EX-ECB Official To Join Funding Circle Board
March 9, 2016
How does a company get street cred in the corporate hood? By hiring some big guys.
Today, Lending marketplace Funding Circle announced that it hired former Executive Board Member of the European Central Bank (ECB), Jörg Asmussen, to join the Funding Circle board.
This is latest of key hires made by alternative lending companies recently. Last month, stealth P2P insurance startup Lemonade hired famous behavioral economist, Dan Ariely, and ex-Deutsche Bank head Anshu Jain joined the SoFi board. And yesterday, AltFinanceDaily wrote about lending platform LendKey hiring ex-treasury official Salil Mehta.
Asmussen is a German economist and policymaker and has held numerous high-profile positions within the public sector. From 2012 to 2013 he served as Executive Board Member of the European Central Bank (ECB), and from 2008 to 2012 he was State Secretary at the German Ministry of Finance, responsible for European Affairs and Financial Markets. Most recently, he was State Secretary for the German Ministry of Labour and Social Affairs.
Last year, Funding Circle acquired German lender Zencap, gaining a foothold in Europe, in countries like Germany, Spain and the Netherlands, along with its operations in the UK and US. In the four years of its existence, more than $2 billion has been lent on the Funding Circle marketplace to more than 15,000 businesses.
“Jörg is one of Germany’s most respected economists and has spent a lifetime shaping government and central banking,” said Matthias Knecht, co-founder and Managing Director of Funding Circle Continental Europe, “As we accelerate our growth across Europe, his experience in European regulation and unique insights into the challenges faced by small businesses will be an invaluable asset.”
CB Insights and KPMG estimated the global investment in fintech companies to total US $19.1 billion in 2015, with US$13.8 billion invested into VC-backed fintech companies, a 106 percent jump compared to 2014. Backed by marquee investors, companies like SoFi and Lemonade have the muscle to make key hires.
The Ghost of Second Source Funding Has Lost a Desperate Court Battle
February 4, 2016The notorious company returned from the dead for one last final stand
For many veterans of the merchant cash advance business, the Second Source Funding name is something they’d rather forget. They were perhaps the largest funding ISO in the industry between 2006 and 2008. And as plenty of ex-employees will tell you, the story ends badly.
Meir Hurwitz, a co-founder of NY based Pearl Capital, immortalized the Second Source years through a Bloomberg exposé about how his own company rose and sold for $40 million. In his tale, he claimed that Second Source founder Sam Chanin still owed him $2 million for the work he performed there. For Hurwitz, the falling out set the stage for the company he would go on to start. For other employees, it was the beginning of a grudge that would stick around for almost a decade.
Chanin has gone so far as to admit on his blog that he became known as “the guy who ripped them off and didn’t pay their residuals.” According to him, it wasn’t his fault. Court records do show Second Source Funding filing a complaint against Cynergy Data back in 2009 for $60 million in damages. Cynergy was the processor behind their lucrative merchant services operation and ultimately where the residuals they paid out to sales agents originated from. The case was dismissed in October of that year because Cynergy declared bankruptcy.
Effectively shuttered by the circumstances, the only reminder of what had once been, was another lawsuit filed by Second Source in September 2012 against a company (and more than 30 co-defendants) that acquired Cynergy Data’s assets. In October of 2009, Cynergy’s assets were reportedly sold to The Comvest Group for $81 million. In the complaint, Second Source sought at least $50 million from them in damages.
It has been approximately seven years since Second Source’s days ended, sources estimate. Users on industry forums were already speaking of the company in the past tense as far back as early 2009. The Second Source website no longer even exists. While ex-employees have long urged old peers to move on from those days, others have been forced to confront their demons.
THE GHOST OF MERCHANT CASH ADVANCE PAST
In September of 2014, the very same Second Source Funding emerged through a complaint filed in the Supreme Court of New York against Yellowstone Capital, LLC, 8 named co-defendants and 25 John Doe defendants. Seeking damages in the astounding amount of $360 million, Second Source alleged that Yellowstone’s co-founders stole their “revolutionary business model” of which they describe as using “Independent Sales Offices to leverage economies of scale in marketing and selling a bundle of financial services, including credit card processing and cash advances.” As a result of that and other claims, they were allegedly the reason for “Plaintiff SSF going out of business.”
