Commercial Loan Automation
Small Business Banking
BirdsEye Viewfintech startups - bankers should care - a lot
The following article was writtern by Brad Kime, Chief Revenue Officer, LendKey:
Currently, there are a growing number of household names outside of the traditional banking space that have become real and credible players in financial services. All these players operate in activities that banks currently do (less effectively perhaps) or could do.
* Lending Club – A consumer lending peer-to-peer lender focused on consumer debt consolidation loans and risk adjusted pricing. They have originated $2.3 billion since inception and $175 million last month. The Company is currently valued at $1.6 billion with Google making a direct investment in Lending Club. Lending Club is expanding into small business lending this year and contemplating a public offering next year to continue its growth.
* Capital Access Network – The originator of the Merchant Cash Advance and daily remittance loan repayment product has had tremendous success in the small business lending space in the US. They have deployed over $2 billion to over 40,000 small businesses in the US in over 80,000 transactions. They also have technology platforms for use in small business lending by banks (5/3 is piloting) or other alternative financial service providers and raised over $30 million in venture capital funding.
* On Deck – A small business lending platform that has raised over $100 million in capital and have already funded over $600 million in small business loans domestically in $30,000 increments for working capital. On Deck has used its data aggregation technology to pull from over 300 different data points to make a credit decision within 10 minutes for a small business loan applicant. Of critical note is that all of the data sources levered in the data are non-self reported (i.e. no personal/business financial statements or tax returns). Data like social media have proved to be correlated to positive credit decisions.
* Braintree – This payments platform helps online and mobile businesses accept credit card payments by providing merchant accounts, gateways and credit card storage for surging online businesses like Open Table, Uber and Airbnb. Braintree has 35 million credit card numbers vaulted (about 20% of US population) and have handled over $10 billion in payments annually. They just announced they were going to be acquired by PayPal for $800 million cash with the transaction expected to close by the end of the year. In 2011, Braintree was valued at $83 million.
* Square – Jack Dorsey of Twitter fame, founded this payments company which allowed anyone with an Ipad and Iphone to accept credit card payments from others. In addition to making the “dongle” a new piece of hardware, Square has raised $341 million in capital for a valuation in 2012 that was $3.3 billion – an who knows how much higher that is today. Going beyond just a payments platform in 2013, they have now entered the commerce space, trying to facilitate business between the businesses which use Square for payments.
* Dwolla – They have raised $23 million in capital for a payments platform that is divorced of the VISA/MC infrastructure. This year, they completed their first million transactions. One in four smart phone users have made a mobile payment in the past 12 months according to the Federal Reserve and 30% of those payments were from person to person, more than double the previous year – a stat that they plan on leveraging to attack the payments system through easy and inexpensive to use technology.
* Groupon – This widely known small business electronic coupon marketer has over 500,000 US small business that they extend credit to through their daily deal offer without ever looking at a piece of financial data. Extending more traditional credit is on their radar screen for future services expansion. They not only have the daily deal data but have also gotten in the POS system business as an additional data source to make and extend credit as well as monitor the financial health of small business.
* Amazon – This year, Amazon initiated Amazon Lending and began actively lending to its merchants in 2012. Amazon, which makes 6% to 15% from each transaction that happens on their site has two primary products they are offering to small businesses. They are offering unsecured term loans of up to $38,000 at 13.9% and small business credit cards at rates from 13% to 19%. Amazon already processes credit cards for over 2 million merchants on its platform.
What do all of these have in common? They are new players in financial services, leveraging technology, innovation and sophisticated data analytics to gain market share. Is it significant? With major players like Amazon, Google and Groupon entering the field, bankers need to take notice. Many other new players beyond the ones noted above are raising sizable capital amounts for niche plays in student lending, mortgage lending, auto lending and payments. Over the past few years, they have worked on disintermediating banks while banks have been internally focused.
Why do they have advantages?
A word to the wise – watch what these players (and many, many others) are trying to do. They may not all hit home runs but much is happening, similar to when money market funds were being developed and focused on bank depositor bases. All of these business models noted or referenced are ones banks could have also done – but they didn’t, and I’m not sure banks are poised to create these new models in the near future.
What can you learn and adapt into your organizations? How can you better leverage the data? What investments are you making in technology beyond the standard applications to stay current with the changing landscapes? These up-and-comers are having enough success to attract sophisticated investors, so it makes sense for us to take notice and pay attention.
Here is a recommended action plan for bankers.
Banks are still in the driver’s seat for financial services and have all of the resources to be major players in innovative technology, data and product practices for the future. The time is now to pay attention, plan and act.