Blog - Lend Academy

Podcast 252: Sean Salas of Camino Financial

The CEO and Co-Founder of Camino Financial discusses the challenges facing the Latinx small business community today and what his company is doing to help

June 19, 2020 By Peter Renton Leave a Comment

Small business owners have always struggled to get access to capital. And while fintech has made a big difference, for many in the Latinx community it remains a serious struggle. This struggle is something the next guest on the Lend Academy Podcast knows all too well.

Sean Salas is the CEO and Co-Founder of Camino Financial, a fintech lender pioneering access to affordable capital for underbanked Latinx small businesses. He shares the background on his fascinating personal story of how his family had to move back to Mexico when he was 12 because of his mother’s failed business. For Sean, this is a personal mission and one that he is serving with great passion.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

Why he decided at the age of 12 he would become an entrepreneur one day.
The size of the under-banked Latinx small business market.
The typical terms of the loans they offer.
What Camino Financial does better than anyone else.
A profile of their typical small business borrower.
The industries they serve.
The types of data they use to underwrite these loans.
What surrogate income underwriting means and how they use it.
Why they have a digital-only approach to this market.
How they pivoted to offering PPP loans and other government assistance.
The geographic footprint for Camino Financial.
How the Latinx community are coping in the current crisis.
How Camino Financial are funding their loans.
The volume of lending they are doing outside the PPP.
The three stages of the post-COVID world.
Their plans to become a Community Development Financial Institution.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 252 – Sean Salas.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 252-SEAN SALAS

Welcome to the Lend Academy Podcast, Episode No. 252, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I’m delighted to welcome Sean Salas, he is the CEO and Co-Founder of Camino Financial. Now, Camino Financial is a really interesting company, they are small business lender focused on the Latinx community and as you’ll hear in this interview, this is more than just a business to Sean and brother, his twin brother and Co-Founder, Kenny.

This is their life’s work and you can hear the passion in his voice where he wants to do everything he can to help Latinx small business owners and we go into some detail about how he’s doing that. We talk about the impact of the current economic crisis, we talk about how they’re funding these loans and the typical terms that the loans have and the typical small business owner that comes to Camino for a loan. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Sean!

Sean Salas: Thank you for having me, Peter.

Peter: My pleasure. So, I like to get these things started with a new guest by giving the listeners a little bit of background. So, maybe you can tell us what you did before you started Camino.

Sean: Yeah. Before I started Camino Financial, my twin brother and I…..I can never introduce myself without introducing my twin, we’ve been partners in life on the day we were born and right before starting Camino Financial, we were both getting our MBAs at Harvard Business School. We used that opportunity to incubate what is Camino Financial and before that, we were pretty much cutting our teeth on Wall Street in investment banking and private equity.

Both of us worked for two of the largest minority-managed funds where they focused on investing in minority entrepreneurs, or communities with a high concentration of minorities. So, that’s really where we got our backbone, so to speak, in business and really helped us propel what Camino Financial is today.

Peter: Okay. So then, it sounds like you incubated…you had the idea while you were at Harvard, maybe tell us, where did the idea come from originally for the company?

Sean: Yeah. No, our story really stems back from our upbringing. Both of us are sons of an entrepreneur from Mexico that came to the United States in pursuit of the American Dream and I know that sounds very cheesy, but quite frankly, that’s the story of many immigrants that come to the United States. And so, like an immigrant with very big dreams, my Mom came to the US and she saw entrepreneurship as the only avenue, given her limited educational background, to generate real wealth for herself, her family and her community. She opened over 30 restaurants here in Southern California.

Peter: Wow!

Sean: Yeah, while pretty much raising six children so, super Mom all at once, and so we grew up in that environment. Unfortunately, my mom did lose her business, it was like a house of cards that came crashing down after 25 years of very hard work. Kenny and I were 12 years old at that point in time and my Mom was devastated. So she decided, guess what. I’m going to remarry, move back to Mexico with my two youngest sons and restart my life and that’s actually what happened. You know, for a 12-year old kid moving back to Mexico, that was pretty traumatic in its moment, but quite frankly was a blessing in disguise. We grew up in Mexico from 12 to 20 years old, something that I think does reflect, in the cultural and nuance of how Camino Financial does work today with our members.

We came back to the US and re-pursued that American Dream, once again the cheesiness, but we got to re-live that immigrant story, coming back to the United States while we were citizens and we are citizens, you know, in a way feeling what it means to come to a country in pursuit of something bigger than what you can achieve in any other place in the world. And so, that, effectively, laid the ground work for what we ended up doing, you know, going to UC Berkeley than Wall Street, as I mentioned, and then incubating Camino Financial at Harvard Business School.

Peter: So, is it fair to say then that the idea really germinated well before you even came back to the US?

Sean: Yes. I mean, it’s so funny, my Mom wanted us to be Mexican Mexicans and I considered myself a Mexican American. She really wanted to keep us in Mexico, but when you’re a 12-year old kid and you see your Mom lose her business, there is anger that is born deep within you and I’ll never forget the day that we pulled out of our home in Hidden Hills. We were born in a way with that silver spoon and it was taken away from us and the entrepreneur in me was born that day, there’s no question.

So, it was born many years before Camino Financial became a thing and we called it Camino. It wasn’t a light bulb moment where I was in a cold shower and oh, all of a sudden, I need to help, Latino businesses but it’s ingrained in my DNA, so to speak. Now, that said, I do think there were very….working on Wall Street, specifically in private equity and working for a fund that had an orientation towards investing in minority entrepreneurs which is always, as I mentioned, a theme in my life.

I felt that private equity as an investment vehicle is (inaudible) to invest in Latino-owned businesses, in particular, probable because while this market is big, the average size of a Latino-owned business, measured by our research, is about right in the range of $200,000 in revenue per year. That’s one third of the size of non Latino-owned businesses and in private equity we wouldn’t invest in businesses that generated less than $7 Million in EBITDA, or profit cash flow. And so, private equity, of course, was catering to those very few businesses that are very large and made it, but the great majority, call it 97% plus of all Latino-owned businesses generate less that $1 Million in revenue and skewed towards that $200,000 range.

Peter: Okay. So then, El Camino means the way, right, is that the translation?

Sean: El Camino means the way and so we called…..so, what we’re doing at Camino Financial is simple. We’re a fintech platform pioneering affordable credit to under-banked Latinx businesses which we quantify to be a $50 Billion untapped credit in this market. Now, the reason why we use the word Camino deliberately is because we get it, not all businesses are going to get the optimal interest rate they want, right.

They’re going to be charged in the high 20’s, low 30’s with our core product and so, what we want to do is help them build a path to more money over a longer term and at a lower cost. And so, in order to create that path, we need to pair capital with an educational experience that enables them to formalize their business, develop a credit history and, quite frankly, get the paperwork in order so that they can then qualify for a lower interest rate loan.

Peter: Right. So, let’s maybe dig into that for a little bit. So, tell us about the loan product, what’s the range of interest rates, what’s the typical loan size, loan term, that sort of thing.

Sean: So, our core product is a micro loan, it’s a loan between $5,000 to 75,000. The annual interest rates are between 25.5 to 40% and the term, we start at 24 months which is very unusual for our industry, as you know, and we go up to 36 months, there is no pre-payment penalty so, we’ve been able to benchmark our data. And so, our average APR is 33.5% to make it comparable with other products at a 24-month term. The average APR that we’ve been seeing by competitors is in the range of 41.4% at 11-month term and with daily or weekly payments.

So, the net result of our product compared to benchmark….the result is in the 50% lower monthly payment with a Camino Financial loan opting being equal on the loan that we’re giving to the borrower so, we’re really giving our borrowers a lot of cash flow relief. Fundamentally, what we’re doing versus anyone else…we can talk about tech and AI, but, fundamentally, what we’re doing better than any (garbled) is we’re giving our members the benefit of the doubt. If you don’t mind, I’d like to tell you a little bit about our members and how they look like.

Peter: Sure.

Sean: So, we’re talking about members…25% of them don’t have credit history, immediate account balance is $2,300 in their account at point of financing and our average ticket size is $18,000 and there’s a very large amount, I can’t specify the percentage for purposes of their own security, are undocumented here in the United States. So, when you even look at those terms and parlay that with the credit profile of our members that are truly thin file, cash-based micro enterprises, not even small businesses, you’re going to call that a micro enterprise when you’re generating around between $200,000 to 300,000 in revenue per year, right.

So, these are micro enterprises and you give these terms to them, it’s like God-sent, they’re more than grateful and quite frankly, that’s just the starting point once again. Our view is that while we think we’re competitive day one relative to benchmarks, we think that we need to facilitate that camino, that path to more money at lower interest rates and over a longer term.

Peter: Okay, So then, tell us a little bit more about the borrowers themselves like what sort of businesses are they, what industries do they operate in?

Sean: Yeah. So, the big industries are construction, that’s about 26% of our business; retail, 10% of the business; transportation, 10.4% of our business; restaurants and bars, about 9.6%; and then the rest is distributed to what we call, probably defined, professional services…when I say the rest, I mean, the next big chunk is professional services and they’re your janitors, your landscapers that are serving the market.

Peter: Okay. So, I’m curious about this, particularly you say you’ve got some undocumented workers….I mean, a lot of them don’t have a credit history so, what data do you use to underwrite these people. I imagine, you just can’t say yes to everybody ……

Sean: No, we can’t.

Peter: …so, how are you…….maybe we’ll just start with that, what data are you using when there is very little data available?

Sean: Yeah. So, one thing worth noting is I do want to challenge the notion in the market that there is limited to no data available. These businesses do have bank accounts.

Peter: Right.

Sean: Seventy five percent of them, of our borrowers, is actually a bigger proportion for the primary market, but our actual borrowers can actually get loans, 75% do have credit history, maybe thin file, right, and so we can do a lot like other industry leaders with bank data. Now, there’s nuance to that have data, let’s go back to the day transaction data. I mentioned that the minimum account balance of borrowers at point of financing is $2,300, I told you the frequency of transactions in that bank account may be a lot lower and a lot of other alternative lenders are comfortable lending to because they also want to see that transaction frequency, but there is data there, right.

Once again, after the credit….you know, not to forget about the credit score, we don’t look at the credit score, but looking at the credit file, although thin, there is data there. We can look at credit utilization, we can look at credit history and we can look at types of credit, etc. So, I think there is data there, not to mention you can get really fancy and look at the metadata of your application, evaluate the user journey, usually, that’s better to use not so much for the credit decision, but for fraud detection, and so, therefore, there is data available.

I don’t want to give the notion that, you know, because our audience are people that are actively investing, or alternative lenders themselves, they get it and I don’t want to give them the notion that the data sets are fundamentally different. Now, I do think, given our specialization in the market, given the fundamental benefit of the doubt that we’re giving in our market……I think how we cut the data enables us to risk rank our model for the thin file, cash-based micro enterprises.

And it’s not Latino-focused, one, we can’t nor do we want to ever discriminate from that ethnic or culture standpoint, but it’s worth noting that thin file, cash-based micro enterprises, there’s nuance to that. And so, by specializing we’re able to look at the data sets, I would say 80% of them are probably similar to that of other alternative lenders, right, and then we derive, given our specialization, some risk ranking criteria that helps us derive a credit decision.