The ensuing battle was probably one of the most contentious litigations the industry has ever experienced, at least from what can be seen on the docket. In one publicly filed exhibit introduced by Yellowstone, was the draft of a complaint that the plaintiffs had allegedly sent them that named more than 40 defendants. It reads like a yearbook of the merchant cash advance industry in 2009.
Other exhibits are packed with plenty of Second Source era nostalgia, including copies of the entrance exams given to new hires. One test question embodies the culture of the time, when it asked applicants:
What movie is this quote from, “Put the coffee down, coffee is for closers?”
While motions and cross motions at times appear to venture into the arena of insanity, especially considering Second Source went out of business a long time ago, AltFinanceDaily has learned that Yellowstone was vindicated this week in a decision that dismissed all the claims with prejudice. That means they can’t have a do-over. The suit lasted 17 months.
AltFinanceDaily has been quietly following the docket for over a year. We did not ask either party to comment on the decision for the reason being that Second Source may be considering an appeal, or at least they alluded to that in the court transcripts.
In the meantime, the ghost of Second Source reminded a few people in the merchant cash advance industry that the antics of 2006-2008 were more than just tall tales told by grey beard Wall Street guys. Back then the coffee was still for closers only. And back then, the game was so different that some people would still be feeling the effects of it a decade later.
THEN AND NOW
Yellowstone Capital was one of the first merchant cash advance companies to experiment with the ACH payment method. Today, they originate nearly a half billion dollars a year in funded deals.
If you want to see just how much has changed since the Second Source days, check out this answer to the Second Source exam in 2008.
Q: If a merchant is getting an advance from MCA and can’t switch processors, what can the agent offer this merchant?
A: Lock box
It’s amazing to think that ACH was inconceivable at the time. Touched by ghosts indeed…
Platinum Rapid Funding Group Sets Annual Funding Record
January 25, 2016Platinum Rapid Funding Group, a Long Island, NY based merchant cash advance provider, set a new personal-best funding record last year, according to company VP of Partner Relations Corey Cicero. Through direct and indirect channels, the company originated more than $100 million worth of funded deals during 2015.
The growth has led to what seems like a never-ending hiring spree at their Uniondale office. Cicero told AltFinanceDaily that they plan to beat their 2015 figures this year by a wide margin. “We are still hiring,” he said.
AltFinanceDaily visited their office back in September and as evidenced by the above photo, they are not a small shop.
Strategic Funding Source Acquires Tyrian Bull
January 11, 2016Tyrian Bull CEO Joshua Jones announced earlier today that their company had been acquired by Strategic Funding Source. Both based out of NYC, Tyrian posted across social media that their “clients and partners will be able to take advantage of more financing options, while still benefiting from the same standards of transparency and integrity they have come to expect with Tyrian Bull.”
Tyrian Bull’s website already displays a “POWERED BY STRATEGIC FUNDING” label in the footer.
Funding Brokers: Critical Thinking is Greater Than Positive Thinking
December 28, 2015
THE NEW THOUGHT MOVEMENT HAS TAKEN OVER THE SALES PROFESSION
Somewhere between the 19th and the current 21st century, the profession of sales as a whole integrated the concepts of the New Thought Movement, going so far as to actually shape the mantras, slogans and thought processes of salespeople everywhere.
In my opinion, the New Thought Movement has the potential to do far more harm than good, because it does not emphasize the importance of individuals learning how to critically think. It has an over-reliance on positive thinking and positive faith, with a complete disregard for critical thought and analysis. When a person fails to critically think, they can easily fall prey to scams, manipulation, brain-washing, etc. and even mismanage their finances through various forms of impulse (emotional-based) spending. As a result, for whatever amount of good that the movement does, in my opinion, it has the potential to do far more damage, such as the damage that I believe it has done to the sales profession.
THE HISTORY OF THE NEW THOUGHT MOVEMENT
It started in the 19th century with the promotion of ideals by philosophers such as Napoleon Hill, that life begins in the mind and that the quality of your life would be based on your level of positive thinking and positive faith. The mantra of the movement is that if you maintain the right level of positive thought processes as well as keep high levels of positive faith, then you can “attract” to you whatever you desire, which usually centers around materialistic items like fancy cars, shallow things like very attractive mates, significant wealth, or good health and wellness.
