payments

How to Think About Credit Invisibility

July 29, 2021

Authored by:
Lily Cook, Researcher at Canadian Lenders Association
Tal Schwartz, Senior Advisor at Canadian Lenders Association

credit invisibleRecent research by PERC has highlighted the issue of credit invisibility in Canada, defined as “persons with either no account payment history in their credit report (referred to as “no files”) or fewer than three accounts in their credit report (referred to as “thin files);”

In Canada, credit scores are calculated using payment history, outstanding debt, credit account history, recent inquiries and types of credit. However, according to research from Cornerstone Advisors, the ‘on-ramps’ to being credit visible are limited and come with challenges. The most common paths are:

  • Credit cards:
  • In general, Canadians under 25 tend to use credit cards at far lower rates. Those in that age group who do have a credit history have the highest percentage of credit scores below 520, according to Equifax Canada.

  • Collections: Collections as a point of entry into a credit system immediately sets the consumer at a disadvantage, since the first thing to identify them is a negative characteristic.

The rate and impact of credit invisibility in Canada is significant:

  • 35.3% of Canadians are credit invisible vs. 19.3% in the US.
  • the issue disproportionately affects immigrants, minority communities or younger individuals.

How are fintechs addressing this?

1. Access to alternative data

Canadian data aggregators provide lenders with access to non-traditional credit information that advanced firms can apply ML to in order to better adjudicate credit.

  • Open banking data providers like Flinks and Inverite provide consumer transaction history information that allows fintech lenders to underwrite credit invisibles based on their cash flow instead of their credit score.
  • Commercial data providers like Forward AI, Boss and Railz pull financial data from accounting systems, payroll, and point of sale terminals in order to give lenders a more fulsome picture of a businesses health.

2. Make alternative data mainstream

PERC Canada recommended that the CFPB explicitly include non-financial institutions in their definition of a ‘creditor’ in order to report positive payment data to credit bureaus. Credit reports that could ‘reward’ customers for paying telecommunications bills on time, for example, could make the credit system more forgiving in the future.

  • Billi, for example, a Canadian fintech allows users to integrate on-time payments for their Amazon Prime and Netflix accounts into their credit reports in order to improve them.

Canadian credit bureaus have also taken active steps to being more inclusive of alternative data. A prime (no pun intended) example is Landlord Credit Bureau’s (LCB) and Equifax’s partnership to allow rent payments to count towards credit scores.

  • Both as a way to reduce risk for landlords and give tenants a leg up in the market, this shared use of alternative data is “ninety-plus per cent….positive in nature, so overwhelmingly landlords use this to reward tenants,” LCB’s CEO, Zachary Killam said.

3. Create a better on ramp to credit building

Credit building loans can unlock credit for those with minimal histories or challenging track records. These are installment loans that only pay out once the customer has paid them off, and are offered by fintechs like as Spring, Marble and Refresh.

Essentially reverse loans, the reverse structure protects the lender, in the event that the customer doesn’t make all their payments. Over the course of the loan term, the customer’s payments are reported to the credit bureaus. Borrowell, which recently acquired Refresh’s credit building loan portfolio, is now one of the largest providers of this service in Canada.

So what’s the solution?

In order to drive meaningful change on the issue of credit invisibility, fintechs must continue to enable lenders to challenge the limitations of the credit system – by improving access to alternative data, normalizing its use and building better on-ramps to the credit system than collections and credit cards.

Credit invisibility is caused largely by structural issues within Canada’s data markets, but fintechs are starting to fill these gaps.

CC Splits Still Make Profits, Payments Knowledgeable Funders Benefit

June 15, 2021
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paymentsBack in its heyday, the MCA industry began as credit card factoring. The original product was simple- purchase future credit card receivables, and collect a percentage of them every day: easy peasy. Then, the industry broadened into ACH, funding businesses that did not have credit card purchases and credit card receivables became less common.

But some funders still work with credit card payments through long-standing payment processor relationships. Cash Buoy is a Chicago-based MCA firm that uses a network of twelve major credit card processors and thousands of representatives from payments ISOs to fund old-fashioned MCAs. Co-Founder and president Sean Feighan would tell you that having connections in payments pays off for both merchants and ISOs.

THE CC MODEL STILL WORKS GREAT

“The whole point is to add value to their business. By doing split funding remittance,” Feighan said. “It’s a much more comfortable way for the merchant to pay back the advance, it gives them some breathing room on the ebbs and flows of their volume, as opposed to having that hard fixed daily ACH that doesn’t care if they were closed on Monday, are slow on Tuesday, or we’re in a global pandemic.”

