Fintech Archives - Lend Academy

Upgrade Launches a Rewards Checking Account

The new Upgrade account will have no fees and offer 2% cash back on everyday expenses

January 14, 2021 By Peter Renton Leave a Comment

Today, Upgrade announced that they have launched a unique rewards checking account. What is different about this account is that it offers 2% cash back on everyday debit card purchases. The other piece that I find really interesting is that if customers switch their bank account they will enjoy 20% lower rates on Upgrade loans.

Upgrade has moved from being a consumer lender to more of a full service neobank over the last couple of years. They added a credit card in 2019 that combined the best features of personal loans and credit cards. That card offers 1.5% cash back on all purchases based on when the monthly payment is made, not when the money is spent.

Debit cards typically have much lower rewards and often no rewards at all. Other neobanks that rely on interchange as their primary source of revenue find it cost prohibitive to offer much in the way of rewards but Upgrade is not relying on interchange as a profit center. Their core product is a lending product so they can take the interchange revenue and give it back to their customers in the form of rewards.

This is what CEO Renaud Laplanche said about the new account:

We asked our customers what would cause them to switch their primary checking account. The overwhelming answer was attractive rewards on debit card purchases. While credit cards often provide decent rewards, it has been nearly impossible for consumers to earn a broad 2% cash back on debit charges.

Here are some of the features of this new account:

No account fees of any kind.
ATM fees will be reimbursed on five withdrawals a month.
2% cash back on everyday expenses, 1% on everything else.
Up to 20% lower interest rate on Upgrade loans.

To get the lower rate on a loan you need to maintain a balance of at least $2,500 or make a direct deposit of at least $1,000 per month. And the 2% cash back applies to purchases at convenience stores, drugstores, restaurants, bars, gas stations, utilities, phone bills and TV subscriptions.

This Rewards Checking account is now broadly available online as well as through their mobile app on the App Store and Google Play. The money is FDIC insured up to $250,000 and the actual bank account is provided by Cross River Bank.

Cross River is a well known name in fintech circles as the bank partner of choice for many lenders. CEO Gilles Gade had this to say about the new Upgrade offering:

Upgrade’s no-fee Rewards Checking account combines everything mainstream consumers expect from a modern checking account with no fees, generous rewards and access to affordable credit. Cross River is proud to enable such a consumer-friendly product.

Renaud Laplanche is one of the shrewdest operators in the business. He is positioning Upgrade to become the central banking relationship for their customer base and is providing a compelling offering to encourage them to switch. The growth in debit cards has been dramatic during the pandemic as more people are avoiding spending on credit. Upgrade is well positioned to take advantage of this trend.

Affirm’s IPO Takes Off Like a Rocket Ship

The buy now pay later platform saw shares double in value on the first day of trading

January 13, 2021 By Todd Anderson Leave a Comment

Consumer lending fintech Affirm (ticker: AFRM) went public on the Nasdaq Wednesday and saw their stock take off. Shares were up almost 100 percent from an initial listing price of $49, well above the increased price range target of $41 to $44. Affirm’s shares closed the day at $97.24.

Affirm has quickly become one of the hottest fintech companies in North America as consumers began using the company as an alternative to the traditional credit card. Stay at home orders forced consumers to shop online and Affirm was well positioned to take advantage of this behavior shift.

The company was founded in 2012 by PayPal Co-Founder Max Levchin (watch his previous LendIt Fintech keynotes here and here) to offer consumers simple and straightforward credit. Affirm does not charge late fees and you can purchase many products using Affirm with no interest whatsoever. Affirm makes money with a fee paid by the merchant or through a simple interest charge paid by the consumer.

Levchin explained the vision today on Twitter: “More than eight years ago, we set out to take on credit cards and change the way we pay. We built Affirm from the ground up to align with the needs of consumers and merchants and to succeed when they succeed. We have served millions of consumers through thousands of merchant partners, including some of the biggest brands in the world, all without ever charging a single late fee or penny of deferred interest.”

Buy now pay later, or BNPL as it is often referred to as, has become a huge winner during the pandemic. Millions of people across North America live paycheck to paycheck and offering a simple credit solution over a few monthly installments has helped them to obtain a variety of goods and services.

Affirm has faced some criticism for their partnership with Peloton, which, according to their S-1 filing, accounted for 30 percent of total revenue for the three months that ended on September 30, 2020. While that is Affirm’s biggest partnership the company has a broad range of partners including the likes of Shopify and Walmart.