Now, I will tell you something that we do that others don’t do, Peter, is that given the cash-based nature of our business, we have to do something that’s very prominent in emerging markets, but for X or Y reason, I don’t hear it, or I rarely ever hear it here in the United States. This is a methodology called surrogate income underwriting. Now, surrogate income underwriting means you basically need to look at data sets and certain data points and derive from them what real cash is flowing through the business and the household.

So, for instance, let me give you an example. I can’t predict what Warren Buffet’s net worth is based on the car that he drives, I think he drives a Cadillac, but when we’re talking about evaluating credit for businesses at the base of the pyramid, right, you can, with a high degree of certainty predict what the real cash flow is based on using different data points because the disposable income is so limited for this demographic that you can make some really smart guesses. Based on that, not only can you make a credit decision, but more importantly, you can actually better understand what the capacity for repayment is for that given borrower.

That’s probably one of the trickiest parts of this demographic, but we’ve been able to get really good at that and once again, this is nothing new, it’s just very prominent in emerging markets where you have an absence of that trackable cash flow data that we’re used to having here in the United States.

Peter: Okay. So, I guess what you’re saying is one of the data points is what type of car they drive and how much that’s worth and, obviously, a lot of these cars will have a car payment you can….I imagine, you can pull data on that information. But, I’m just curious about that, I mean, you say, that like the surrogate data is really….you’re just trying to look for data anywhere you can get it, it sounds like what you’re saying.

Sean: Absolutely, given our specialized view on this demographic, we’re just going to use that data direct, probably different conclusions, of different…..we’re going to find that data maybe in different ways and other alternative lenders are using it.

Peter: Right, right, okay. And so, how are these people coming to you, is this all 100%….like, I imagine, there’s…I presume you have an app, or is it all on the web, or do people come and see you in person, I mean, how do the people fill out applications?

Sean: Our application is 100% online and 100% tech-enabled. Now, we just hit our sixth-year anniversary about a week ago and, Peter, there were so many people who have been lending into this market for many years before we started that would laugh us out of a room when we told them we were doing a digital-first, digital-only approach with our market…that they needed to see you, they needed to touch you and in the absence of that act, you would be able to earn their trust. Forget about the transaction fees, we can take that part out, but the trust element is a critical piece of the puzzle in acquiring this market at a low cost to make the unit economics work because, as I mentioned, our average loan is $15,000.

Other alternative lenders are about $25,000 to 30,000 so we have to work with roughly half of what they’re working with, in terms of their earnings at least on day one. And so, what that means is we had to go tech first, we had to be tech-only and what we found is that….we were even pleasantly surprised ourselves that this market really has embraced a tech-enabled process, as long as we pair that with a very trustworthy brand.

So, I’m always a little embarrassed to tell people this, but came the idea to have our own mini series on Discovery Channel en Espanol called emprendedores which means entrepreneurs in Spanish. We have created one of the largest bilingual content databases in the United States and so if you Google prestamos para pequenas empresas which is small business loans in Spanish anywhere in the United States, we’re going to be the number one ranked website there.

We’re also rigging for other different terms that have nothing to do with credit, but has everything to do with helping businesses grow and be bigger and better than themselves. So, predominantly, we saw an opportunity very early, and not only be tech-first, tech-only, but also build our go-to-market strategy around that. And then, embellish that with the brand and authority that gives people the trust that they need because if they don’t trust you, I can tell you right now, they don’t trust you, they’re not going to transact online.

Peter: Right, right. So, you’re based in Los Angeles so, obviously, you’re lending in California. Where else are you lending in this country?

Sean: So, we lend nationwide with the exception of New Jersey, North Carolina, Hawaii and Puerto Rico, but other than those states, we lend nationwide. Now, not surprisingly, the three largest states that count for 55% of our volume are California, Texas and Florida in that order. And so, those are very prominent states with a high concentration of Latinx businesses, but, at the same time, it’s worth noting that there are a lot of other businesses out there, 45% of businesses out there are also looking for loans outside of those three core states and they’re fairly, you know, evenly distributed.

I would say probably New York is a distant fourth place, but still worth noting, Illinois as well, but at the same time, when you look at rest of the nation, you’re pleasantly surprised to see the distribution. In fact, it’s worth noting a little bit of a plug on our research report, we release a quarterly Latinx small business survey based on the application data that designates an ethnicity so, we can’t include the non-designated application data, but with the designated application data we have about 27,000 applications.

We use that data to show the world where our businesses are distributed, what the average FICOs are, what the average revenue is, what are the trends in that data and you can see that geographic footprint in that report.

Peter: Right. I’ve looked at those reports. I think you do an excellent job, really provides a great service, I think, to the industry. So, I want to talk a little bit about the current state of play because you’ve been reading a lot in the press how…you know, we know small businesses are suffering.

They say it’s been black and Hispanic businesses that are suffering more, those own owned businesses are suffering more than others so, maybe you can give us a very good insight into the Latinx community. Why don’t you tell us a little bit about how they are coping, how they’ve coped over the last three months.

Sean: Yeah. So, just to show you some stats, research states that about 91% Latinx businesses won’t be able to access the relief fund that are made available by the government. Forbes also had an article that noted that over 50% of black and Latinx businesses expect to close their doors if the current environment withstands for the next six months. And so, yes, we were very early in raising the flag to the industry and to the government that black and Latinx businesses are being left behind, not only in small businesses, but also in healthcare and in systemic injustice.

So, this is a very polarizing moment for these minority communities and the call to action needs to be made. We need to not only acknowledge that and put data around the market so people learn about it, but we also need to create nuanced and specifically designed products and services around these markets so that we can reverse this trend.

And so, to answer your question directly, yes, we are seeing our businesses hurt. I’m proud to tell you that our very quick response to this was leveraging that large content database and that team behind it and completely re-positioning Camino Financial and it’s blog around a COVID hub, COVID and other relief resources hub because it’s worth noting, as I mentioned, that many of our members are undocumented so we need to think broadly in terms of what those resources are, whether it’s direct access to funds or other forms of relief, that enable them to grow their business. So, that’s a narrative that we’re hearing a lot and I will underscore that narrative.

Now, I do want to mention, Peter, that we also don’t hear the second narrative as often. That second narrative is a narrative that black and brown business owners are resilient, they are as resilient as any other market here in the United States. Let me explain why. The reason why they’re resilient and, yes, we just went through, before pre-COVID, an 11-year expansion market, but the reality is that many of these businesses, these underserved businesses have been living through many micro recessions in their own growth. Well over 80% of them operate in to low to moderate income areas, socio economic disparity gap has only amplified itself in these last 11 years pre-COVID, this is all pre-COVID.

And so, they know how to live in a recession-like environment. In fact, they don’t just operate at a business level, they operate at a household level, and so the household could subsidize volatility cash flow of the business by, whether it’s the wife, whether it’s the kid now working for the business, but finding supplemental forms of income to subsidize the business at different points in times. The flexibility of these businesses, given how small they are to reinvent themselves and recover from these very difficult points in time.

And so, I will note that while we are seeing a market that has, predictively and unfortunately, was very predictable, and I have a lot of articles on this subject well before people started throwing about these numbers about 91% of Latinos and 95% of black aren’t going to get the PPP funding and 50% will close their doors if this continues. Well before that, I was predicting that they were going to be left behind, but, despite that, I think in many ways, they also expect that and adjust accordingly. It’s worth noting that because….I know one logical question is, how many of your borrowers did get PPP, how many of them got EIDL funding.

So, you know, when we talk about that I can tell you that, yes, many did not and I’m proud to tell you, we’re actually actively putting our own research together to show you how creating that content hub, creating that direct channel communication with the market enables you to over invest in a substantial way in terms of those that do qualify for PPP funding, actually getting PPP funding.

Anecdotally I can tell you, many of our members did get PPP or EIDL funding and we’re going to put some research out there to demonstrate how some of even the soft touches of education really made a world of difference, not just around the PPP funding design which does need some work, but also just being a real distribution channel content and capital to enable them to take advantage of resources that exist.

Peter: Right, right. I’m looking at your website on my other screen here and right, front and center, you talk about the Paycheck Protection Program, you talk about other relief programs, you’ve got a whole section here. So, you quoted this 91% number, I imagine, your customers, percentage will be much lower, those that are going to partake…by definition, I imagine, they’re more educated and they trust you and they’re going to look at what you’ve done.

Sean: That’s exactly right. And so, we’ll be releasing more information on that in the coming weeks, but I can tell you anecdotally, based on the data that I’m looking at, that that number is going to be a lot lower than what the market benchmarks are, 91% for Latinx is not receiving PPP funding.

Peter: Yeah, yeah, okay. We’re almost out of time, but a couple of more things I want to get to. So, let’s talk about the other side of the equation here. I read something about Goldman Sachs, how are you funding your loans, where is the capital coming from for these businesses.

Sean: Yeah. You probably won’t be surprised, but we actually got our money from Mexico (both laugh). We needed to get money from investors that are equally willing to take that leap of faith in the market so we found that in Mexico. So, Credito Real is a publicly traded company in Mexico, it has a $2 Billion balance sheet lending business, multinational, with assets not only in Mexico, but in Central America and in the United States across different lending verticals, including auto financing, payroll financing and now small businesses.

So, starting at the end of 2018/2019, they partnered with us and we’ve really been able to fly since they were a critical part of our ability to really prove out the investment thesis in this market. And so to date, we’ve lent over $60 Million in loans and we’re barely getting started. You know, pre-COVID, we were on track to do in the range of $100 Million this year and, you know, very much like any other of these businesses, we…..the market is big, $50 Billion so we still consider that to be very small, but, in the scheme of things, we are the largest Latinx-focused lender in the United States and we are barely getting started.

Peter: So then, I’m curious about….I imagine the loan volume is going down with PPP, with the crisis, but you’ve maintained a certain level of lending throughout, I imagine.

Sean: Yes, we have, but like the benchmarks that I’ve been hearing, volumes are down between 50 and 80% and we’re within that range. We lend to businesses that are earning and we really need to recognize our (inaudible), you know, our private business is designed to expand a company that was growing. These businesses don’t need growth capital, they need repeat capital and they need recovery capital which is at below market rates.

That’s not sustainable for the long run, but finding new ways of changing our capital structure and the participants in that capital structure so that we can give better terms in the market even beyond relief and we could qualify that as recovering. So, we’re actively working on that because the last thing we want to do is put our businesses at risk, especially during these times. Everyday, all day we’re always about, you know, underwriting the loan for mutual benefit and so we need to be very thoughtful and careful about how we deploy capital during these times.

Peter: Right, right, okay. So then, as we look forward to, hopefully, coming out of this crisis sometime in the near future, when you look at what’s on top for Camino, what’s coming up for you, guys, what are you excited about?

Sean: What I’m excited about and if you don’t mind, I’m going to share a very brief framework. The framework of our strategic thinking is that post-COVID’s in three stages, the three R’s. The first R is Relief, the second R is Recovery and the third R is Reinvention. And so, as we think about Relief, you know, in our case it’s been a content play…predominantly, some fintechs have been able to be PPP lenders themselves if they have sufficient scale to be able to do it cost effectively. In our case, we did a predominantly content play.

The second one is Recovery, right, Recovery is really how can we design our products for below market return. So, work with different philantrophists, work with different players in the space that want to help this market and then design our products around that Recovery/Rebuild Capital, I’d like to call it that. So, right now, we’re right in that stage so, we’re actively talking about launching a Recovery Fund….actually, where you live, Peter, there’s a….. (laughs) I’ll let you know as soon as we get that going……

Peter: Okay.