Feighan attests that the CC model still works great. He said alongside co-founder Brian Batt, they started Cash Buoy to give ISOs a better option. He boasts a renewal rate of 90% on his CC products, and his default rates for standard MCAs are a “night and day difference” with CC splits.

But operating heavily within the payments realm requires some expertise, something that long-time veterans of the MCA space are fortunate to have accumulated from the era of the product’s origin.

split paymentsSteven Hunter, a multi-decade industry vet explained where the MCA concept came from. Hunter worked at CAN Capital back in 2000 when it was still was called AdvanceMe when he and the data team developed one of the first credit card factoring products.

“The idea came across to build a credit card-based product, because a lot of the original development team other than myself, were the First Data guys,” Hunter said. “And they said ‘okay well what if we could factor future sales, instead of three invoices or accounts receivable or inventory’, which we all know how to factor those things, that’s been in place since biblical times.”

So they built a model, aiming to fund merchants and take out a small amount of money from their credit card splits. Merchants would never see the money hit their bank, and the product just felt like free investing money paid for off of the increase in future sales.

When restaurants and other merchants shut down during the pandemic or rolled back to 25% capacity, many ACH funders found out their customers could not keep up with the pre-set debits. While defaults were on the rise, Cash Buoy was getting paid back, Feighan said, at an admittedly slower rate but still seeing returns.

OTHER FUNDERS MAY NOT HAVE THE RELATIONSHIPS

Feighan has intentionally shied away from ACH. Cash Buoy is modeled on his and Batts’ connections in the payments space. They founded Cash Buoy after five or six years of experience in on-boarding merchant accounts. Feighan said he tried brokering but became disappointed with the process of working with an outside funder.

“[Other firms] may not have the relationships to get split funding at national processors,” Feighan said. “Maybe they didn’t have enough business or money in the bank when they went through the application process with different processors to get true split funding accommodations.”

Hunter agreed that without payment connections it is hard to factor CCs these days. Shortly after AdvanceMe began CC splits, other firms caught up and began developing similar products, with slightly changed terms like automatic set ACH draws. Eventually, he said this made MCAs more loan-like as opposed to a real variable product.

SOME CREDIT CARD PROCESSORS ARE VERY HOSTILE TO THE PRODUCT…

In 2021, there are many reasons that firms adopt ACH right off the bat, he said.

“Well, several reasons one, not every company takes credit cards,” Hunter said. “The thing is that some credit card processors, I’m not going to name any names, are very hostile to the product and they will not actually help people. They won’t help you manage the remittance, they won’t split for you, because they consider you to be a competitor, afraid you will take a portion away.”

technologyThe final reason Hunter said is a lot less elegant. He said in order to make this work, as a direct funder, you have to exchange files with every credit card processor you work with every night on every deal you have.

“So you got to send them something out and say, populate this for us. ‘Joe’s Bait Shop, What did they do today? Today they did this much money, your split is 11%, here’s what’s coming to you,'” Hunter said. “Then you import that back into your system and Joe’s Bait Shop’s balance drops by this amount. Right, that’s hard. I mean it’s a pain in the ass to manage, and I have people who do nothing but exchange, you’ve got to have processors who work with you and you’ve got to have the expertise.”

Hunter now works as a consultant, known in the industry as a go-to for MCA funding help. As for Cash Buoy, after the pandemic year, things are only on the up and up. Covid could not have happened at a worse time right after a three-year bull run, Feighan said, but now that things are back, there are “high water funding amounts each month.”

“The biggest thing here in Cash Buoy are our partners, our ISO partners, and processors,” Feighan said. “And if anybody were to say, ‘tell me, what’s the most important thing to you, Cash Buoy,’ it is 100% Our agent partner program. That is number one. The whole point of the company was to be able to provide a ton of value to national processors and ISOs.”

SEAA: 1,000+ Attendees In Atlanta Next year, Thanks deBanked

June 8, 2021
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seaa 20211,000 people registered at the Southeast Acquirers Association 20th-anniversary conference Bonita Springs Florida: a smash hit in part due to the hybrid presentation model and deBanked’s video coverage, the executive board members of SEAA said. Treasurer John McCormick said next year in Atlanta would be even bigger, following a hybrid in-person venue with recordings and live streams that would pack over 1,000 participants in the show.

“To have our biggest show on the West Coast of Florida was really gratifying,” he said. “We registered over 1,000 and were just shy of that number with check-ins. I think we’ll [surpass that] next year in Atlanta, which will be a great celebration for our board and advisory committee.”