The successful debut is another win for fintech overall. Fintech has had a rocky history in the public markets but recent performance has indicated a potential turning point for the industry overall with Upstart having a successful IPO and SoFi in the process of completing a SPAC merger with Social Capital Hedosophia Corp V.

Fintech Lenders and Banks Are Ready for PPP Round Two

Round Two of the Paycheck Protection Program got under way today with fintech lenders and banks ready to help

January 11, 2021 By Peter Renton Leave a Comment

The second (third?) round of the Paycheck Protection Program kicked off today and it was very different to when the initial program launched last April. Back then the program got off to a very rocky start. There has been no repeat of that today mainly because the SBA limited the types of lenders to community financial institutions who could submit loans today.

We covered the details of the PPP program last month and while the program is very similar to last year there are big differences with the way it is being rolled out. Instead of starting with the big banks this time the SBA decided that Community Development Financial Institutions (CDFI) and Minority Depository Institutions (MDI) would lead the way to ensure that minority-owned and underserved businesses get the first crack at applying.

Those businesses seeking their first PPP loan can apply today and then beginning Wednesday minority-owned business that are second-time borrowers can apply. It is expected by Friday that the program will open more broadly. One of the largest CDFIs is Sunrise Banks in Minnesota (they are also very active in fintech) and they have started accepting PPP applications.

To be clear, lenders of all sizes are accepting applications today. There is nothing stopping any small business that qualifies to submit an application to their lender, they just won’t be submitted to the SBA unless you are a minority-owned business applying through a CDFI or MDI.

Many of the Big Round One Lenders are Ready

Cross River Bank was third among all banks in the first round of PPP as far as number of loans made, trailing only JPMorgan Chase and Bank of America. They processed many loans directly but they also worked with dozens of partners, other banks and fintechs, where they were the lender funding the loans. I spoke with a representative there today who said they are gearing up for round two. They will be working with partners again and they have had their PPP pre-application in place for borrowers looking to work with them directly.

Customer Bank was another major player in the PPP. Their home page right now is all about the PPP describing three offerings: for new PPP borrowers, repeat borrowers and a new white label program. This latter program is new as they realized other banks needed help in offering PPP loans to their customers. They have already signed multiple banks on to this program including one of the largest banks that will be sending Customers Bank their overflow customers. There is very little integration needed to be part of this program, it consists primarily of just a link as Customers Bank handles the entire process.

Kabbage was the largest non-bank lender in the initial PPP program, originating around 300,000 loans. Since that time Kabbage has been acquired by American Express and they are yet to make new loans since the acquisition. An outgrowth of that acquisition was K Servicing created to service all existing Kabbage loans. Small business owners who took out a PPP loan with Kabbage will be able to apply for a second loan through K Servicing.

Lendio was another major player in the first round of PPP. CEO Brock Blake had a very high profile appearing regularly on TV and his Twitter feed became one of the best sources of information. Lendio is not a lender but they work with dozens of lenders and they have been taking preliminary PPP applications for a couple of weeks now. They will be hiring hundreds of workers to help process the flood of application for new PPP loans.

Biz2Credit offers both a white label lending solution, through Biz2x, as well as lending directly to small businesses. They can offer banks their Biz2X Accelerate SBA platform with full white label capabilities or they can help banks and non-banks earn referrals fees by offering a full outsourcing solution. According to their website they have over 350 banks already signed up.

There are dozens more fintechs and banks that will be working extremely hard over the coming weeks to ensure that small businesses get access to the funding they need to survive. The PPP is such a critical program and now that we have had nine months of experience the rollout should be much more smooth. Fintech lenders and banks are ready. Bring it on.

SoFi to Go Public via a SPAC That Values the Company at $8.65 Billion

The deal will provide up to $2.4 billion in cash for SoFi and is expected to close by the end of Q1

January 7, 2021 By Peter Renton 1 Comment

Big news from SoFi today. While we know that the company has been considering going public for some time, we learned today that they will do so, not via an IPO, but through a Special Purpose Acquisition Company (SPAC) deal. The publicly traded SPAC, Social Capital Hedosophia Holdings Corp. V (NYSE:IPOE) has agreed to merge with SoFi in a deal that values the fintech at $8.65 billion. The deal will provide up to $2.4 billion in cash proceeds and is expected to close in the first quarter.

