital platform, offering a more personalized experience; someone will be on the line to help borrowers find their way. The platform uses cash flow, revenue, credit, and behavioral data to match SMBs with loan offers.
Nav is expanding its service because Ott said this year, many businesses could not find financing at all. Nav began helping customers find lenders for PPP loans, facilitating 70k applications in all and built an online community of 18k businesses going through the process this year alone.
Ott said it became clear during the rounds of PPP and government stimulus that banks gave preferential treatment to some of their customers and left out small businesses.
“Many banking options aren’t available to the vast majority of small businesses,” Ott said. “The traditional financial system is not always available or not the best option for a small business owner. Small business owners know this in spades, It’s just now that in the growth of this fintech ecosystem that it’s becoming clear how big that addressable market is.”
OLA CEO Mary Jackson: Colorado True Lender Bad for Borrowers
September 21, 2020
Last month, the Colorado Attorney General’s office announced a settlement with Avant and Marlette Funding, setting a precedent for how “true lender” cases will be handled. The fintech lenders and their partners are free to lend in the state, subject to a lot of restrictions, as long as they stick below the 36% APR level.
Some touted the decision as a safeguard for fintech bank partnerships. Still, many, like those represented in the Online Lenders Alliance (OLA)- saw misplaced regulation that harms borrowers more than it helps.
Mary Jackson, CEO of OLA, said that while well-meaning, the 36% rule arbitrarily limits the ability for non-prime credit customers to get a loan at all. The limit draws an arbitrary line in the sand, based on an outdated centuries-old lending system, and doesn’t describe loans that last shorter than a year very well, Jackson said.
“What it did was drive out all the lenders,” Jackson said. “Non-prime consumers have fewer choices. They have to go and be subject to fraud or more unscrupulous lenders, or they have to go back to overdraft as another option.”
Jackson represents a group of lenders that offer online services, which regularly partner with banks to provide loans nationwide at higher APR rates than some states allow. Jackson said these are not fintech “rent-a-bank” cases to skirt state regulations, but natural partnerships that enable larger institutions to gain the tech and talent of leading tech companies to reach a greater customer base.
“Big banks cannot keep up with the technology that fintech providers have developed,” Jackson said. “A key US bank has a lot of data scientists that they employ, but if you’re a regional or smaller bank, you don’t have that capability: it’s nearly impossible to drive an IT team as a banker.”
Jackson said that when her firm Cash America, that offered storefront cash advances, was bought by online lender CashNetUSA, she saw the differences between in-person transactions and the IT teams necessary for online lending. “It’s like two different worlds, two different ways of looking at something.”
“Our lenders are sophisticated like Enova, Elevate, CURO, Access Financial,” Jackson said. “These are companies that employ hundreds of data scientists that compete for jobs with Google in Chicago and a small regional bank can’t keep up.”
Fintech talent is helping to reach the 42% of Americans that have non-prime credit scores- FICO scores below 680, according to the Domestic Policy Caucus.
Jackson said these customers, many of whom can pay for loans, have almost no options. Jackson sees many of her partner companies offering a “pathway to prime” service, empowering customers to rehabilitate their credit.
“Most of these people are non-banking customers, these folks have damaged or thin file credit,” Jackson said. “Most banks don’t service that customer, except for overdraft- a 35$ fee for lack of money in their account- I think bankers want to be able to offer longer-term installment loans.”
Jackson said research backs up her claims, pointing to a 2018 US Treasury report that discussed how banks would have to rely on fintech partnerships to innovate and drive product change. That’s what is finally happening, Jackson said.
She also pointed to a 2017 study into the effects of the 2006 Military Lending Act. The act intended to protect military families from lending products with an APR above 36%. The study out of West Point found that the limit only hurt military members, some of which lost their security clearances when their credit fell too low.
“We find virtually no statistically or economically significant evidence of any adverse effects of payday lending access on credit and labor outcomes. In a few cases, we find suggestive evidence of the positive impacts of access. For example, our second survey suggests that a 1 standard deviation increase in the fraction of time spent in a payday loan access state decreases the probability of being involuntarily separated from the Army by 10%”
Not only was there no harm done, but the paper argues on behalf of payday lending as a healthy way to maintain the credit necessary to keep a military job.
She sees similarities in the legal fight over the creation of interstate credit card laws in the 50s and 60s, saying it used to be the case that consumers had to use a texas-based or California based card. The country had to decide how interstate credit worked then, and with the induction of new technology to loans today, the same question is being asked.
The majority of Jackson’s clients offer products above the 36% limit, in the 100 to 175% APR range. She said that looks high, but consumers are looking at it on a monthly basis, and most of them pay it off early.
“These fintech partnerships allow the bank to offer one rate to everybody across the United States,” Jackson said. “We feel that really adds more democracy to credit, making sure that those who’ve been left out of banking have a shot at it.”
LendingClub’s Loan Originations Dropped By 90% in Q2
August 4, 2020LendingClub’s Q2 financials revealed that the company loaned $325.8M for the quarter, down 90% year-over-year. The company also recorded a net loss of $78.5M.
“In the current challenging environment, we have remained focused on the things we can control and are successfully executing against our strategic priorities,” CEO Scott Sanborn commented. “We are pleased with our ability to maintain strong levels of liquidity, are encouraged by the payment behavior of our members and the resilience of the loan portfolio and remain focused on the acquisition of Radius Bank.”