Sean:….and so, to really enable Latinx businesses, particularly the undocumented, that haven’t been able to even get access to a loan and let alone recovery.

And then the third stage is the Reinvention stage, this is the part that gets us all really excited. I can tell you that Reinvention is just going to amplify things that we’ve been identifying for a very long time, the use of tech and AI in order to not only automate our processes, but to make better, smarter credit and fraud models, the need for transparency in the process giving our borrowers the best market terms available, the importance in hybrid of a marvelous UX, UI, but one that super serves specific market niches.

The fourth element that I’ll talk to you about in the Reinvention Stage is really coalescing our stakeholders, not just the alternative lenders, right, but the government, private investors and in my case, organizations called CDFI’s, Community Development Financial Institutions. I think it has been noted in PPP 2.0 there had been dedicated allocations to CDFI’s to lend into the underserved markets that we’re talking about, but there’s been a lot of under investment in these markets. The adoption to technology has been slow, with the exception of a few CDFI’s out there.

Quite frankly, it’s been hard for us to become a CDFI ourselves. I hope to announce in the next few months we too will be a CDFI. And then, how can private investors participate in this process, right, as it relates to creating tax incentives in order to decrease the cost of capital, how do banks play a role, how do we modernize CRA, the Community Reinvestment Act, which is really designed for small businesses in the 90’s, you know, really anchored around businesses between branches in order to (inaudible), but, quite frankly, they’ve been closing branches and even banks are just going south. How do we modernize that?

So, that’s going to be an area of our focus at Camino Financial and, you know, I do think there is a silver lining here. I even think the Black Lives Matter protest have really raised a lot of awareness on the need and disenfranchisement of Latin and brown communities and I think there are the best…..alternative lenders are the vessels in which we can enact that change, but we also still need to work with the government, we need to work with banks, we need to work with private investors to make sure that we construct through this capital and deploy this capital in very efficient means that are nuanced for this market.

Peter: Right. We’ll have to leave it there, Sean, best of luck. I’ll be following along with your progress closely and I wish you all the best as you grow your business.

Sean: Thank you so much, thank you for having me.

Peter: My pleasure, see you.

Now, these are challenging times for any small business lender, certainly, Camino Financial will be no different and I do appreciate the fact that, you know, Sean is already talking about the recovery phase of this crisis. He did mention how Latinx business owners have been impacted in a dramatic way during the crisis, but he is looking at the recovery phase and the fact that he is so ingrained in the community, it seems to me that he’s got such close ties with many of his borrowers.

Those are the sort of things that are really going to hold him in good stead, hold Camino Financial in good stead as they emerge from this. I think, it’s companies like those that really maintain a connection with their customers and the borrowers really appreciate the extra efforts they’ve done. I think they are the companies are going to come through this crisis as well.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

Podcast: Play in new window | Download | Embed

Subscribe: Apple Podcasts | Android | RSS

LendIt Fintech Launches Industry Job Board for Job Seekers and Employers

Search fintech jobs or source fintech talent on the new industry job board

June 16, 2020 By Peter Renton 2 Comments

With tens of millions of people losing their jobs in the last three months, here at LendIt Fintech we decided we should do something to help. So we have launched a Jobs Board to connect financial institutions to fintech talent.

LendIt Fintech was founded on the idea of community. The job board is one more way LendIt can leverage the strength of this community to help during uncertain times.

The job board currently features open roles from organizations like Cross River, FIS and R3. It is free for job seekers. Job posting is free for employers through July 15th after which there will be a modest fee. Go and check it out now at jobs.lendit.com.

The Global Covid-19 Fintech Market Rapid Assessment Survey Launches

The Cambridge Centre for Alternative Finance, the World Bank and the World Economic Forum launch a new survey to analyze the impact on fintech of Covid-19

June 15, 2020 By Peter Renton Leave a Comment

The most ambitious survey in the history of fintech is getting under way today. The Cambridge Centre for Alternative Finance (CCAF), in partnership with the World Bank and the World Economic Forum, is releasing the Global Covid-19 Fintech Market Rapid Assessment Survey.

It is a massive undertaking that will draw on the resources of these leading research institutions. They aim to reach more than 15,000 fintech companies in 190 countries to discover the impact of the pandemic on the fintech market.

LendIt Fintech is proud to be an official Global Industry Survey Partner and we will be helping to promote this survey over the coming weeks. It is really important that every fintech company responds to the survey so we can get an accurate assessment of where we are right now as an industry that will inform policymakers around the world.

Fintech plays a vital role in providing financial services to consumers and small businesses throughout the world. Governments are beginning to recognize the importance of fintech and one of the goals of this survey is to see what policy responses might be needed to support fintech in helping to stimulate the economy in these uncertain times.

The executive director of the CCAF, Bryan Zhang, had this to say about this survey:

Global challenges require global solutions, this survey is a collective effort to bring the global FinTech ecosystem together to share their insights, express their views and voice their concerns in light of Covid-19. In turn, the rapid assessment survey findings will inform market participants, regulators and policymakers to take swift, appropriate and evidence-based actions.

Take the Survey Today

On to the survey itself. It was just launched today and is available for all fintech firms to complete. It should take around 30 minutes to fill out and there are two versions:

Global Alternative Finance Benchmarking & Covid-19 Rapid Assessment Survey
For marketplace lending and crowdfunding platforms this combines the annual benchmarking study along with the Covid-19 survey.
Global Covid-19 FinTech Market Rapid Assessment Survey
For all other fintech companies, the above link with take you to the Covid-19 survey.

It is very important that you complete this survey in a timely manner. The goal of the CCAF, the World Bank and the World Economic Forum is to have the results for this survey published before the end of Q3. There will be a great deal of work to do to make this happen, so it is imperative that you complete the survey as soon as possible.

LendIt is a Long Time Collaborator With CCAF

LendIt Fintech has been collaborating with CCAF since 2014, even before the Centre was formally established. We have partnered on many surveys, the leadership there has spoken at LendIt in both Europe and the USA and I have spoken at their excellent event in Cambridge.

We partner with them because their work is important. While there are many universities around the world doing good research, no other institution has the global reach to take the pulse of fintech in every important region in the world. Their reports have become a must read for serious industry participants.

Please support their work and complete the survey right away. We will all be stronger because of it.

Marketplace Lending News Roundup – June 13th, 2020

June 13, 2020 By Peter Renton Leave a Comment

During the week I share the latest marketplace lending and fintech news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

Square: Why Its Stock Is Soaring And How It’s Threatening Banks by Forbes – Another fascinating piece from Ron Shevlin on Square and why it continues to do so well. He argues that Square is a bigger threat to banks than Amazon or Google.

Early wage access providers see usage spike during pandemic by TearSheet – While people still need to do better financial planning there is just no compelling reason why they should wait two weeks (or longer) to receive their earned wages. This is even more important in a crisis.

What Are Fintechs and How Can They Help Small Business? by The New York Times – Excellent piece in the New York Times confirming what we have been saying all along: “…these fintechs held their own or bested more established financial service firms that struggled to roll out promised programs.”

Amazon unveils small business credit line with Goldman in latest tie-up between tech and Wall Street by CNBC – It is now official. After being rumored earlier in the year CNBC is reporting that Goldman Sachs is partnering with Amazon to provide small business credit lines.

My next act. Closing the curtain on P2Bi. by LinkedIn – If you have been wondering what happened to Krista Morgan, the former CEO of P2Binvestor, she has finally penned a LinkedIn piece on her experience and what is next.

Goldman Sachs closes Marcus account to new UK savers by The Guardian – Marcus has done such a great job in the UK of attracting deposits that they are coming close to a £25 billion regulatory limit, so they have closed down to new customers.

SoftBank-backed Lemonade files to go public by Techcrunch – Leading insurtech player Lemonade has filed to go public so we all get to see their financials now and as Techcrunch points out they are not pretty.

The World’s Best Banks 2020 by Forbes – Statista surveyed more than 40,000 customers from 23 countries for their opinions on their current and former banking relationships to create the list of world’s best banks.

Podcast 251: Rohit Arora of Biz2Credit

The CEO and Co-Founder of Biz2Credit talks small business lending, the PPP, loan approval rates, partnering with banks, M&A and more

June 12, 2020 By Peter Renton Leave a Comment

The small business lending space continues to focus on the Paycheck Protection Program. But as this program winds down, it is legislated to end on June 30, what happens next for the small business lenders?

Our next guest on the Lend Academy Podcast is a fintech industry veteran. Rohit Arora is the CEO and Co-Founder of Biz2Credit, a small business lending platform that has been around since 2007 (he has been on the show twice before). While his company has been very much focused on the Paycheck Protection Program (PPP) Rohit is looking at what comes next for small business lending both from a fintech and bank perspective.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

How Biz2Credit has adapted to the pandemic.
Their experience with the PPP loan program.
Why there is still demand from small businesses for the PPP.
The lending they are doing outside the PPP.
What is happening with non-PPP lending approval rates.
How Rohit sees the non-bank small business lending space changing.
The trends Biz2Credit is seeing with their own borrowers regarding loan payments.
How far the cost of borrower acquisition has dropped.
A description of their Biz2x lending-as-a-service platform.
How their conversations with banks have changed in the last two months.
Why they gave their Accelerate SBA program away for free.
How the PPP program will impact SBA 7(a) lending programs in the future.
The biggest change that Rohit hopes will happen as a result of this crisis.
The scale that Biz2Credit is at today.
Rohit’s thoughts toward M&A in the industry right now.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 251 – Rohit Arora.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 251-ROHIT ARORA

Welcome to the Lend Academy Podcast, Episode No. 251, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Peter Renton: Today on the show, I am delighted to welcome back Rohit Arora, he is the CEO and Co-Founder of Biz2Credit. Now, Biz2Credit is one of the old guard of online lending, they’ve been around for many, many years. This is actually the third time I’ve had Rohit on the show and I wanted to get him back on because, obviously, small business lending is front and center these days with the PPP and the struggle for small business.

I wanted to see what Biz2Credit has been up to there, he has very interesting things to say on that. He also talks about the future of small business lending as we know and he thinks there is going to be a lot of changes happening there, we talk about his Biz2X product which is sort of a banking-as-a-service type product, we talk about the SBA and the need for the SBA to approve more fintech lenders and much more. It was a fascinating interview, I hope you enjoy the show.

Welcome back to the podcast, Rohit!

Rohit Arora: Yeah. Thanks for the invitation.

Peter: My pleasure. Just for those who probably might not be aware exactly what Biz2Credit does, what don’t you give us just a brief description of your company.

Rohit: Yeah. Biz2Credit is a fintech lending player, we’ve been around for 12 years, this is our second recession that we are seeing, very different from the first one. I think there has been great learnings and also, what we foresee is the world’s going to change very dramatically after this crisis.

Peter: Right, right, indeed. So then, maybe let’s just start with that, how have you adapted to the challenge? I can see you’re not in your office at work, I know you’re based in New York so, just tell us a little bit how Biz2Credit’s adapted over the last couple of months.

Rohit: Yeah. So, I think the biggest, you know, adjustment has been working remotely. We are having a digital player from our inception, but still working so remote. For everyone, it has been a great discovery and a great learning process personally. I think from a consumer side, or from a customer side, what we have seen is a tremendous adaption of digital tools and self-service, you know, mindset which wasn’t there earlier. And, we have seen that happening with our partners also, like Paychex and some of our other critical partners.