Well known Silicon Valley venture capitalist, Chamath Palihapitiya, the founder of Social Capital, is the architect of this deal. Here is what he said in an interview on CNBC earlier today where he gave his rational:

What I did was systematically try to future out what was broken in banking, and try to figure out which company was the best representative of the solution people wanted. SoFi was the top of the list when I looked across all the companies.

So, from his perspective SoFi is best positioned to take advantage of the trends shaping banking today. CEO Anthony Noto said at LendIt Fintech USA last year that he wants SoFi to be a top 10 financial institution in the coming years and that was one of the driving forces behind their 20-year deal for the naming rights to SoFi Stadium. They have probably the broadest product set of any fintech company today so no doubt that was part of the appeal to Palihapitiya.

You should check out SoFi’s official investor presentation which details not just their financials but also shows how they view financial services and SoFi’s role in it. They talk about leveraging the financial services productivity loop where building trust with one product leads consumers to using multiple products. As of December 7, 2020, SoFi had 1.7 million members of which 398,000 were multi-product members. They plan to grow those numbers 75% and 95% respectively in 2021.

Now, adjusted EBITDA was negative in 2019 and 2020 but they are projecting that to shift to a small profit in 2021. Revenue was estimated to be $621 million in 2020, with the vast majority still coming from their lending operation. In fact, the lending operation still funds the rest of their activities with the other financial services offerings having a negative $133 million contribution margin in 2020. That is not supposed to turn positive until 2023.

One should not underestimate the importance of SoFi’s acquisition of Galileo last year because this gave SoFi a successful technology services business that is profitable. If you look at the numbers in the official filing, SoFi’s technology platform (which I presume is primarily Galileo) generated $53 million in contribution margin in 2020 on revenue of $103 million. That is a good business.

Here is the official statement from CEO Anthony Noto on this deal:

SoFi is on a mission to help people achieve financial independence to realize their ambitions. Our ecosystem of products, rewards, and membership benefits all work together to help our members get their money right. With the secular acceleration in digital-first financial services offerings, SoFi is the only company providing a comprehensive solution all in one app. The new investments and our partnership with Social Capital Hedosophia signify the confidence in our strategy, the momentum in our business, as well as the significant growth opportunity ahead of us. We look forward to helping more people get their money right in the years to come.

SoFi will become a publicly traded company when the deal closes. We should point out that SoFi received preliminary approval from the OCC for a national bank charter in October. According to the press release $150 million of the transaction proceeds will be used to clean up the SoFi cap table that will be more conducive to obtaining the bank charter.

This is the first blockbuster fintech deal of the year. Beating them to the punch, though, will be Affirm, which is getting set to go public on Nasdaq in an IPO as soon as January 13. So, while last year was the year for fintech M&A this year is quickly shaping up to be the year that fintech hits the public markets in a big way. It is going to be an interesting ride.

Get Your Tickets to LendIt Fintech USA 2021

LendIt Fintech USA will take place on April 27-29 as a virtual event, discounted launch pricing ends Friday

January 6, 2021 By Peter Renton Leave a Comment

LendIt Fintech USA is back with its regular spring calendar slot – it will be held virtually on April 27-29. Our 2020 event set the bar high for virtual events as we focused our efforts to bring all the best parts of an in-person event to the virtual world.

But don’t take my word for it. Here is what Jon Thurston at TAB Bank had to say:

You all did an amazing job, you turned a tough situation into an opportunity and it was a truly excellent event! There were many aspects of the virtual event that I preferred to the in-person format. Thank you all for your efforts to put on the best show in the industry.

Now we turn our attention to the 2021 event. Your favorite elements will return including big name keynotes, insightful panel discussions, Women in Fintech program, the PitchIt@LendIt startup competition and one-on-one networking with Brella.

What’s New at LendIt Fintech USA 2021

We will be launching several new initiatives with our 2021 event:

Industry Roundtables – these will be intimate discussions, curated by the LendIt Fintech team, focused on a niche topic. The idea is for these sessions to have limited attendance, be interactive and allow a deeper dive into topics than a typical panel discussion.
Halftime Show – The LendIt Fintech content leaders will hold a lunchtime discussion focused on the morning keynotes. We will breaking down what was said and will share key lessons learned.
Postgame Show – This is all about meeting with your peers to discuss the highlights from the day’s content. This open-ended session will provide the opportunity for any attendee to have your voice heard.
New Content Themes – While we create new agenda topics every year, this year we will have an entire track dedicated to the coming green fintech wave. We will also be looking ahead to see what finance will look like in 5-10 years. And we will be spotlighting regtech initiatives that are moving the ball forward.