McCormick helped co-found the organization along with Audrey Blackmon and Judy Foster in 2001. In March, he talked with deBanked, describing the difficult choice to go back in person full capacity, a decision that turned into a major win. Derek Vowels, director of partner solutions at Aliaswire and SEAA board member, thanked Cypress Planning Group for the venue support and deBanked for helping produce the in-person and online hybrid model.

Everyone rose to the occasion, Vowels told Green Sheet, thanking Sean Murray, deBanked chief editor, publisher, and deBanked reporter Johny Fernandez, who conducted live interviews at the conference. “Attendees can view every breakout session, presentation, and popular CBD panel on the app and web portal for the rest of the calendar year,” he said. “Going forward, hybrid events that combine face-to-face meetings with recordings will be the norm.”

Alongside live streaming from the show floor on May 25th from 9 am to after 6 pm, Sean and Johny pored through interviews with industry experts.

Sam Schapiro, leader of funding application platform Fundomate, talked with Johny about the resilience of the human species, American small businesses, and funding slowdown.

Shawn Smith, the CEO of Dedicated Commercial Recovery, met with Sean to talk about the new post-covid environment in the B2B space and Florida golf.

Aviv Baron, the founder of Direct Payment Group, talked with Sean about changes in merchant spending, payment processing, cannabis, and drop shipping trends in the past year.

And automated accounts receivable fintech CEO Garima Shah talked with Johny about her firm Biller Genie, and the world opening for business after a year of covid.

deBanked is looking forward to the new year as covid restrictions lift and events come back in person.

International Payments Firm Lands $125M Series B

May 26, 2021
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paysendPaysend, a UK-based international payments processor, landed a $125 million Series B investment round led by London-based One Peak Partners. Paysend said it would use the funds to invest in its infrastructure, cutting the costs of sending funds toward a goal of $5.4 billion in savings towards customers by 2025.

Founded in 2017, The firm focuses on helping consumers and merchants send payments worldwide in any currency. To date, the firm said it had reached more than 3.7 million consumers and firms, connecting 110 countries.

“Paysend’s vision is to develop the next generation integrated global payment ecosystem for consumers and SMEs,” Paysend CEO Ronnie Millar said. “Our innovative technology is connecting 12bn cards worldwide to pay and send instantly anywhere, anyhow. Any currency – we call this Money for the Future.”

Paysend supports connections between 12 billion cards globally across Mastercard, Visa, China UnionPay, and local card schemes and provides over 40 payment methods for online SMEs. McKinsey’s 2019 Global Payments Report valued the untapped card to card international payments market at an estimated $133tn.

“We are excited by Paysend’s enormous growth potential,” Humbert de Liedekerke, a managing Partner at One Peak, said. “Paysend has built an exceptional payments platform by maintaining an unwavering focus on its customers and constantly innovating.”

SEAA Kicks Off in Florida

May 25, 2021
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More than a thousand people are attending the 20th annual SEAA conference in Bonita Springs, FL that started on Monday. The show is a staple of the payments industry.

“It’s a changing game every minute,” said SEAA board member Derek Vowels about what’s going on in payments .

The packed event has more than 90 companies exhibiting. The “Flamingo” level sponsors include American Express, IRIS CRM, Worldpay, Cardconnect, and Electronic Merchant Systems.

deBanked has been streaming live at debanked.com/tv/. Attendees are saying that it’s great to be back in person.

The May 25th Live Stream schedule is as follows:
9:00 – 10:45am,
3:00 – 4:00pm
5:00 – 6:30pm

Opening 9 minutes from May 24th:

deBanked to Livestream from the SEAA Show in Bonita Springs

May 21, 2021
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May 24th LIVE schedule: 4:45pm – 6:30pm
May 25th LIVE schedule: 9:00 – 10:45am, 3:00 – 4:00pm, 5:00 – 6:30pm

Southeast Acquirers AssociationdeBanked will be streaming live from the Southeast Acquirers Association conference on May 24th and 25th in Bonita Springs, FL. The payments show celebrating its 20th anniversary is expected to have nearly 800 people IN PERSON.

The livestream will be available at scheduled times at deBanked.com/tv/. We will be speaking with executives across the payments and small business finance industries.

PayPal Enables Purchasing With Bitcoin

March 30, 2021
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paypal buildingPayPal launched Checkout with Crypto, allowing users to use Bitcoin, Litecoin, Ethereum, or Bitcoin Cash to checkout at more than 29 million PayPal merchants.

