A Q4 To Remember – A Timeline
December 18, 2016In case you haven’t noticed, it’s been an interesting few months for alternative finance. The below timeline is an expanded version of what appears in the print version of our Nov/Dec magazine issue.
9/27 Able Lending secured $100 million in debt financing
9/30 The FTC won a judgement of $1.3 billion against payday loan kingpin Scott Tucker, its largest ever award through litigation
10/11 The United States Court of Appeals for The District of Columbia ruled the CFPB’s organizational structure unconstitutional. To remedy, the agency will either have to convert its one-person directorship to a multi-member commission or the director will have to report to the President of the United States. The CFPB is appealing the decision.
10/13 Affirm secured $100 million in debt financing
10/14
- CircleBack Lending was reported to have ceased lending operations
- Goldman Sachs unveiled its new online consumer lending division, Marcus
10/20 CommonBond secured a $168 million securitization deal
10/24 Bizfi announced that John Donovan had joined the company as CEO. Donovan was the COO of Lending Club from 2007 to 2012.
10/25
- Expansion Capital Group announced new management team. Vincent Ney, the company’s majority shareholder became the CEO
- Lendio raised $20 million through a new equity round led by Comcast Ventures and Stereo Capital
- Lending Club announced its foray into the $1 trillion auto refinancing market
11/1
- Cross River Bank raised $28 million in equity led by Boston-based investment firm Battery Ventures along with Silicon Valley venture capital firms Andreessen Horowitz and Ribbit Capital
- Square beat earnings estimates and extended $208 million through 35,000 loans in Q3
11/3
- OnDeck announced earnings, continued use of balance sheet to fund loans and extended $613 million in Q3
- Independent merchant cash advance training course goes live, allowing brokers and underwriters to earn a certificate
11/4 SEC concluded its investigation into Lending Club
11/7 Lending Club announced earnings and a deal to sell $1.3 billion worth of loans to a National Bank of Canada subsidiary
11/8 CFG Merchant Solutions secured a $4 million revolving line of credit
11/9 Donald Trump became the President-Elect
11/11
- Fintech leader Peter Thiel joins the executive committee of Trump’s transition team
- Kabbage appointed Amala Duggirala as Chief Technology Officer and Rama Rao as Chief Data Officer
11/14 Prosper’s CEO Aaron Vermut, stepped down
11/16
- UK-based p2p lender Zopa applied for a banking license
- Small business lender Dealstruck reportedly ceases lending operations
- Former Lending Club CEO revealed to be launching a new rival, Credify
11/17
- LiftForward secured a $100 million credit facility
- Prosper filed their Q3 10-Q, revealing that they only originated $311.8 million in loans for the quarter compared to $445 million in Q2
- The IRS sent a broad request to Coinbase, the nation’s largest bitcoin exchange, as part of a hunt for tax evaders
- PeerStreet raised a $15 million Series A funding round led by Andreessen Horowitz
11/18 P2Bi raised $7.7 million in venture financing
11/22 LendIt announced the first ever industry awards event
11/29 Three C-level executives at CAN Capital are placed on a leave of absence after the company identified assets that were not performing as expected
12/2
- Total Merchant Resources secures $20 million in private equity, launches wholesale funding division
- Bitcoin-based P2P lending platform BitLendingClub shuts down
- OCC announces they are moving forward with a special purpose national charter for fintech companies
12/8 Former CEO and co-founder of World Wrestling Entertainment tapped to run Small Business Administration
12/9 OnDeck announced new $200 million revolving credit facility with Credit Suisse
12/12 Knight Capital Funding announced new Chief Data Scientist
12/13 Fifth Third Bank is reported to buy a stake in franchise marketplace lender ApplePie Capital
12/14 BlueVine raised $49 million in Series D funding
12/15
- Swift Capital named Tim Naughton as Chief Legal Officer
- John MacIlwaine, Lending Club’s Chief Technology officer, submitted his resignation to the company to pursue another opportunity
12/16 CAN Capital is reported to have laid off more than 100 employees
The Art of The ‘Thiel’ – With Fintech Leader On Trump’s Transition Team, Alternative Lenders Could Benefit
November 13, 2016
Peter Thiel is famous for a lot of things, co-founding PayPal, backing Hulk Hogan’s lawsuit against Gawker and being a billionaire venture capitalist, just to name a few. Accustomed to shaking up Silicon Valley with his investments and antics, these days Thiel stands to impart his wisdom on another region, Washington DC. That’s because last week he became part of the Executive Committee of President-Elect Trump’s transition team.