There is the Possibility of an In-Person Component

While LendIt Fintech USA 2021 will be a virtual event we are planning for the possibility of a limited in-person component. The event will be broadcast live from the Javits Center in New York City and if the stars align we hope to have an intimate VIP in-person event there. Of course, we will be following advice of city and state public health officials and will only consider such a move if it can be done safely. We will likely not know whether this will be possible until late March. But you can join the waiting list if you are interested.

Launch Pricing Ends on Friday

Our special launch pricing of $395 ends this Friday. Such a low price will likely never be repeated again. As always, as a Lend Academy reader you can save an additional 15% off the already discounted price. When you register just enter the code LENDACADEMYVIP at checkout.

I look forward to seeing you when the industry gathers for the 9th annual LendIt Fintech USA event in April.

LendingClub Bank Acquisition Approved by OCC as Investor Platform Closes Down

LendingClub is on their way to establishing their digital bank with OCC approval of the Radius Bank acquisition as we all learn on the same day the individual investor platform shuts down

January 4, 2021 By Peter Renton 2 Comments

The last day of the year is normally pretty quiet as far as news goes but LendingClub had two major developments on December 31, 2020.

First, as announced in October, the retail investor platform for LendingClub closed down. The last day to invest in new notes was December 27 and the retail platform officially closed on December 31. It was a sad day for me as I have been investing since 2009 and this marked my initial foray into fintech. The reason for the shutdown is because of the acquisition of Radius Bank. Which brings me to my second piece of news from December 31.

We learned that the OCC approved LendingClub’s acquisition of Radius Bank on December 31, although the seven page approval was officially dated December 30. The news sent LendingClub’s stock soaring 26% on the last trading day of the year (it did lose some of that ground in trading today). Needless to say, this is a big deal. It means the leading bank regulator has given the green light for the merger, an essential step for the acquisition to complete. Now, LendingClub still needs to get approval from the Federal Reserve to become a bank holding company but if and when that happens LendingClub Bank, National Association will be the new name for Radius Bank. So, it was a good end of the year for LendingClub.

Now, as for LendingClub individual investors we are starting to see a cash build up in our accounts. We have not heard anything yet on the Founder Savings account that was promised when they announced the shutdown. This will be a high yield savings account that can sweep the cash from the LendingClub account on a weekly basis. I reached out to LendingClub today for more information on this and they said there is no update yet.

I still remain optimistic that LendingClub will eventually offer range of good investor options but as each day goes by now with no news on any new products they risk losing whatever investor goodwill they have generated over the years.

The Top Ten Biggest Fintech News Stories of 2020

It was a tumultuous year with the pandemic impacting fintech companies in different ways but here are the stories we think were most important

December 30, 2020 By Peter Renton Leave a Comment

As the sun sets on 2020 and we look back at this past year nearly everything is viewed through the lens of the pandemic. Many fintech companies did surprisingly well while others, particularly in the lending space, struggled. When we look at the year as a whole we see that it was M&A activity that consistently showed up in the news, some related to the pandemic, some not. But the biggest story 0f the year, in my opinion, was how fintech came to the aid of millions of small businesses in the PPP. Here are my top fintech news stories of 2020 (with my usual focus on lending and digital banking):

1. With the PPP Fintech Comes of Age

Rob Frohwein, CEO and Co-Founder of Kabbage, said it best on the LendIt keynote stage this year: “Kabbage was built for the PPP”. So, it was was for many fintech lenders in the small business space. Tasked with having to develop new systems for the Paycheck Protection Program in a matter of days, rather than months, the fintech industry responded and helped provide a huge number of small businesses with the loans they needed, saving millions of jobs in the process. It was not just Kabbage, we had Cross River Bank and Square as well as the loans marketplaces like Lendio leading the way.

2. Intuit to Acquire Credit Karma for $7 Billion

Credit Karma has almost singlehandedly increased the awareness of credit scores for tens of millions of Americans over the last decade. Intuit realized the value in the incredibly rich dataset that Credit Karma has created and wanted that, and the huge customer base, for themselves. And they were willing to pay to the tune of $7.1 billion. In the end this deal closed for $8.1 billion earlier this month with Credit Karma having to divest their fledgling tax preparation business, it was sold to Square for $50 million. For more on this deal read this interesting piece in Fortune.