“As the use of digital payments and digital currencies accelerates, the introduction of Checkout with Crypto continues our focus on driving mainstream adoption of cryptocurrencies,” CEO and President Dan Schulman said. “Enabling cryptocurrencies to make purchases at businesses around the world is the next chapter in driving the ubiquity and mass acceptance of digital currencies.”

The transactions will be settled in cash by PayPal automatically, and the firm said it does not plan on holding the coins and will likely sell the balance off. PayPal had previously offered to buy, sell and hold cryptocurrencies on their platform through a partnership with Paxos Trust Company.

PayPal said it added crypto purchasing to engage more customers with online merchants and make their purchasing platform more accessible.

How will the transactions be taxed? The terms and conditions state that PayPal will provide 1099 forms and report to the IRS, but “it is your responsibility to determine what taxes, if any, apply to transactions you make.”

A lot of Crypto news happened at once. Yesterday, Visa announced a USD Coin program, aiming to allow transactions to be settled through a stable coin backed by the USD.

Back in Person: Southeast Acquirers Association Going Full Speed Ahead With May 24th Event

March 18, 2021
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Southeast Acquirers AssociationWhile positive vaccine predictions began slowly peeking their head out of the media mess that was the fall of ’20, John McCormick and members of the Southeast Acquirers Association (SEAA) had a difficult choice to make: When could they begin planning for an in-person conference?

“It was probably October, November: we thought, okay, are we nuts, or should we do it,” McCormick said. “We just kept saying, well, it seems like we keep hearing good news about vaccines.”

With optimism, McCormick and the team slated a late May reopening. Their bet paid off. With vaccine success and viral loads down so far, things look clear for a return to normal this spring, especially for a payments conference in Bonita Springs, Florida. McCormick said the Hyatt Regency, also eager to reopen business, helped with the planning.

“They said ‘we really want you guys to have the show, we need the business,'” He said. “The location itself is beautiful. Tons of outdoor space, and it’s incorporated into the conference facility so people will really be able to break away and give a little more distance, have a one-on-one and not feel like they’re in a crowd.”

Watching a hackneyed, fazed reopening across the US, SEAA had to plan how to make people feel comfortable meeting, doing business no matter where they were from. Along with picking a venue with 26 acres of property to spread out, they decided to use a color-coated sticker system. Red for “keep your distance,” Yellow for “proceed with caution”, Green for “let’s chat,” and purple for “vaccinated.” Hotel staff will also, of course, be tested and carefully managing the food and distancing.

Their sister events company, the NEAA, had to postpone the planned April show in Philadelphia, but as we know, Florida is open for business.

McCormick is a Founder and board member of (SEAA) and has been active in the payments industry since 1995. Like many events companies, he said, SEAA held a virtual conference last year. While the presentations and education sessions were great, the in-person networking and POS demonstrations a vendor could expect from the conference hall experience were just not up to par.

This year, he said his team is focusing everything toward putting on a safe, “back-to-business with caution” show that is seeing unprecedented interest from firms and industry members excited to, well, shake hands again. If guests are still not ready to meet in person, the big presentations will be streamed to the SEAA site and built into a catalog.

So how many people are attending? McCormick said he’s not sure how many will show up to the Hyatt on May 24th but that the registration numbers ten weeks out are already better than in previous years.

“When we first started, we thought we normally get between 800 and 1,000 people, and we thought you if we can get 600, that would be a success,” McCormick said. “I’d feel great about that, and I think we’re going to hit that number. The interest is there.”

He said the interesting part is that larger firms generally involved in conferences were more cautious this year. A smaller firm with one to 20 people is more likely to say, “Okay, whoever feels comfortable, if you’ve been vaccinated, go ahead and go.” But it’s the larger companies that have called and said, look, we’d love to be there, but we have to wade through legal and manage to approve it.

Still, larger partners this year are excited to sponsor the event, happy to send support for a conference-leading the way back open. McCormick said he’d seen some innovative ways firms are trying to bring their products to the conference platform, like scannable QR codes for video demonstrations. The pandemic has brought virtual innovation, but many people, McCormick said, are excited to return to normal.

“You know, we’re getting awfully close. I really feel like we’re getting there,” McCormick said. “This is the hardest time because you feel it, you can see the light at the end of the tunnel, but if we can just hang on and be responsible for a couple more months, we’ll get there. That’s gonna be sort of the challenge: to remind people, ‘man, we’re all excited, let’s still grab a drink and keep six feet apart.'”