After speaking at the 2016 Republican National Convention and donating $1.25 million towards Trump’s election efforts, his allegiance to the campaign should come as no surprise. His support is said to be genuine too, and that’s perhaps because the two have relied on similar rhetoric to make their points.
“Competition is For Losers”
Who said that quote? If you thought Donald Trump, you’re wrong, but you wouldn’t be blamed for thinking that given that so much of Trump’s mantra was focused on America “winning.” Competition is For Losers is the title of a 2014 Wall Street Journal essay penned by Thiel, that argued a perfectly competitive marketplace, an economic utopia, is flawed. “In business, equilibrium means stasis, and stasis means death,” he wrote. Entrepreneurs should instead strive for a monopoly, to win, he explained.
Winning is certainly something Thiel has done a lot of, making him a role model of the Trump credo.
“I think they should be described as terrorists, not as writers or reporters.”
Who said that quote? If you thought Donald Trump, you’re wrong, but you wouldn’t be blamed for thinking that given Trump’s hostility towards the media. Thiel said that in 2009 about Gawker reporters, and he bottled up that disdain and unleashed it in the form of financial support for Hulk Hogan against Gawker in a lawsuit years later, the force of which crippled Gawker and put the company into bankruptcy. It’s a revenge narrative that sounds oddly Trumpesque.
While there are likely more contrasts between the two men than similarities like these, both share a special penchant for winning. And more to the point, in a Trump presidency, Thiel may have his ear.
That should be welcome news to fintech and alternative lenders, given Thiel’s strong financial interest in that sector. Small business lender OnDeck has already experienced a 43% increase in its stock price since Trump was announced the winner. Enova, which bought merchant cash advance firm The Business Backer, is up 13%. That’s no doubt in part a result of Trump’s campaign promises to put a moratorium on financial regulations and recent pledge to dismantle the Dodd-Frank Act.
But with Thiel, his ties to alternative lending and fintech were made evident when he gave the keynote speech at LendIt earlier this year in San Francisco, in which he colorfully reiterated his theory about competition being a losing endeavor. “If you want to compete like crazy, you should just leave the conference and try to open a restaurant in San Francisco,” he said.
Thiel participated in SoFi’s $80 Million Series C round and Avant’s $225 million Series D round. “There are a lot of banks in the United States, but not enough access to credit,” he said in an announcement for the latter at the time.
He also participated in ZestFinance’s Series C round and both OnDeck’s D and E rounds.
And more recently, his VC fund, Founder’s Fund, led the $100 million Series D round of Affirm. The fund has also invested in Able Lending, BitPay and Upstart.
Last month, Phin Upham, a principal of Thiel Capital, another of Thiel’s investment firms, dismissed Goldman Sachs’ recent attempt to cash in on tech-based lending. “I wonder if Goldman will actually be able to keep up, because this is not a mature industry, everything changes sometimes within months.”
The NY Times reported that Thiel will not be moving to Washington and may not have a formal role in the administration, but that he will have a voice.
“A page in the book of history has turned, and there is an opening to think about some of our problems from a new perspective,” the Times reported Thiel saying. “I’ll try to help the president in any way I can.”
If truly given the opportunity to do so, Thiel’s influence could be a boon to fintech and the larger economy as a whole.
At the Money2020 conference last month, Trump was largely and quite openly derided by industry leaders. They may soon be changing their tune.
Other members of the Executive Committee of the transition team include:
- Congressman Lou Barletta
- Congresswoman Marsha Blackburn
- Florida Attorney General Pam Bondi
- Congressman Chris Collins
- Jared Kushner
- Congressman Tom Marino
- Rebekah Mercer
- Steven Mnuchin
- Congressman Devin Nunesv
- Anthony Scaramucci
- Donald Trump Jr.
- Eric Trump
- Ivanka Trump
- RNC Chairman Reince Priebus
- Trump Campaign CEO Stephen K. Bannon
It is quite possible that we may soon be making fintech ‘Great Again’
A Glimpse into Square Capital’s Marketing
October 20, 2016As a merchant, Square has marketed their Square Capital program to me before. But this is the first time I’ve received direct mail marketing from them. Here’s a snapshot of what that looks like:
To view the potential offers, merchants are directed to log in to their Square accounts where they will see multiple terms. Even though their particular product is a loan made possible through Celtic Bank, all of the proposed loan offers are presented using the Total Cost of Capital method. That means cost is disclosed as a precise dollar amount so that potential borrowers will know exactly how much they will have to pay. Several studies have indicated that this is the easiest to understand, though it has been subject to some debate.