By the 20th century, the movement would eventually spread to various religious denominations in the form of the prosperity gospel (the word of faith movement), promoted through television evangelists and the vast majority of mega churches throughout the country.
By the 21st century, the movement would spread to even more authors and even film producers with the 2006 film “The Secret” which also included a book version of the ideals promoted during the film.
It was also by the 21st century that the movement had been fully ingrained into the vast majority of sales training material, which would serve as the foundation for a lot of what I deem to be “issues” of the sales profession today. These being the utter lack of critical thinking and critical analysis which leaves too many sales people as mindless, robotic, and routine order-takers, rather than strategic thinkers, innovators, and business developers.
NEW ENTRANTS TO THIS INDUSTRY ARE INSPIRED BY TECHNIQUES FROM THE NEW THOUGHT MOVEMENT
Since this year’s March/April edition of AltFinanceDaily Magazine, we have talked about the Year of The Broker as it relates to the surge of new brokers coming into the space. These new entrants are inspired by funders, lenders and large brokerages using techniques from the New Thought Movement.
The rah-rah sales motivational speech that’s provided to these new brokers is founded mainly on the New Thought Movement. The people recruiting these new brokers into the space get them to dream about:
- Getting out of debt
- Moving out of their mother’s basement
- Living in a big/fancy house
- Having a very attractive mate on their arm
- Driving a Mercedes Benz S-Class
- Making $25k, $40k, or $50k per month
- Being “the man” in the nightclub, buying up all of the drinks and being the life of the party
They would sum up their rah-rah sales motivational speech with simply, “As you think, so shall you become,” quoting the great Bruce Lee.
Thoughts that arise of a critical nature that look for more market research, market planning, trends, innovative solutions, ROI analysis, and other forms of foresight are either quickly shunned as “over-thinking” or “negative thinking”. You might flat out be kicked out of the room where the rah-rah sales motivational speech is being conducted, with accusations of having “stinking thinking.”
THIS ISN’T ROCKET SCIENCE, IT’S CRITICAL THINKING
The New Thought Movement’s over-reliance on positive thinking and positive faith can be detrimental to personal growth. Being a part of the Mom and Pop Network isn’t necessarily a bad thing, as I have operated within the Mom and Pop Network, but what’s shortsighted is not giving brokers all the tools they need to think critically and truly be successful.
For you to survive, you are going to need to have resources that the vast majority of other brokers don’t have access to. Relying on UCC records and Aged Leads (that every other broker is calling on), isn’t going to cut it. You are going to need resources that provide you with a significant market competitive advantage which includes but isn’t limited to: having better data so you can produce your own exclusive internal leads, having “center of influence” partnerships with banks, credit unions, and other professionals, having access to creative financing in the form of either equity or debt, among other advantages. These advantages will not just give you a leg up over other brokers in the market, but they are truly the key to your long term survival.
A FINAL WORD
In my opinion, The New Thought Movement does more harm than good, by not emphasizing the importance for individuals to learn how to critically think.
We are living in the day and age where to survive in any professional sales environment, you are going to have to be more of a critical thinker and do things outside of “the box”, versus being the stereotypical smiley faced, overly optimistic, robotic, sales guy, that’s incapable of true “independent thought.” You want to be the sales guy that thinks and operates outside of the box, which is basically this bubble in which everybody else is operating and thinking within. You can’t achieve this unless you first embrace cynicism by taking a long hard look at this box, poke holes in it, discover new ways to profit, and then blaze your own trail.
Being cynical, pessimistic and “negative” are the first steps towards becoming an excellent critical thinker, even though they will not make you feel as “good” as compared to that of being optimistic and positive. But in that regard, I must quote Dave Ramsey in that: Children do what feels good. Adults make a plan and follow it.
Critical thinking doesn’t feel good, but you can’t properly plan without it.