You know, the level and amount of collaboration has increased tremendously as two to three months time and I think there is more appreciation about doing things in a more digital and a more streamlined manner so, I think that has all been a positive. I think the negatives has always been that, you know, in an office you have better collaboration, you can exchange more ideas, you can do more stuff and we were really set up for that, you know.

We got a great place in One Penn Plaza last year, invested a lot of money on the offices hoping that it might help us grow our business even faster, foster more innovation so, I think that part, one is going to miss is if one is not able to go back to offices.

Peter: Right, right, understood, understood. So, let’s get right into it and talk about the PPP. I mean, you’re a small business lender and that’s been sort of dominating the conversation here for the last couple of months so, why don’t you just tell us about your experience with it and what’s happening today.

Rohit: Yeah. So, the PPP Program, I think it’s a very interesting program, it started so suddenly, it was not really well thought of, initially, a lot of confusion, over, I think, three/four weeks then it got better. So, initially, we were referring a lot of customers, thousands of customers to our banking partners and then sometime during the last week of April/early May, we got our own license to be a PPP lender. We also are one of the first fintech players to get the Fed facility also, you know, pretty quickly we offered that. So what we have seen is three things, three distinct factors.

One is, especially amongst small business owners, you know, how quickly they adapted to being offline, from an offline mindset to being 100% online mindset. That was, I would say, a major discovery that even we had…… people who are looking for a lot of handholding in this instance. They very quickly moved to become a fully digital kind of thing…you know, I would say digital, very savvy so, that was a very interesting stuff.

The other thing we also saw is banks…how far behind we are still on the digital journey. We have worked with a lot of banks, the banks were deploying like thousands and thousands of people just to process these applications and I think, eventually, they did a good job. But, you know, the whole process has been very painful and I foresee that process is going to be very painful for them when the forgiveness program starts because they are still not really ready from a digital aspect.

So, I think that has been a big challenge with all the banks that have worked in this program. We worked with quite a few banks and one big challenge was, you know, how do you integrate into something like SBA E-Tran. SBA E-Tran, in itself, is an old system and banks have no idea. Until we didn’t become a lender ourselves, you know, we had no access to that system for the platform. So, we saw those challenges very closely and the level of documentation and still the hoops and loops the business owners had to go through to get their initial money, it was pretty painful, actually.

I think things are streamlined, I think the challenge of the PPP Program has been that the vehicle designed initially…. everybody was expecting a quick recovery, everybody thought that end of April, or early May economies will re-open, that hasn’t happened. I think the recent changes are trying to address that issue that is why the PPP Program has become very slow right now, compared to where was even a month back, and, I think, people still need a lot of money. When I’m talking to business owners, small businesses, I think, the COVID crisis has been a crisis which has hit small businesses disproportionately hard, actually.

Peter: Yeah.

Rohit: And, we haven’t really seen the pain because of two reasons. One is, you know, large amounts of money have come in the PPP Program and even a larger amount of money has come in the Unemployment Program for the workers. I think we’ll start seeing the actual pain sometime in July as the economy reopens and the government money starts to dry up.

I think that’s where we see a lot of bankruptcies and we see a lot of pain in the economy. So, I think, that’s where, you know, more money is required and I think the government has to make changes in the PPP Program so that all the money that they’ve allocated actually gets loaned out, or is given out. That’s very important because right now, one thing they have to keep in mind, that’s the only program in town, you know material program in town for small businesses.

Peter: Right.

Rohit: There’s nothing else available right now.

Peter: And so then, are you continuing to lend today in the PPP Program, or is it pretty much dried up?

Rohit: We are, we have continued lending. So, one of the things that we have seen is that the larger of the small businesses got money from their banks, but the actual small businesses actually couldn’t get money from the banks so, we are still continuing the program. The program has like sort of stabilized, it’s not growing, but also has not decreased, the demand has not decreased, actually.

My view is that once these changes were made and passed by the Congress and gets passed by the Senate, once that happens and as the economy starts reopening, I think people will need more money and reopen their business, but they have a lot of accumulated rent right now, they have a lot of accumulated bills that they have to pay. They’re not paying it right now because, obviously, they are not open. Now once that starts happening, I think, you know, the PPP money will run out very quickly. Actually, there will be need for even more money because every other program, meaningful programs in small business lending is, right now, shut down.

Peter: Right, right. So, that brings my next point. In my next question. Are you doing any other lending outside the PPP?

Rohit: We are doing a small …….I think, unlike a lot of other players, we haven’t totally shut down our traditional lending programs, but, obviously, like everybody else, we have to be very cautious. You know, we only into essential services businesses, we are only lending to businesses which are, you know…….in states which have reopened, like in New York, everything is still shut down so, lending money to a retail business in New York does not make any sense. So, I think we are trying to see the investor appetite to start coming back so, that’s the good news.

I think what is going to really happen is that over the next four weeks are very critical because as we reopen the markets and the economy, whether the infection will go up, or will remain the same, really, really the sentiment in the market and also, you know, whether investors will want to come back. The good news is that interest rates are at a historic low, a lot of investors will invest money right now. We are getting calls from very large asset managers who want to be fully ready to lend money when things come back, but, at the same point of time, there’s a lot of caution right now when, you know, people don’t want to jump the gun too much, but really, as soon the economy fully reopens.

Peter: Yeah, that makes sense, that makes sense. So, I get your emails and you’re often….you’re tracking approval rates and that’s something that you’ve been doing for many years now. I’d be curious to get….if you could share with the audience what’s been happening with approval rates, I mean, obviously, there’s not a whole lot of lending happening beyond the PPP, but how were approval rates trending in 2020?

Rohit: So, non-PPP approval rates are at a historic low right now, they’re even worst than the….you know, like we started our approval rate tracking in 2011 and there were soft……today, what has also happened, unlike in 2011 or just after the last crisis, is even the alternative lending has dried up, more or less. So, I think that’s a double whammy because not only banks are not…..because banks have suspended all kinds of other lending programs, even 7(a) right now is on hold so 7(a), we are expecting it to start coming back sometime in June because in this country, you know, small banks, small to mid-sized banks are very active as SBA 7(a) lenders.

They got very busy in the PPP Program so they also have not done…like very little lending in 7(a). I am hoping they will start coming back because government has made the SBA 7(a) Program a lot more attractive for borrowers, as well as for banks. I don’t see, except for 7(a) Program, normal lending coming back till the time that the economy has reopened.

Alternative lending, I think there is a lot of hunger among the investors, but a lot of the players, the larger players in the space, have already stopped lending and are facing a lot of their own challenges because they are lot of these balance sheet risks and they are having even defaults right now. I think, for them, it’s very tough for them to emerge out of that, you know, in their former after. I think a lot of them will be probably shriveled, or they won’t be able to restart lending anytime soon. Interesting to see that bank lending is going to rebound alternative lending, in large forms and a lot of them are suffering. While big asset managers are now looking at the space, but, in my view, next two to three months are going to be pretty challenging in the approval rates and in the lending space world.

Peter: Right. I mean, obviously we know that many of the non-bank lenders have been shut down now for some time, but there are some, like yourself, that are still lending. So, what you’re seeing, like for approval rates, are approval rates even worse for non-bank lenders than for banks, right now?

Rohit: Oh yeah, yeah. So, on a percentage level actually, non-bank lenders are performing a lot worse than even banks today because what has happened is for a lot of them, their own credit facilities have been frozen, or the securitization market is done with and there’s a lot more caution on that side so, obviously, their approval rates are very, very low.

The other thing that has also happened is a lot of good businesses who would traditionally borrow from alternative lenders have got PPP money. They’re not coming into the market to borrow money right now for the next few months because they have PPP money and they want first to ensure that they spend that so, a lot of the people who will come into the market right now to borrow are the weakest of the businesses, or in the sectors which have gotten impacted the most where you cannot do that kind of lending.

So, that’s another reason why, you know, the approval rates have gone down because prior to the crisis in the last two/three years, you know, a lot of good, mainstream businesses had made a migration towards alternative lenders. They were the ones who were powering a lot of these alternative lending boom and once they’ve got the PPP money and there’s very little economic activity, they have no reason to borrow money right now because they have no place to invest and get the return on their money. So, that’s the other reason why the approval rates in the alternative lending space are a lot less than with banks.

Peter: Right, right, okay, that makes sense. So, you’ve been around in this space for longer than just about anybody, the small business lending space, so how do you think this is going to change the small business lending landscape, particularly I’m talking about the non-bank lenders. How do you see it changing, you know, in the medium to long term?

Rohit: So, I see three very distinct, you know, trends happening. One is…..I’ve always been a proponent of very good risk management, even during good times, so one we have been sharing with the market has been that the defaults on our platform have never exceeded more than 3.5%, compared to what publicly traded folks where the default rates were in double digits.

So, one thing I’ve always said and stressed has been that, you know, you need to be good at risk management, you need to be good at collecting money back during good times because if you don’t do that, it will come and haunt you back during bad times. So, we have seen a rise in the modifications, we have seen the rise in people wanting to reduce their payments on our platform very significantly, but we didn’t see defaults. And, there were a few reasons behind that one…one was, obviously, a lot of these merchants, or these customers, you know, we work with them directly because we don’t accept anything through brokers.

Peter: Sure.

Rohit: The second thing was that we were in constant touch with them even prior to the crisis all the time so, like I think that helped us because we have been using all of these tools on cash flow and helping them with that. So, that’s one very distinct trend that if you don’t invest in risk management, you don’t invest in your back office, you don’t invest in, you know, ways how you will not just lend money, but how you will get your money back. That trend is over now where alternative lenders can just get a lot of capital out there and they can just keep lending money so, I think that’s changing dramatically.

The second trend which is….we’re very much focused on the first trend, and I think that has changed because alternative lending in the visible is not hot anymore and it has not been hot for the last three/four years, some of the performance in the public markets and other things. I think the challenge for a lot of these players in the fintech lending space has been that they have been running businesses where the unit economics were very negative, actually, and that is coming home now. So, that’s like creating a lot of these problems among a lot of players because they’ve run out of equity, you know.

So all the money even if they have it on the balance sheet is just credit lines and all that and for them to raise any more equity capital in the market right now, especially if you are an alternative lender, whether you are fintech, non-fintech, it doesn’t matter, it’s next to impossible, right now, or the next six months. It’s not going to happen. So, I think people who don’t have much equity, or who have been running business at a loss, you know, are seeing a lot of trouble and pain, right now. So, we are seeing a lot of consolidation in the market. A very interesting, you know, figure we are seeing is that, you know, as we are going back into the market for our digital originations, we are seeing costs of acquisitions have dropped by 80/85%.

Peter: Wow, 80/85%!

Rohit: Exactly, but a lot of people cannot even have money to, you know, do any lending and if they can do lending, they don’t want to acquire any customers so that has happened. I think the third big trend that is going to happen now is that, you know, the fintech players and equity banks, in my view, the partnerships are going to get strengthened. So, I think I’ve been propagating that, you know, not only will banks go digital and they haven’t really done it. It’s not a question of banks going digital, I think the convergence will speed up dramatically and that’s going to happen because of, you know, more than one third of the branches will just shut down.

You know, I can already see that in Manhattan. You know, Manhattan is an overbanked island out there, but I can already see a lot of branches actually shut down permanently. There are notices out there that they’re shutting down these branches forever, actually already. I can see that happening across the country and I can also see that the fixed costs have to go down tremendously.