The company had $338M in the bank at quarter-end, up from the $244M in the bank at year-end 2019.
The Shakeup’s Impact on Stock Prices
July 15, 2020
Lending Club Sheds 460 Employees
April 21, 2020In response to changing economic conditions, Lending Club announced that it has put a plan in place that will reduce its workforce by 460 employees.
That comes in addition to temporary reduced salaries for the company’s top executives including CEO Scott Sanborn who agreed to a 30% cut in his base compensation.
The company’s stock closed $7.39 on Tuesday, up from its April 3rd all-time low of $6.85.
The PPP Application for Fintech Lenders is HERE
April 8, 2020The SBA finally released an individual PPP lender application for Non-Bank and Non-Insured Depository Institution Lenders on Wednesday.
Note that it doesn’t actually say “fintech” anywhere on it but that’s because fintech is a colloquial term. This Non-bank designation and the requirements therein are similar to the SBA guidance published on April 3rd that was widely believed to encompass fintech lenders.
Views from the Small Business Finance Industry, March 27
March 27, 2020
As the coronavirus pandemic continues to disrupt the economy and affect small businesses as well as funders, deBanked will keep up with how various figures from the alternative finance sector are managing under the stresses of covid-19. Ranging from funders, to brokers, to those figures on the periphery of the industry, this series aims to highlight a variety of voices and we encourage you to reach out to deBanked to discuss how your business is doing.
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One such voice this week was Shawn Smith, CEO of Dedicated Commercial Recovery. Specializing in debt recovery and legal enforcement, Smith told deBanked that his business has already seen a jump in demand, but that he reckons, for now, most demand will be for modifications on existing deals. According to Smith, many of his clients have explained to him that merchants have been requesting changes to the terms of the financing, either by tweaking the rates or length of repayment.
“Just in two weeks we can see an uptick, but by and large, it hasn’t majorly spiked. I think it’s spiking with the funders or the creditors right now. And we’ll be next on that … a major thing I’m hearing is a dramatic increase in inbound calls to our clients for modifications.”
In Smith’s view, this back and forth between merchants and funders is a better scenario than the alternative, making clear that honest communication is necessary in a crisis like this.
“Hopefully everybody’s working together through this, which does seem to be the case right now. I honestly think we’re past the point of some people calling this a hoax, or it’s not to be taken seriously. And I’m seeing a lot of rallying around the idea of ‘we’re in this together even though we can’t stand next to each other.’ A kind of American spirit of we’re going to beat this, we’re going to get through it.”
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For Idea Financial, the idea of working together has manifested, just as it has for many companies across the world, digitally. CEO Justin Leto and President Larry Bassuk explained to deBanked that since their entire company is working remotely, the communication app Slack has stepped in for continual conversation between employees and Zoom is being used to check in with the team multiple times throughout the day.
“In many ways, our teams interact more now than they did when they were in the office together. We hold competitions, share personal stories, and really support one another. At Idea, the sentiment that we feel is that everyone appreciated each other more now than before, and we all look forward to seeing each other again in person soon.”
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On Thursday, industry leaders took part in a webinar hosted by LendIt Co-Founder and Chairman Peter Renton. Various subjects relating to Covid-19 were up for discussion by Lendio’s Brock Blake, Kabbage’s Kathryn Petralia, and Luz Urrutia of Opportunity Fund, with the $2 trillion government bill being foremost among them.
Blake, who had been in touch with Senators Romney and Rubio, explained that most small businesses will be eligible for a loan out of the $350 billion fund that would be allotted to the SBA under the $2 trillion bill, saying that “a tsunami of loan applications is coming because almost all small business owners in America will qualify for this product.” The Lendio CEO also noted that business can expect to pay an interest rate of 3.75% on these loans, only a portion of each individual loan may be forgivable, and the max amount loaned out will be two and a half times the business’s monthly payroll, rent, and utilities combined.
Beyond the specifics of the 7(a) loan program, Blake expressed concern over the SBA’s bandwidth, saying that he was unsure whether or not the organization and the banks that it will partner with to deliver these loans will have the capacity to process them, a point echoed by Urrutia. “We’re talking about businesses that are going to need a ton of support,” the Opportunity Fund CEO said. “With these programs, the money doesn’t really get down to the bottom of the pyramid.”
Collectively, the group hoped that the SBA would open up their channels and allow non-bank lenders to use some of the $350 billion to fund small businesses, citing that neither government agencies nor banks have the technology nor processes to hastily deal with the amount of applications that will come. In other words, the SBA is working with “dinosaur technology,” as Blake called it.
One point of concern that continually arose during the conversation was the situation lenders will find themselves in as the pandemic continues. With Blake saying that an estimated 50% of non-bank lenders on his platform have hit the pause button on new loans, each of the other participants expressed worry about lenders being wiped off the map during and in the aftermath of this crisis.
As well as this, Petralia explained that funders can expect to encounter increased rates of fraud during this time: “In times like this, the bad guys come out in force … criminals are very creative and smart, so I promise you they’ll come up with new ways to fraud the system.” Discussing how they are dealing with this, the group mentioned that they were incorporating additional revenue and cash balance checks, as well as social media checks to see whether the business announced that it had closed due to the coronavirus.
Altogether, the conversation was one of uncertainty, but also one of hope to keep the wheels of the industry turning as more and more small business owners look for financing to keep their payroll flowing. As Renton said closing the session, “This is our time to shine, this is fintech’s time to show what it’s been working on for the last decade.”