3. Visa to Buy Plaid in $5.3 Billion Deal

[Read more…]

The PPP is Back, What do Fintech Leaders Think?

As part of a huge 5,593-page bill Congress includes a new round of funding for the Paycheck Protection Program

December 22, 2020 By Peter Renton Leave a Comment

Last night Congress finally passed a new round of stimulus funding. The $900 billion Covid-19 relief package included $285 billion for a renewed Paycheck Protection Program. You can read the full text of the 5,593-bill here.

This is big news for fintech as our industry played a major role in the initial rollout of the PPP earlier this year. While the details are similar to first PPP there are some important differences. Here are just some of the details:

Companies that received a first PPP loan can apply again provided they have 300 or fewer employees AND experienced a 25% drop in revenue in any quarter compared to 2019.
First time borrowers will be subject to the rules of the initial PPP although public companies will not be eligible.
Maximum loan size is $2 million, down from $10 million.
Small businesses can apply for 2.5 times their monthly payroll (3.5 times for the hospitality industry).
Borrowers need to spend at least 60% of the proceeds on payroll for full forgiveness.
The SBA will be required to establish regulations no later than 10 days after the legislation is signed into law.
Both the House and the Senate have passed the legislation with large majorities and the President has until December 28 to sign into law.

So, early in the new year round two will begin. While we don’t know the details of the program yet we learned from the New York Times yesterday that the top four PPP lenders, Bank of America, JPMorgan Chase, Cross River Bank and Wells Fargo all intend to participate again.

I reached out to a number of fintech leaders to get their reaction to the new round of PPP. Here is what Adam Goller, General Manager of Strategic Partnerships at Cross River, said: [Read more…]

Upstart Completes Their IPO, Soars 47% on Trading Debut

The latest fintech IPO is consumer lender Upstart who enjoyed a successful first day as they began life as a public company

December 16, 2020 By Peter Renton 1 Comment

Leading fintech lender Upstart went public on Nasdaq today (ticker: UPST) in a successful IPO that saw the company raise $240 million as it sold 12 million shares. They priced the IPO late yesterday at $20, the low end of their $20-$22 range but shares finished today at $29.47, a solid 47% gain.

We first wrote about Upstart back in 2014 soon after the company pivoted from income share agreements to focus on personal loans. They have been a marketplace lender offering unsecured consumer loans but in the last couple of years they have also moved into the banking as a service market, offering their AI-enabled lending models to banks.

They are powering the personal loan programs of several banks including First National Bank of Omaha, TCF Bank and First Federal Bank of Kansas City to name a few. Last year at LendIt Fintech USA Upstart CEO Dave Girouard spoke with Marc Butterfield of FNBO and Robert Perrelli of TCF Bank (audio here) where they went into some detail about this bank partnership model.

Upstart describes themselves as a cloud-based artificial intelligence lending platform. They have been talking about artificial intelligence-enabled lending since they launched the company and for a while they were really the only one talking about it. They have always maintained that using AI helps expand the credit box and automate the lending process while also reducing the credit risk for investors. They have an eight year track record now where their AI models have continued to be improved.

Digging in to Upstart’s S-1 filing it is interesting to note how much bank partnerships have become a key part of their business. While 22% of loans originated in Q3 2020 were retained by one of the originating bank partners they certainly wanted to stress that side of their business. The term “bank partner” appears 370 times in the S-1.

Upstart has seen impressive growth this year despite the pandemic. The number of loans originated in the nine months ended September 30, 2020 was 176,983 up 30% from 2019. Revenue for the period was up 44% to $147 million and they even turned a $5 million profit. Of course, it wasn’t all smooth sailing this year. Upstart saw an 86% reduction in the number of loans originated in Q2 but by Q3 they had recovered and saw strong originations again.

History has not been kind to fintech lenders on the public markets. Consumer lenders LendingClub, GreenSky and Elevate are all trading for a fraction of their IPO price today. Upstart no doubt believes their story will be different, citing both their bank partnership strategy and their differentiated AI-enabled underwriting model.

They are off to a great start in the public markets. But many other fintech lenders had successful first days as well. It is going to be fascinating to see if they can write a different story over the long term.