I think for fintechs also, it becomes very imperative that they’re not the new thing in the marketplace so, the days when they can go and raise any kind of VC money or equity money is gone. So, the consolidation is happening, you know, good fintechs will still be able to raise a lot of money, but I think that will be far and few, and I think that’s where it will become very important for fintechs to start behaving more like banks in the financial metrics and banks to start behaving more like fintechs in their innovation.

Peter: Right, right. I think that banks got a wake up call with the PPP because a lot of them were not really ready, particularly smaller banks and I know a lot of them partnered with others. We will probably segue way into sort of you Biz2X product which is your banking product. Why don’t you firstly just describe exactly what that is.

Rohit: So, two years back, we were getting a lot of inquiries from banks and non-banks…..you know, as a company we have built our own platforms and in those platforms, over the years, we got all the global package and all that stuff. So, banks were coming to us and we said, why don’t we offer that as a platform with a data science play. And then, we formed another entity, Biz2X, and we started offering it so now, we have clients like HSBC, Banco Popular, Customers Bank and some other banks out there. We thought, you know, that could be a very good business.

Obviously, last two years has been, you know, not that easy because we got full traction but still, banks have been very slow, as you know, they are not easy, they are animals who give red, in a way. But, I think all the investments that we have now made in Biz2X platform…we are offering it as a platform and a data planning credit play…you know, it is actually very interesting now because what that is starting to do finally is that, you know, in the PPP program we saw all of our interest from banks who partnered with us and used our digital technologies which we give for free. We didn’t want to charge anything for that, but at the same point of time, we are starting to see a lot of inquiries coming in.

Banks are worried because if the next wave of the crisis comes in, the COVID crisis, that’s going to be very bad. And even if it doesn’t come in, you know, they have realized that the customers have become digital-ready and they cannot afford to have any branches because branches have been really ineffective during this crisis, you know, more or less. So, they’re saying, how do we go digital and the conversations I am having with my banking partners and all the other banks in the last few weeks, now we’ll have to see how it translates into reality.

But, the conversations we’re having is digital is not an option for us, digital is the only option, you know, kind of stuff. Right now, it will all depend on what banks do because a lot of them have a certain habit of ….let’s say this virus vanishes in the next two weeks time, let’s say, I think banks have a habit of just going back and reverting, but, I don’t think so that will happen 100% because the customers have gotten so used to analog, you know how people are, not willing to go out and going to the branch anymore, they’re scared.

Peter: That’s going to take some time, that’s not going to change until we have a vaccine that’s broadly available which could be a year or more so, who knows. So, I feel like they’re going to be forced their hand. So, are you expecting that….you know, you said you’ve talking to banks, now you’ve got a few big banks on board, are you expecting the next 12 months to sort of accelerate a lot of the conversations you’re having?

Rohit: Yeah. So, I think one good thing with the PPP Program, banks realize the value of digital platforms.

Peter: Right.

Rohit: They also realize how old their existing LOS systems and LMS systems are and they really struggled with that. You know, I know banks, large banks, I’ve talked with them they can’t even do an SBA E-Tran integration and the reason was it was difficult. Their own backend systems are so antiquated that, you know, they don’t even support API’s, so sorry we can’t do it. They were manually typing everything into SBA E-Tran. So, I think that’s going to happen.

I think the other thing that’s going to happen, in my view, in the US is that there’s going to be tremendous amount of consolidation in the banking space because, I think, right now, the government’s stimulus money has delayed the pain, but this pain is going to come, bankruptcies are going to come among businesses, loan delinquencies are going to go up quite a bit because the economy has got a real shock and that shock has not really been transmitted.

The government has really tried to block that shock for the time being, but it’s going to eventually come. That clearly means that’s there’s going to be a tremendous amount of consolidation in the banking industry, that means they have to invest more money in technology, they will have to de-leverage their branch network pretty quickly. That also means they will have to find ways and means to serve the customers in a more remote fashion, they’re not really used to it today.

Peter: Right, right. I see that’s one of the big trends that’s really going to change. So, I know you touched on it, but I just want to talk about your Accelerate SBA Program that you provided for banks. I mean, maybe just describe it and how you’ve implemented that program so quickly.

Rohit: Yeah. So, one of the things we did was that, you know, we figured out ….we were already working with payroll companies so, we figured out during this program that payroll data bas become the most valuable piece of data extending the PPP Program. So, we actually went ahead and developed full fledged API’s with Paychex, ADP’s and also other forms and also partnered with Plaid also and then we rolled out a cloud-based platform.

In the SBA Accelerate Program, we can give it for free, you know, during this program because we thought there’s no point in charging for this kind of a product, or a service. Some banks adopted it, some banks really liked it, but couldn’t adopt it because they have their own challenges, you know, in the space. But, I think what it has done is that it has helped them to understand what digital really means, or how to do things in a smarter and a better fashion, and also at greater agility and speed that a fintech will bring, or a cloud offering will bring in. I think that has been an eye-opener for a lot of banks. I think, for us also, the key thing is that banks are still going to be banks, they will still take the time for …..because a lot of them were not able to use the platform not because they didn’t like it.

There’s this whole process of on-boarding someone, even for a free platform takes some time. So, I think they are also starting to realize and a lot of these banks are now very keen to take advantage of the SBA 7(a) programs and they are coming back to us and saying, okay, you know, this is good, can we leverage you for that, or can we leverage you for our other products. So, with some banks…you know, we are talking to launch some merchant financing products once the crisis ends, but there is going to be a tremendous need for working capital, especially on the retail businesses because they have been hit the hardest.

Peter: So, do you think then, down the road, the SBA 7(a) Program, which is probably the most popular program there, is that going to become much more digitized given that these banks….every 7(a) lender pretty much has been a PPP lender so they’ve had to move much, much quicker than they have in the past. Do you think then when they go back to…when 7(a) lending really kicks in again, do you think they’re going to take some of those learnings from the PPP and really make a much more streamlined process?

Rohit: I think that’s a good question. What the government is doing and they do it after every recession is they try to make the 7(a) Program a lot more attractive for both borrowers as well for the lenders for a certain period of time. It’s only for a certain period of time so it’s like six months to a year and the Trump administration has done it until the end of this year. So, my view on that is that, yes, some of the banks will eventually take advantage of it, some of the banks will want to go digital.

I think part of the challenge also is SBA, SBA itself is so antiquated as an agency. For them to go …….part of it is, you know, do they really want to go digital, but I think quite a few banks really want to digitize their work flow and want to digitize their on-boarding processes because you also need to do a lot of monitoring for these SBA loans. So, in my view, quite a few banks will do it, some banks will just go back to their old ways actually and do what they’re doing, but I think the guys who are going to survive and try will have to do something. They cannot hope, you know, that the world will just revert back to the mean, that’s not going to happen.

Peter: Right.

Rohit: Customers are not going to want to meet a relationship manager, they don’t want to come to a branch anymore. So, I think the customers have gotten more demanding than even the banks today.

Peter: Right, right, and that’s certainly going to be driving….I think the banks’ behavior will be driven by their customers and they’ll say, no, we want a digital solution here, we want it to be quicker and easier so we don’t have to go into a branch.

Rohit: I think the biggest change can happen if…..like the PPP Program, we have the Treasury allowing fintechs to come directly. If SBA and the Treasury allow some of these fintech players, to also become direct SBA 7(a) lenders then there will be a huge paradigm shift in the market. A lot of these traditional lenders will be massively forced to introduce something very quickly.

Peter: Right. That is very true because I know…..like Funding Circle, for example, they’ve been trying to be an SBA lender for a couple of years now and, hopefully, that will be one of the outcomes here.

Rohit: That’s what I am hoping also exactly because that will be the biggest change in the market, because my fear, otherwise, is that banks are talking about going digital, but I know, in general, their habits are very hard to change. They are actually going back to the same thing or do some half digitization, or something. Some banks will do it, but a lot of them might not just, you know, pay much attention to it once this crisis ends.

Peter: Right, right. Well, I certainly hope that most of the fintechs end up being approved here. So, we’re almost out of time, just a couple of questions. I’d love to get a sense…..it’s been several years you were last on the show so, tell us, even before the crisis maybe, the last three months have not been very typical, the last two months especially, what scale are you guys at today? How big is Biz2Credit when it comes to like originations, things like that.

Rohit: So, in terms of origination, we were tracking this year, prior to the crisis, of doing between $600 to 700 Million in origination. You know, we have been, I would say, more of a patient player than trying to do billions of dollars and then what the consequences are. You know, my take on that is that once the markets come back, we should be able to, if not this year, but by early next year, get those numbers, or even exceed those numbers because the demand is going to come back very strong whenever it comes back and the competition has actually reduced.

So, from that side, you know $600 to 700 Million, we have also invested a lot of money in our technology and data science so we are up now to 350 people as a company, grown very profitably over the years and so, we have good liquidity right now. Last year, we raised $52 Million from Silicon Valley Bank and more so, the idea has been now we are investing very heavily on the technology and data science side. We just hired a few people because the good news now is that there’s a lot of very high quality talent really available, we are doing that. Also, we have become more comfortable in hiring remotely which, obviously, we were not that comfortable earlier (Peter laughs).

Peter: I don’t anyone was comfortable really before this crisis.

Rohit: Exactly. So, I think that has helped us also as a company to grow. I foresee that, you know, if we keep growing in a disciplined manner, Biz2Credit, I think we were among one of the bigger players, but not among the biggest, you know, earlier.

Peter: Right.

Rohit: I think in the next year, or two, we could be one of the largest players and a very large player on the Biz2X side also because I strongly feel there’s a convergence happening between the technology, data science and the credit markets and the whole behavior. Both of the customers and the lenders will see a paradigm shift. I think we are moving towards finally ….it can happen in the US by the fall to see open banking and this whole other stuff will start coming in because of this crisis.

Peter: Right, right. Okay, sounds like you’re looking to sort of expand market share, are you going to look at, potentially, any M&A with some of your distressed competitors, is that something that’s on your radar?

Rohit: We are, actually, getting a lot off inquiries right now, as we speak, from some of the distressed players. Yeah, we are looking at some of them very closely. Obviously, it’s a little bit tricky because portfolios are not performing well and we have to be very careful.

Peter: Right.

Rohit: But, at the same point of time, the are receiving a lot of inquiries and we are looking at a few of them because I strongly feel that, you know, we were very patient earlier and we are growing in a very disciplined manner. Now, it’s our time to, you know, start growing still in a very disciplined manner, but at a much faster pace.

Peter: Right, right, okay. So, we’ll have to leave it there, Rohit, good luck. I very much appreciate your coming on the show today.

Rohit: Thank you for your time.

Peter: Okay, see you.

Now, digital initiatives are front and center of every bank. I’m, actually, even a bit more bullish than Rohit there. I, actually, think when not really going to go back at all to end-to-end, particularly when it comes to small business. I think we’ve seen here that most small businesses want digital tools, they want to be able to do this without going into their branch and I think they have now gotten used to doing it. I mean, the PPP was a real crash course for many banks who didn’t have front end tools and a lot of the service providers for them have stepped up and, obviously, Biz2Credit being one of them stepped up to help the banks really process PPP loans.