“There are no ongoing interest charges for your loan, only the one-time upfront fee that is listed as a dollar amount,” the Square Capital FAQ page states. “The total cost of the loan is a fixed fee and the total amount owed never changes.”
One of the defining features that makes Square Capital’s loan product different from a merchant cash advance or a purchase of future sales, is that Square enforces a fixed 18 month term. “If the loan hasn’t been repaid in full at the end of 18 months, the remaining loan balance will be due in full,” they state. That is completely unlike a purchase transaction in which there is no deadline or term. Even MCA purchase transactions that stipulate fixed daily payments do not actually have fixed terms. That’s usually because if a merchant’s sales activity rises or falls, they have the contractual right to request an adjustment to those payments to effectuate the basis of the agreement, that future sales be delivered in accordance with the unpredictable ebb and flow of business. That makes the date in which delivery will be satisfied in full unknowable. It’s that unknowable that can cause MCA transactions to be more expensive than their loan counterparts, though that is absolutely not always the case.
For Square, unknowable contract satisfaction dates likely made it difficult to bundle these deals up to sell off to institutional investors. Square Capital head Jackie Reses articulated this challenge during her appearance on an April 2016 LendIt stage. “From an investor side, that’s really where the savings are between the form of an MCA and the form of a loan, in that there’s an actual repayment date,” she said.
Even institutional investors recognize and understand that MCA purchase agreements do not have fixed terms.
Upcoming Industry Conference Schedule
September 2, 2016It’s not too late to sign up for this year’s remaining industry conferences. AltFinanceDaily will be at all three of the following events:
Marketplace Lending and Investing Conference
Who should go?: Investors, lenders, platforms, etc.
When is it?: September 27 – 28
Where is it?: New York City
How do I sign up? Register here
Bonus: Use promo code DB to get $250 off the ticket price
Commercial Loan Broker Conference
Who should go?: Business loan brokers, MCA brokers, equipment finance companies, lenders, MCA funders, investors, etc.
When is it?: October 4 – 6
Where is it?: Las Vegas
How do I sign up?: Register here
Lend360
Who should go?: Consumer Lenders, Business loan brokers, MCA brokers, MCA funders, investors, etc.
When is it?: October 5 – 7
Where is it?: Chicago
How do I sign up?: Register here
Bonus: Use promo code AltFinanceDaily15 for 15% off the registration price
LendIt Europe
Who should go?: Everyone
When is it?: October 10 – 11
Where is it?: London
How do I sign up?: Register here
Bonus: Use promo code AltFinanceDailyVIP for 15% off the registration price
Money2020
Who should go?: Everyone
When is it?: October 23 – 26
Where is it?: Las Vegas
How do I sign up?: Register here
OnDeck is NOT a Marketplace Lender
August 9, 2016
It’s finally time to stop calling OnDeck a marketplace lender.
The company only sold 15.6% of its originated loans through the OnDeck Marketplace, according to their Q2 earnings report. That’s down from 26% in the prior quarter. It’s not hard to see why that might be as the Gain on Sale Rate was only 3.5% in Q2, a significant drop from the 5.7% in Q1 and 7.8% at this time last year.
On the earnings call, OnDeck’s chief officers argued that demand for their loans remained very high but that investors are requiring more return for the same risk. With the profit incentive to sell loans severely diminished, the company plans to continue selling only 15% – 25% of their loans going forward on the basis of keeping institutional relationships and diversification.
But if not a marketplace? Then?
OnDeck is a non-bank commercial balance sheet lender. And as a result, the company’s cash dropped from $160 million on December 31, 2015 to only $78 million at the end of Q2. OnDeck CFO Howard Katzenberg said that this wasn’t a burn, but rather cash being invested into their loans, all part of their plan of moving away from the marketplace. The company still has $300 million in GAAP equity, $100 million available to it from its warehouse lenders, and other debt facilities that it plans to increase for more leverage.
OnDeck funded a whopping $590 million in loans in Q2 but posted a net loss of $17.9 million. Origination figures include the full loan principal amount on renewals even though part of the principal may be used to pay off an existing loan.
Marketing costs remained relatively stable as did loan performance. Little was said about their relationship with JPMorgan Chase other than the fact that it’s still “early days at this point.”
With Goldman Sachs’ Entry Into Online Lending Looming, Peer-to-Peer Lending is Deader Than Dead
July 28, 2016
When I first started writing about Lending Club and Prosper years ago, I was intrigued by the ability for everyday average Americans to have the opportunity to earn the yield of a credit card company. It was peer-to-peer or close enough anyway, and the allure was that you became the judge, jury and underwriter of people applying for loans, plopping down amounts as small as $25 at a time, hoping it’d come back plus interest.