The Broker’s Future Part Two
December 16, 2015THE ROBOTS ARE COMING
Merriam-Webster and Dictionary.com both agree, that a “robot” is a machine that is created to do the work of a person, carrying out a complex series of actions automatically, all controlled by a computer. Sometimes a robot can resemble a human being in likeness, but often times a robot is simply a piece of software, a piece of hardware, a piece of machinery, or a cloud based infrastructure called the internet (online networks). Professor Kaku is a futurist from City College of New York, a futurist is someone who makes what one would consider “fairly accurate” predictions about what the future holds and how these future events might emerge from present day events. Professor Kaku believes the following:
The job market of the future will consist of those jobs that robots cannot perform. Our blue-collar work is pattern recognition, making sense of what you see. Gardeners will still have jobs because every garden is different. The same goes for construction workers. The losers are white-collar workers, low-level accountants, brokers, and agents.
A RECAP OF PART ONE
Back in June 2015, I did an article for AltFinanceDaily about the Broker’s Future, speculating if the good times were indeed over for the brokers as it pertains to their level of profitability and survivability going forward.
- I examined the 2000 – 2007 and 2008 – 2013 time periods, speculating that the “Era of the Broker” was indeed between the 2000 – 2013 period.
- Then, I examined the current time period which begins around the middle of 2014, that is seeing so much of a mass new entrance of brokers into the space, that AltFinanceDaily had to compose a cover story on the phenomenon for the March/April edition of AltFinanceDaily Magazine. The only issue with this current time period is that, in my sole objective opinion, we are in the “Era of the Strategic Networks”, and no longer in the “Era of the Broker.”
- I concluded the article in June with the following: those just now trying to come in and ride the wave will soon discover that just like with the Stock Market, the real money has already been made and most of the future returns are already capitalized.
AN INTRODUCTION TO PART TWO
My analysis shows that the current time period is all about Strategic Networks, which are mainly three networks to be exact, which include the following, all designed to produce competitive market advantages, positioning, strategies, qualified leads, etc:
- The Center Of Influence Network: this includes entities such as banks, credit unions, processors, accountants, VCs, credit bureaus, etc., that allow access to exclusive leads, exclusive data, equity financing, debt financing, mergers, etc.
- The Mom and Pop Network of random independent agents across the country who resell on a 100% commission basis, providing free marketing in a way that collectively they produce a significant amount of volume (even though individually most of the agents cannot make a living from this activity).
- The Online Network with exclusivity on the growing online marketplace of merchants seeking financing, education and options via the internet.
For Part Two Of The Broker’s Future, I want to focus in on The Online Network, which in my opinion will be one of the main destroyers of opportunities in our space for the majority of brokers going forward.
DEATH OF A B2B SALESMAN
For about $499, you can read a very comprehensive report from Forrester on the death of B2B salespeople. Forrester predicts that by 2020, over 1 million B2B salespeople will lose their jobs to the growing force of IT/Robotics, which includes various forms of technology, automation and of course the internet in general through E-commerce.
In relation to our industry of merchant services, merchant cash advance and alternative business loans, I don’t believe that we have to wait until 2020 to see significant changes, I believe these changes are already in full effect and the major players within our space are the ones that are truly capitalizing on The Online Network, giving them major exclusivity on the growing online marketplace of merchants seeking financing, education and options via the internet.
MERCHANT SERVICES HAS BEEN AFFECTED
The Online Network phenomenon has totally destroyed the feet on the street MLS (merchant level salespeople) over on the merchant services side. Before the rise of the Online Network, MLS were valuable to merchants as information on merchant processing, interchange, how the bankcard transactional process worked, etc., were not readily available and most banks did not handle direct sales of the service. So the MLS would park their car down the street, randomly walk into merchant locations, and provide the education via brochures, terminal samples, etc.
They would explain how the merchant processing process works, how accepting credit cards could boost sales through more impulse purchases and consumer convenience, and more. The MLS would then go over the different options of payment processing technology, commit the merchant to a 24 – 48 month lease of the technology, and make his/her commission off the leasing sales and eventually also off the residuals. However, the rise of the Online Network completely shattered this business model:
- The Online Network now allows the merchant to comprehend merchant services on his own, without the help of the MLS, by researching interchange and conducting his own “rate analysis”. The merchant can also now see the true cost of the processing equipment, thus to no longer sign up for leases for $100 a month for 24 months ($2,400) for a $350 terminal at best.