I think once customers sort of get used to this digital service, I just don’t see it going back. In small business lending, it think it’s going to pretty much go to an all-digital solution. Once we have, you know, small business lending back up and running, I think you’re going to see the 7(a) loans and the SBA and obviously you have all the non-bank lenders who are already, most of them end-to-end digital. I think it will be a good thing for small businesses and for small business lending.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

Podcast: Play in new window | Download | Embed

Subscribe: Apple Podcasts | Android | RSS

Experian Goes All In On Fighting Synthetic ID Fraud With Sure Profile

Experian is so confident in the ability of its new Sure Profile tool to detect synthetic identities it is putting real skin in the game

June 11, 2020 By Peter Renton Leave a Comment

Synthetic identity fraud has been on the rise for many years. As fraudsters become ever more sophisticated it is becoming more difficult to identify legitimate consumers. At the same time consumers are demanding a more frictionless borrowing experience putting lenders in a difficult spot. Enter Experian’s new Sure Profile offering that was released just last month.

First let’s try to define synthetic identity fraud. As the name implies it is the creation of a false identity but typically done using pieces of valid information. So, there is a real social security number but with false personally identifying information. Often this other information is actually valid, as in a real address, real name and real phone number but the combination does not match with any one person.

There have been many efforts to fight synthetic identity fraud over the last decade, but I don’t think any initiative is more aggressive than Experian’s new Sure Profile. I spoke with Alex Lintner, Group President for Consumer Information Services at Experian, to find out more about this new program.

Sure Profile is a New Approach to Synthetic Identity Fraud

The first point Alex made is that synthetic fraud has seen a significant increase during the pandemic but Sure Profile actually predates the crisis. It began life about eighteen months ago driven by lender demand for a better solution given the rise in the level of fraud sophistication. Nobody had really solved the issue of synthetic fraud yet and the problem was growing for most online lenders. While Sure Profile entered beta in January they accelerated the public release because of demand from lenders for a better solution now.

[Read more…]

LendIt Fintech Moves to All Virtual Events for 2020

LendIt Fintech USA, Europe and LatAm will be held as virtual events in 2020

June 9, 2020 By Peter Renton 4 Comments

After much deliberation over the past several weeks, the leadership team at LendIt Fintech have made the decision to move all of our major events in 2020 to an all-virtual format.

While many cities throughout this country and the world continue to open, we are still a long way from being able to host business events in convention centers with thousands of people. The reality is that we don’t know when exactly it will be safe to have live events like LendIt Fintech USA.

We all want certainty as we start to plan the second half of the year. And there is only one way we at LendIt Fintech can provide certainty for our USA, Europe and LatAm events in 2020, and that is to move to an all-virtual format.

The reason events like LendIt Fintech are so popular is that we can learn the very latest trends from the experts, meet with the people who matter most to us, and create new connections. At our live events, these three goals are met very efficiently in a compressed time period with thousands of like minded people.

However, with this apparently slow and uncertain reopening of commerce that we are now experiencing, it is not clear that we can successfully host a LendIt-quality event in 2020.

Now, with more than seven years of history as a leader in content production, networking innovation and journalism, and after receiving glowing reviews about LendIt Fintech Digital, we are confident that our virtual events will provide excellent value for our audience. You see, we aren’t trying to digitally replicate a live event, we are reimagining the best components of our live events within a virtual world. We will provide an experience that is as good or even better than what we can offer at our live events, all without the expense of travel.

We will have:

The highest quality speaker roster in the industry.
Interactive breakout rooms.
1-on-1 networking with Brella
All sessions available on demand
A huge and diverse audience

We will be launching our virtual events next week with some really special deals. We will also be cooking up some surprises for all of you that we will share at a later date.

If you have already bought a ticket or sponsorship for LendIt Fintech USA you should have received an email earlier today telling you about the benefits you will receive for your early support of us. If you are a confirmed speaker we will be reaching out to you over the next week or so.

We look forward to returning to live events in 2021. In the meantime, we understand you need to stay ahead on your fintech news, knowledge and relationships, and we are here to help you do just that.

Get ready to grow. Look for the launch of LendIt Fintech Virtual events next week.

Marketplace Lending News Roundup – June 6th, 2020

June 6, 2020 By Peter Renton Leave a Comment

Buy now, pay later startup Affirm just launched a high-yield account with an eye-popping rate. by Business Insider – The buy now pay later space is doing well in the pandemic and market leader Affirm keeps moving forward. Now, they are launching a high yield savings account.

‘Banks Let The Past Hold Back Their Future’: Mark Cuban On The Launch Of PPP.Bank by Forbes – Great piece by Ron Shevlin on the new PPP.bank initiative from Mark Cuban and Jill Castilla with some interesting comments from Cuban on community banks and the PPP.

Varo Money Raises $241 Million As It Moves Closer To Becoming A National Digital Bank by Forbes – I continue to be impressed with Varo Money and with this new funding round they are on the cusp of becoming a fully regulated digital bank. They will be a force to be reckoned with in digital banking.

PNC starts using OakNorth Covid-19 credit framework by Finextra – In this country Oak North is making inroads in middle market business lending. They announced today they have added PNC Bank as a partner here with their new Covid-19 credit framework.

Alibaba launches interest-free financing for U.S. small businesses by American Banker – This is an interesting new offering from Alibaba B2B. They are offering 60 days of interest free financing to small businesses on their platform that “meet Alibaba’s qualification standards”.

In First Move as Acting Comptroller, Brian Brooks Clarifies the Madden Rule that Impacts Online Lenders by Crowdfund Insider – The new Acting head of the OCC is the first comptroller with significant fintech experience. He has already made his presence felt by clarifying the Madden rule on his first day.

Podcast 250: Jacob Corlyon and Alistair Canal of Capital Collection Management

The CEO and President of Global Sales for Capital Collection Management discuss new approaches to collections during this crisis

June 5, 2020 By Peter Renton Leave a Comment

It is often said in the lending business that it is easy to loan money out, the difficult part of trying to get it back. And in challenging times, like we are living in now, that job becomes even more difficult. So, I thought it was time we talked about strategies for collecting money in tough economic conditions.

Our next guests on the Lend Academy Podcast are Jake Corlyon and Alistair Canal of Capital Collection Management (CCM). They are a collection agency serving fintech lenders, banks and credit unions with a new kind of approach.

We recorded this podcast on Zoom so you can watch this interview on YouTube or view it below.

In this podcast you will learn:

How CCM is different to the typical collection agency.
What it means to have an empathetic, people-centric approach to collections.
How they are using tech and AI in their business.
The types of verticals where they operate.
The impact of the economic crisis on their business in the last three months.
How consumers have been behaving when it comes to their debts recently.
How they treat those people who were already under duress before the crisis.
The differences in B2B and B2C clients.
Their advice for lenders today in dealing with new borrowers.
How to prepare your business if the economy gets much worse.
The ideal time to hand off collections to an agency.
What is on tap for CCM for the rest of this year and beyond.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 250 – Capital Collection Management.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 250-JACOB CORLYON & ALISTAIR CANAL

Welcome to the Lend Academy Podcast, Episode No. 250, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Peter Renton: Today on the show, we are talking about collections with Capital Collection Management. I’m delighted to welcome Jacob Corlyon, he is the Co-Founder and CEO and Alistair Canal, he is the President of Global Sales. Now, CCM haven’t been around that long, but they’ve already developed quite a reputation in the fintech and banking space. They have, I would say, a fairly unique approach in this industry, insofar as they use an empathetic and people-centered approach combined with technology to really become a more effective collections partner and we go into that in some depth.

We also talk about how they’ve changed their business in response to the economic crisis and the fact that we have tens of millions of people who are struggling, not that they haven’t struggled before. We talk about what’s next for CCM and how they’re really going to, you know, grow in such an environment. It was a fascinating interview, I hope you enjoy the show.

Welcome to podcast Jake and Al.

Jacob Corlyon: Glad to be here, Peter.

Alistair Canal: Yes, happy to be here, thank you.

Peter: Okay. So, let’s just get started with some background, maybe we could start with you first, Jake, and just tell us a little background about yourself and what you’ve done in your career to date.

Jake: Sure. So, my name is Jacob Corlyon, the Co-Founder and CEO of Capital Collection Management, been in the collections industry for 12 years now. I currently serve as the President of the New York State Collectors Association. Before my time here at CCM, I was in- house collections for a large fintech called Bankers Healthcare Group for many years so, very happy to be here with you guys on the podcast today,

Peter: Okay, thanks. And, Al?

Al: Yes, Alistair Canal here, President of Revenue and Chanels at CCM. For about 15 years, I was in the financial services space working for organizations, not just analog, in general, then Bankers Healthcare Group which as Jake said the fintech he referenced there. And then from there, I went to Promontory Financial Group and did some time at Live Oak Bank (garbled) quite a great pride in there to have worked for these companies. I’m delighted to be here with CCM working alongside with Jake here and excited to be on this podcast.

Peter: Okay, likewise. So, maybe just give us some background about CCM, explain what it does and maybe a little bit of the history of the company.

Al: CCM is a unique organization in many ways, in all wonderful ways and I will have to say, simply put, CCM provides peace of mind, Peter, for the organizations who retain us to work with their clients. You know, there’s a lot of ups and downs in the revenue life cycle so, you’ve got organizations that aren’t built and poised to handle those type of tasks so we can man and provide a really boutique and refined service for them which is first and third party. So, first party is an effort that is more of a softer approach that helps the clients kind of take on and collect on debt that perhaps is not collected at a certain time.

Then we come in as third party and act as CCM. The first party will come in as XYZ Corporation representing that as their company and third party will come in as CCM (garbled) more supportive and more collection activities at that point. What makes us really unique, and we’re so proud of this, is the culture that Jake’s built here for the last seven years is really one that’s people first, an empathetic approach, an approach that is really human, let’s talk human to our debtors and support our clients very well.

In doing that, we get a lot of engagement and a lot of people who are receptive to that type of approach and, more importantly, our clients feel really good because we’re protecting the brand while providing them a really good service that we feel is unparalleled out there in the industry to date. So, that coupled with the nationwide litigation services we provide, right. We are licensed in all 50 states, all states and that’s wonderful, not too many groups are and two, we provide a nationwide litigation service so we can better litigate in all of the jurisdictions throughout the country and it’s proprietary network that Jake and the team have created.

And then lastly, we occasionally look at organizations that says, you know, I don’t want to look at these debts in my books anymore, I’ve had it for a long time, can you consider buying this debt from us. So, we will do that as well so the sooner that (inaudible) factor that we offer is that, you know, first the third party, nationwide litigation and, lastly, some debt resolutions for them as well. And there’s other SRA items that we provide as a service for the auto finance bankruptcy solutions and things like that. Simply stated, that’s kind of what we’re doing. I’ll let Jake talk about the history of the company since he’s the Founder of the company.

Peter: Okay, Jake?

Jake: Yeah, that sounds great. So, we were founded in 2013 and our goal was really to change the face of the industry. So, for far too long, you know, the collections space and the collections industry really had a black model. We believe that our people, you know, coming with that people first approach, very customer-centric, I know it’s cliche, but we believe that a debtor should be treated with empathy and really provided with a concierge experience.

So, we get them back on track and have them continue to be a valuable customer to our clients and our business model was built on the premise that we should re-think, re-imagine and recover an industry that is vital to our economy. That’s kind of our premise and our calling to really why we created this company. Now, today, when you look at where we started it was really fintech focused and now, as Alistair alluded to, we’re in multiple industries, we’re continuing to branch out and find new industries that we can get into and help.