There was a social movement that latched on to it too. When I attended the 2014 LendIt Conference, for example, I met people who were there for no other reason than to connect with other like-minded peers, whether it was to compare investing strategies, share free tools or just hang out. Those days are over. And with the looming arrival of Goldman Sachs into online consumer lending, people have asked me if I’m excited about what it means for “the industry.”
What industry? I wonder.
If Goldman truly begins making consumer loans online, they would certainly be competing with Lending Club and Prosper. But the fact is they’d also be competing with Discover, Bank of America and every other financial institution in the nation that makes consumer loans. And while it might be an odd market for Goldman to enter, they’re not really going to be part of “the industry” unless you’re defining the industry as traditional banking. Most of today’s online lenders rely on offline marketing like direct mail. Discover does the same for its personal loans and Goldman will inevitably follow suit. But there will be no peers on Goldman’s platform. Therefore with them being a bank, making loans “online” or on a “platform” doesn’t make them part of any special revolution, it just makes them modern and quite boringly so. There’s nothing sexy about a bank making loans to consumers. It’s a 20th century headline masquerading as 21st century innovation because the word “online” is in it.
Cynical I might be in my view here, but the movement that once was, is all but gone. The little guy’s opportunity to earn yield like a Wall Street bank has been replaced with actual Wall Street banks. And companies like Lending Club, who were the marketplaces fueling the flames of social revolution, have been caught engaging in shady Wall Street shenanigans like manipulating loan data. And if that somehow still didn’t mark the end of an era, surely the arrival of the most powerful bank on Wall Street makes it final.
Peer-to-peer lending became marketplace lending and marketplace lending will now become Goldman Sachs lending.
Exciting for an industry, you say?
You know nothing Jon Snow.
Letter From the Editor May/June 2016
July 16, 2016
How can I possibly sum up the events that have occurred between this issue and the previous one? At the LendIt Conference, the excitement was still there but it had retreated from the blinding levels of sensational bliss it had exhibited in years past. That energy would only drop further in the weeks thereafter. Q1 reports showed a slowdown in originations at some of the industry’s largest players. Then, of course, Lending Club announced their chief executive had resigned in what originally appeared to be a small scandal.
The timing couldn’t have been worse because regulatory scrutiny was already starting to pick up. A controversial bill introduced into the Illinois State Senate was one of the first signs that the times are a-changin’. Several trade organizations have formed in 2016 to educate policymakers, an accomplishment that seemed almost impossible in previous years because of the competitiveness between rivals. And yet, there they were on Capitol Hill just recently, grouped together to tell their stories and explain the positive impacts they are having on the American consumer or small business.
The Internet will indisputably have a central role in how lending takes place in the future. But does that make the companies that provide loans over the Internet online lenders? Or will they just be lenders that are perhaps more tech-enabled or tech-dependent? Even banks are using technology and the Internet to interact with their customers. That makes naming the industry or sub-industries of which each company is a part of even more challenging these days. Are they online lenders? Marketplace lenders? Balance sheet lenders? Fintech companies? Crowdfunders? Peer-to-peer lenders? Non-bank funders? An identity crisis only makes advocacy more challenging, especially when distracting headlines are dominating the news. One can only imagine what a regulator must think. Hopefully all becomes clear in due time.
Should Marketplaces Have Skin In The Game?
July 10, 2016
These answers were offered by the following execs to the question over whether or not lending marketplaces should have skin in the game, during a panel at LendIt in April.
Gilles Gade, Cross River Bank YES
Jeffrey Meiler, Marlette Funding NO
David Johnson, First Associates IT DEPENDS
Sid Jajodia, Lending Club YES (but it depends on what skin means)
THEIR EXPLANATIONS:
Gilles Gade said it’s not only for the platforms but for the banks sponsoring the platforms to put loans on their balance sheet as well to qualify and perfect the status as true lender.
Jeffrey Meiler said that it shouldn’t be a requirement but something you want to do because it’s a superior value proposition.
David Johnson said that if we’re talking about retail investors then skin in the game is very appropriate. If we’re talking about institutional investors, then I don’t think it’s necessary.
Sid Jajodia said it depends on what “skin” means. From his perspective, if you don’t deliver a value proposition to one side of the market, which is the investors, you don’t have a market so there’s inherent skin in the game by being a marketplace.