As a result, the MLS can no longer prospect on “rate savings” nor prospect based on the equipment such as through leases or even through free terminals anymore, due to the merchant’s knowledge that the terminal is worth $350 at best. As a result, the direct sales of merchant services has become a value-add to other services, requiring yesterday’s MLS to transform into something totally different such as a financing or payroll specialist, trying to convert merchant accounts over on the side, as part of the sale.
ALTERNATIVE LENDING HAS BEEN AFFECTED
The merchant cash advance and alternative business loan products are more popular today than they have ever been before, due mainly to the massive media attention that they have received with companies going public, CEOs landing interviews on major media outlets, talking heads debating the products across a number of media mediums, and more. 7 – 15 years ago (2000 – 2008), if you were to look up a product online called “merchant cash advance”, you would not have produced many search results. As a result, to inform and educate the merchant on the product, you needed an actual human being (a broker) to sit down and explain the nuances of said services referred to as “split funding”, “revenue purchases”, and “holdback percentages.”
Compare this to today, where a simple search for “merchant cash advances” gives you pages upon pages of articles, promotional ads that follow you across the internet, company websites, press releases, and more. The merchant can easily learn about the merchant cash advance as well as other new forms of alternative financing by going online and scrolling through the vast amount of information. They can educate themselves on the products, companies, and payback procedures. They can fill out a form and get 10 quotes from 10 companies within a couple of hours and in a lot of cases, receive funding from one of the companies by the next business day. The phenomenon is so big that companies in our space are now just referred to as “Online Lenders,” totally shunning the fact that many operate with traditional brick and mortar locations and still employ brokers to still resell the products like they did “in the old days”.
THE FUTURE
Based on my sole objective analysis, The Future is going to be all about the three networks of Strategic Partnerships, which includes The Online Network. Without a shadow of a doubt, those that control these networks will be the major players going forward, as they will have the leveraged resources, knowledge, experience, financing, and connections that the newer market entrants just do not have.
The 80/20 dynamic will continue, where 20% of the players produce 80% (or more) of the production, and the other 80% of the players will fight over the remaining 20% (or less) of the production, which just will not be enough to sustain profitability going forward.
As fast as these new entrants rush in, will be as fast as they burn out. Burning through their savings and retirement funds, and/or running up the utilization rate on their credit cards, trying to take advantage of a “market opportunity” that they “heard about”, but is pretty much already capitalized on, by those who have been here long before they came on the scene.
Funding Circle’s Sam Hodges Comments On OnDeck/JPM Announcement (Video)
December 2, 2015Earlier today, Funding Circle’s Sam Hodges appeared on Bloomberg TV to discuss the new OnDeck/JPMorgan Chase announcement. Hodges said he believes its the first step towards many banks working with marketplace lenders and reminded the panel that in the UK, his company already does that.
He was then asked if such a tight relationship even makes sense given the overwhelming consumer sentiment against banks these days. Watch what the video and how he responds below:
JPMorgan Chase and OnDeck Partner Up
December 1, 2015
Coming soon, when small businesses apply at a Chase bank for a loan under $250,000, there’s a good chance that OnDeck will be doing all the work. That’s because JPMorgan Chase and OnDeck announced a strategic partnership earlier today that is expected to commence in 2016.
A comment earlier in the day by Jamie Dimon hinted that something was coming. “We haven’t announced it yet, we’re going to be doing a thing with one of these peer-to-peer, small-business lenders,” Bloomberg reported.
That caused peer-to-peer lending industry advocates like Peter Renton of LendAcademy to speculate who that might be. He originally bet on Lending Club but posited that it could also be OnDeck, Funding Circle, or Kabbage.
When I asked Lending Club on twitter if they were slated to be JPM’s partner, I received a public reply back from a VP at OnDeck saying that it would in fact be them. By then the news had already been released.
The SEC filing states, “JPM will use the Company’s small business lending platform and the OnDeck Score® to serve its small business customers” and adds that they’re still in the process of building things out and finalizing agreements.
OnDeck (ONDK) which closed at $9.01 before the announcement is expected to soar on the news for the Wednesday open.