Peter: Okay. Let’s just dig in a little bit, I want to talk the process because, you know, when you think about collections, collection agencies, you think about people in a call center dialing customers, demanding cash. Obviously, it’s not a very pleasant experience all around…so, I mean, you’ve talked about sort of empathy and building a people-centric approach, how does that actually work in practice?

Al: You want to take that one, Jake?

Jake: Sure, go ahead.

Al: So, that’s a great question and I think Jake and I both agree, there is a bit of a notion out there, sort of an image, sort of a stigma, if you will, with respect to how the industry at large practices what they do and that’s one of the opportunities of working with us because of the way we built our company, the way we practice. It’s a mindset that we have in our organization and the mindset is one, again, you’re going to hear a lot about people first, empathetic approach and that unique kind of notion that we look for.

But, it really is the model and the philosophy and the principles that Jake and the team have put together that empower our team. We call them account representatives, or relationship representatives, not collectors because they are trained to engage, to listen, to have that ear that says, we get it, we get it. People have had challenging times, well I have. I think anyone who says they haven’t is perhaps not speaking the truth.

At the end of the day, the model that we have is one that is not…let’s send them a stack of letters that perhaps have very firm language and make people kind of shudder in their boots a little bit when they get that, they’ll be acting from a fear position versus, okay, I trust this person, I do have an obligation, they’re communicating with me in a very good manner and they want to help me succeed, they want to help me get healthier financially. So, the way we kind of …the way I think of it is when our representatives are on the phone, I often hear them say not these words, but, you know, tell me your story so we can really help you, right, a more successful ending financially and that’s really what they do. It’s not being done out there, the old style, the old model is not working. So, that coupled with people, technology and our philosophies is paramount.

One more thing I’ll add to that, I think it makes a big difference with us is, there’s a ton of attrition in the space. If you asked anybody who is familiar with the space will say there’s a lot of turnover with the people, the collectors and those who do this task for a living. With us, it’s virtually non-existent, our people like enabling others, that’s the culture that Jake has built and I think is a testament to what our thought processes are, how we treat our clients and the debtor as well because they’re both very important, they’re both very important to us. Does that make sense, Peter, I hope.

Peter: Yeah, yeah. So maybe we can expand on that a little bit and dig into the technology side because, I mean, obviously, I know that Jake when I was doing…I did a bit of research, I read how much you believe in using technology to help drive your business. So, maybe tell us a little bit how you’re using tech, I have read you are using AI as well, so maybe give us a little bit of color there.

Jake: Sure. So, technology is really paramount to our success. When you look at the industry as a whole, you know, there’s not a lot of agencies that are picking up…..you know, they way they’re using this great technology, trying to stay at bleeding edge, cutting edge of technology development and we really, you know, try to focus on that because we believe that we’re bringing out technology, we’re going to be able to drive and build efficiencies within the process to be able to do more with less people, to be able to provide a better service and more of that concierge experience for not only our clients, but our clients’ clients, the debtors that we’re talking to, whether that’s a business, or a consumer.

And, our technology platform allows us to leverage a machine learning engine and Artificial Intelligence to really give it, you know, a lot of the information that a human would have to remember. We feel that by doing that it’s going to do a couple of things for us. One is reduce human error which is going to ultimately boost our overall compliance as a company because when you look at the collections space, especially on the third party side, there’s a lot of compliance around, you know, what we need to do, it varies by state, you know, you have federal statutes.

So, it’s a lot for a collector to know as they’re working a national portfolio. So, what we’ve done is build all of that knowledge into our collections platform so that if for some reason a collector over here on the East Coast were to call somebody on the West Coast and it’s 8:00 in the morning over there, and it’s obviously earlier than 8:00 in the morning in California, our system just won’t let them make that phone call. If you don’t have a robust technology platform that allows you to really build on the compliance pieces, you know, that human error, they working through a queue and they’re trying to get as many contacts in a day as possible to help as many people.

So, you know, we feel that using our machine learning engine and using our AI, which I’ll kind of speak to a little bit in a second, is really giving us a leg up on the compliance side of things.

Then you look at…..you know, we’re using an omni channel communications method so we’ve got the standard phone calls, we’ve got the letters, we have SMS capabilities, we have email capabilities, we can virtually drop voicemails, you know, we have an AI chatbot.

So, again, that’s where we’ve taken that AI to the next steps so we have the ability to now have a 24/7, 365-collection life cycle where if you don’t have some sort of AI leverage within your platform, you’re not going to be able to offer that. And, we find that in today’s day and age, it’s somewhat core, especially when you have the younger generation now that’s going to be going into that will have issues and will need to talk to somebody.

They’re used to more self-service, they’re used to going to an online portal more talking through a virtual chat to really self-service their own needs on their own time. So, we’ve built all the knowledge again with all of our client parameters into our machine learning engine so that in giving that AI the knowledge to honestly do everything a collector could do, except engage in a human type of transaction.

But, if somebody wanted to not to talk to somebody they can come right into our web portal, or through our chatbot and go back and forth negotiating, you know, payment plan arrangement, or negotiating a lump sum settlement and the system can do that. It’s not everything that can stand up the documentation. So, we really put a lot of effort into our technology and a lot of capital into building, you know, really state-of-the-art solution with our vendor partners.

Peter: So, maybe just a quick clarification. I’m curious about….does your technology then…do you know that people are going to respond…. somebody will respond better to a phone call, somebody will respond better to an email, somebody will respond better to an SMS, you know, the time of day, people respond. Is that all kind of part of what you’re offering?

Jake: Yeah. So, we can extract all that data, which we do, to create, you know, collections models and things of that nature. So, we can take that data out of the system and pull that back into strategy.

Peter: Okay, okay. So then, you mentioned that you started in fintech and maybe tell us what industries you’re operating in, maybe beyond fintech.

Al: Absolutely. So, fintech is a big industry for us, right, it’s our largest account and customers bankers software group, (garbled) portfolio that we manage for them so we’re heavy into that space. Additionally, we’re into banks as well, right, so the financial services around banks, credit unions. Auto finances is a space for us as well, healthcare is a big space for us and there’s some secondary industries that we’re servicing like higher litigation. Shipping is becoming a nice one for us. Professional services is one where we’re finding some great successes so, there’s professional, legal, accounting and engineering, things of that nature. And, we’re always looking at sourcing new opportunities, for instances organizations that we’re meeting on a regular basis and fairly through the industries that exist out there are, what those needs are, what those needs (garbled) maintain that opportunity and keep growing.

Peter: Right, okay. So, why don’t we switch gears a little bit. We haven’t talked about the current environment yet and clearly, we know from reading the news that there are many millions, tens of millions of people who are struggling today that may not have been struggling three months ago. So, maybe… I’d be curious to know…let’s just start with how have you seen…what’s been the impact, so far, on the let’s just call it an economic crisis, I guess we can call it that, so what’s been the impact, so far, on the different business lines and how you’re operating as a business.

Jake: Yeah, that’s a great question. So, when you look at the economic current state of things with the COVID issues, you know, we’re really trying to stay in front of the game a little bit, So, as all of these started to happen, you know, we put a lot more focus on meeting with our clients and talking to them about what we want to be able to offer to you, you know, to their debtors and really kind of going down that path of, alright, we’re going to need to give people modifications on their current accounts or deferment options. What do those look like, what can we do, you know, what would you like to approve, one off bases, what can we just go ahead and do once we have somebody out there.

We want to really help these people and we understand that, you know, because our business model is really created on if we collect then we get paid based on a contingency fee, we really take a step back here, really try to help our clients and really try to help the end consumer business that owes our clients some money and say, alright, we’re going to take this approach, let’s talk about different options which is obviously pushing that payment out maybe at one, two, three, six months to where we would not necessarily generate any revenue off of that, a service, you know, to the economy and our clients to really be that ambassador in that brand, push for them.

So, that’s been a really big focus for us and we’ve seen a lot of people from out of our different business lines taking these deferment options, taking these loan modifications very well. We’ve also seen kind of the other side of the coin where people who are still working, or maybe they are a nurse practitioner or an MD that’s working more than ever in really hard hit areas, so they really kind of have more of an issue with timing to sit down and have some time to their self.

So, that’s kind of another avenue where we’ve helped in (garbled) auto pay, things of that nature so, we’re really trying to help on both sides of the coin there. Outside of that, we’ve seen still a lot of people have funds to make payments to our creditors and, again, to add to some of the more aged debt we’ve kind of a spike a little bit in offers for lump sum settlements in full coming through our doors that we’re able to review with our clients and get those accepted as well.

Peter: So, you think that’s kind of like the stimulus package, obviously, the stimulus check, most people have by now, and then you also got like the unemployment that’s coming in now. Some people are earning more than they earned in their job, I mean, has that been part of what of you’ve been seeing as far as driving that behavior?

Al: Yeah, I think that’s a big part of it. We really sat with our group of account executives and really coached them into not specifically asking for money that was in relation to the stimulus, or employment funds that they’re receiving. But, we’re finding that a lot of people……because that really weighs on somebody so, they’re in debt, especially if it’s old and it’s just sitting out there, when they get some additional cash that comes in, whether it’s through stimulus or through making some additional money that they normally didn’t because of the unemployment package, they’re really trying to get out there and settle and carry as much of the debt that they have whilst still maintaining their ability to pay and take care of their family.

Peter: Right, right, okay. So then, I’m curious about the people that were already….they’re already your clients before this crisis and so, they’re already having some problems, it might have been on unemployment even before. How do you treat those people because these are people that were under duress, they may be under more duress, or they may be under the same amount of duress…I’m curious about if there’s anything you’re doing for those kinds of people differently than what you would normally do.

Jake: Yes, So, you know, we really talk a lot about our people first approach and how we train our staff to engage with empathy though, you know, a lot about asking questions, active listening which is really where our technology helps us because it allows the collector to really focus on the human that’s on the other end of the line, really meeting their needs, figuring out what their finances look like today and creating an innovative solution for them with our clients’ needs in mind to give them some sort of relief, or some sort of help and get them back on track.

So, we found that people who are already in kind of their collection cycle and process before, there hasn’t really been a change in our engagement with them. It’s more along the lines of, you know, now we’re starting to get people who are coming back to us and trying to engage us in working something out.

Peter: Interesting, interesting. So, are you seeing differences between……I imagine you have some business-to-business type clients as well as just business-to-consumer, are you seeing differences in those two types of clients?

Jake: Yeah. So, the business-to-business clients, depending on what area they’re in, in terms of specialty, so there is a restaurant at this point in time and obviously those have been hit really hard and it’s something that ‘s probably going to be one of the last things to open coming out of this crisis in a full capacity….you know, the takeout business just isn’t really doing a lot for them to really make the money that they would from the sit-down service and the bar service that they would have before. So, we’re definitely seeing differences in businesses that are getting hit really hard.

We’re still engaging in the same way and trying to create a solution that solves that problem for them and getting someone back on track, or getting then on a program that will ultimately get them that contract. And then, you’re seeing on the consumer side, you know, there is a lot of relief on the consumer side when you’re talking about the….you know, some people are making more money, a law on unemployment than they were before so, you know, those consumers have some more money in their pockets and they’re looking to settle up some of their debt at a discount, or working on the payment arrangement now that they have some extra funds. So, you know, we’re definitely seeing a little bit of a difference in the behavior between the two.

Peter: Right, okay. So then, I’m curious about….like with the clients that you work with, particularly in the lending space, you know, obviously Bankers Healthcare Group and the banks and credit unions, these are all lenders, I mean, how should they be thinking about……what is your advice for them that they should be doing differently now when it comes to sort of the receivables that are….obviously, it’s been a challenging time and things are different, what’s your advice for the lenders at the start of this process, for the borrowers that have really…might just have recently taken out a loan?

Jake: Yeah, that’s a great question. It’s something that we’ve really been focusing on because part of our practice is to…..it’s really kind of looking at what our clients are doing internally, providing some best practices, or some coaching around, you know, what we see across all spaces to help our clients and, obviously, we’re really focused on the collection side of the piece. But, what we like to see is, and what we’re telling people, is they should be looking at their account receivable and their entire collections process like a profit center. So, especially at this point in time, your collections portfolio can really make or break you as a fintech, or as a lender.

So, we’re seeing record loan modifications in deferment packages that are coming out here from all these lending institutions. So, we’re suggesting that it’s very important that they really need to focus on the plan to bring those people back successfully from that if they’re out of deferment because that’s just a pool that’s sitting out there….that if they don’t have a good pulse on what’s happening with them how they’re going to bring them back to probably paying accounts again that could be really detrimental to their bottom line and potentially results in undercapitalization and possibly going out of business, depending on the size.

So, we really suggest focusing on that, focusing on gathering data from those accounts, developing collection KPI’s and dashboards is always a great best practice and then utilizing a strong collections agency partner, one that really melds well with their mission, vision, value and really an additional source because as we all know, a lot of lenders, a lot of banks, fintechs, whatever it might be, don’t necessarily have as many collections staff as they have, you know, lending officers, things of that nature. So, you know, you want to be able to use a strong agency partner as, at least, a backstop to help you.

Al: One thing I’ll add there, guys, that’s really important and it’s so simple. When you have these conversations with banks, fintechs, the chief credit guys at these organizations, you ask them, how often do you touch on your clients, how often do you communicate with them, do you have that partnership approach. So, if they are keeping it in-house they don’t probably need us, but it’s always a good thing for them, right. Communicate, communicate and over communicate, keep your fingers on the pulse of what the borrower is doing and when you do that, you’re likely be able to sort of pivot a little bit and prevent them from going down that road. Again, this is a challenging time…and sort of challenging circumstance for anybody. In general practices, communication is key, it makes a big difference.

Peter: Right, right. So right now, we’re still at the early stages of this crisis. I saw one of the fed rules of governors said that they expect 30% unemployment in the next quarter, that’s going to impact you guys because, right now, people still have stimulus money, unemployment money. If we get to 30% unemployment, how do you prepare for that?

Jake: Yeah. You know, as a lender or a fintech, somebody who’s a credit rancher, that person could be a business that extends credit to, you know, performance and invoice out. You know, I think, across the board, people need to realize and understand and take kind of a second look and evaluate their collections, their billing, their recovery strategies, you know, different options that they’re willing to do, people who are struggling, you know, whether that’s payment agreement options, or deferment options, again, looking at a strong agency partner. You know, we’re really here, we’re the backbone to help, guide these debtors whether they’re businesses or consumers, to get them back on a better financial path and really help them and spend the time that’s needed to help them.

You know, a lot of lending institutions, especially if they’re dealing with say…..maybe they’re doing a lot of PPP loans that’s going to take a lot of their staff’s time and they’re pulling people from multiple divisions to help with that. So, that’s another area where we can really help….is we’re focused, this is all we do. I think people need to me meeting with their leadership teams regularly to review the current state of their portfolio, you know, what’s the loss number for this month, what’s the migration look like from a first payment missed all the way to the whole cycle through charge off, then looking at what’s coming in on recoveries and then really mining data.

So, Alistair touched on that a little bit in the last point, but really, you need the data from these people, especially if they’re out there on a deferment plan, or if they’re just sitting in your accounts receivable right now. You know, maybe it’s a survey that you send out to get some additional information, additional insight that your leadership and business team need to really adjust models because lenders are going to continue to lend and do business so, you want to make sure you’re getting all of that actionable data from the ground to really be able to change and move your credit models and move your recovery and loss models and get everything in one really cohesive mindset so that the left hand knows what the right hand’s doing. It’s very important in this time more than ever, in my opinion, to really have that focus across the board.

Peter: Yeah, yeah. So, we’re almost out of time, but a couple of more things I really want to get to. I’m curious about the notion of when to bring in a third party like yourselves. Like a lot of lenders are listening to this, they probably have a system in place where maybe they hand off after 30 days late, maybe its after 15 days late, maybe it’s 60 days, what’s the advantage of handing off to you guys earlier rather than doing it in-house for a longer period of time?

Jake: Yeah, that’s a great question. It’s going to depend on the business and the business needs, but with our solutions we do provide that full cycle collections solution. We have the first party which is the collections in the name of the creditor, so that’s a great addition to maybe have a couple of staff members that are dedicated to collection, but you need a little bit more capacity, you need a little bit of an overflow value. We can come in and do that, or you can do the whole thing because, again, if you just want a group specialized that handles this, you know, that’s a great option.

A lot of people in lending organizations kind of wear multiple hats from what we’ve seen so, our firm and our belief that having a really focused group of people handling your collection is really the best bet. And then, in terms of that transition to….if you’re going to do your internal stuff yourself, getting it over to us sooner rather than later really does help in terms of your recovery percentages. The longer the debt sits out there uncollected, the more difficult it is, or the longer it will take for an agency, or anybody to really, you know, recover on that debt. So, we kind of see the sweet spot anywhere between 60 and 120 days is when we have a lot of clients that place that with our third party side of the business and, you know, again, we get much better results when we get it sooner.

And what’s very interesting too is when we have a client that utilize us in a third party capacity, what we tell them to do is ….you know, it’s another point of leverage so, really adjusting the scripts to your internal team, or adjusting your scripts to say a first party vendor and saying, hey, listen, I understand you’re going through some tough times, we’re trying to work something out with you here, but, unfortunately, at 90 days or at 60 days I’m going to have to place your account with our collections partner and you have to kind of talk with them and work something out further with them.

You know, we find that a lot of people will kind of say, okay, yes sounds good, I’ll take the deal at this point so, we find that point of leverage is really important and then, you know, obviously, we would engage at that point on the third party level and really come in there as more of a problem solver…hey, what’s going on here, I understand your situation, we’ve all been there, but let us really come with a solution that will work for you as well as our client. You know, we’re kind of more of the middle party really just trying to help both sides.

Peter: Okay. Finally then, what’s on tap for you, guys, when you look through the rest of this year and beyond, what are you planning for CCM?

Al: That’s a phenomenal question, glad you asked it, it excites me, right. So, had you asked me that question three months ago, I might have a different answer and I say that because when things (garbled) crisis like this occur, you really see what you’re made of. And what was amazing to me was seeing how this team hipped it up with a drop of a hat, there’s a story there.

Jake and I are coming back from California, from an auto finance show, I get a call from Jake basically saying, hey, go home, you’re working from home, this COVID thing is kind of blowing up and getting to be serious. I said, you got it so, we got home. That Friday, it was Thursday when I was driving and Jake said head home, that Friday morning, I had all my Its at my doorstep and my large screen at (garbled) the whole nine yards. IT was there to make sure I had everything I needed and then Monday, that following Monday we had a call. We had Zoom set up, we had Zoom meetings every single day and the third party collection manager said, you know, this has been the best Monday we had (Peter laughs).

So, when you think of that, an organization can literally pivot at a drop of the hat like we did, (garbled) organizational abilities of that team, the unified nature of that team from operations, to sales, to marketing, to Jake, to myself and so forth, etc., it really speaks volumes about what they can do for their clients and I was never more proud, and I think we all helped each other, how we literally just….business as usual, we got this, we got you, the client, debtor, we’re with you, we’re going to help you get through this.

So, when that happens, we really realized that there’s nothing we can’t do, if we can jointly navigate through this as well as we have, we are so well poised to succeed in this disruptive market place and really change the image, change the notion, change the ideals that are out there around this industry and they get more well received. That’s our goal, to really disrupt what’s happening out there. As far as numbers go, Peter, we’re tracked to increase our revenue 500% in 2020 above 2019….

Peter: Wow!

Al: ……..and that coupled with, you know, massive human capital and massive technology investment that Jake said. We’re excited now, we’re looking to shake things up out there. (Peter laughs) It’s good stuff, we’re really proud of (garbled)

Peter: Alright. Last word, Jake?

Jake: One hundred percent, couldn’t have said it any better. We’re very excited, we’re super excited getting out here and it’s really….kind of going back to what we touched on and kind of a company overview, we’re a whole notion going, you know, moving forward is forget everything you know about the collections industry. We’re re-thinking it, we’re re-imagining it and we’re recovering for the US, our clients and we’re recovering honestly the industry as a whole because it’s so vital to our nation’s economy to make sure that if credit is granted and extended, that that debt is then repaid.

Peter: Most definitely. Well, Jake, Alistair, I really appreciate you guys coming on the show. Thank you very much.

Alistair: We appreciate it, Peter.

Jake: Thank you, Peter.

Peter: Okay, see you.

You know, my father, before he became an entrepreneur, he was actually a credit manager for a construction company. It’s actually the first job I remember him having as a little kid and even back then he used to say that it was important to be firm, but gentle. I think that’s really what I’m hearing the CCM guys saying is that being an empathetic collection agency/collection partner and really having a people first approach.

It’s the right thing to do and it, actually, is effective. I mean, you’re firm, but gentle and you give people an opportunity to tell their story because there’s a lot of people struggling right now. I think, most people don’t want to be treated as an account number, I don’t think anyone does, they want to be heard and I think that’s the approach that CCM is taking, that’s probably why they’re growing so much and it is important that, I think, we maintain our humanity here. It sounds like, it’s also the most effective way to try and collect money.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

Podcast: Play in new window | Download | Embed

Subscribe: Apple Podcasts | Android | RSS

« Previous Page

Top 10 Fintech News Stories for the Week Ending June 20, 2020

Podcast 252: Sean Salas of Camino Financial

The CEO and Co-Founder of Camino Financial discusses the challenges facing the Latinx small business community today and what his company is doing to help

LendIt Fintech Launches Industry Job Board for Job Seekers and Employers

Search fintech jobs or source fintech talent on the new industry job board

The Global Covid-19 Fintech Market Rapid Assessment Survey Launches

The Cambridge Centre for Alternative Finance, the World Bank and the World Economic Forum launch a new survey to analyze the impact on fintech of Covid-19

Take the Survey Today

LendIt is a Long Time Collaborator With CCAF

Marketplace Lending News Roundup – June 13th, 2020

Podcast 251: Rohit Arora of Biz2Credit

The CEO and Co-Founder of Biz2Credit talks small business lending, the PPP, loan approval rates, partnering with banks, M&A and more

Experian Goes All In On Fighting Synthetic ID Fraud With Sure Profile

Experian is so confident in the ability of its new Sure Profile tool to detect synthetic identities it is putting real skin in the game

Sure Profile is a New Approach to Synthetic Identity Fraud

LendIt Fintech Moves to All Virtual Events for 2020

LendIt Fintech USA, Europe and LatAm will be held as virtual events in 2020

Marketplace Lending News Roundup – June 6th, 2020

Podcast 250: Jacob Corlyon and Alistair Canal of Capital Collection Management

The CEO and President of Global Sales for Capital Collection Management discuss new approaches to collections during this crisis

ABOUT LENDIT FINTECH NEWS

Recent Editorials