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Digital Currencies Finally on the Mainstream Path

Two recent announcements by PayPal and Coinbase have helped to accelerate the wide scale adoption timeline for the crypto markets.

November 3, 2020 By Todd Anderson Leave a Comment

One of the biggest questions the crypto and blockchain communities have yet to answer is when would these technologies reach mainstream usage. That is beginning to be answered with the recent news of PayPal’s new service enabling users to buy, hold and sell cryptocurrency.

Coinbase then announced a debit card that lets you spend any asset in your Coinbase portfolio and earn rewards for each purchase. You don’t need to be an engineer to use either product and it is a giant step in the right direction for the space.

There has also been a big trend by central banks across the globe to begin development on central bank digital currencies. According to the Bank of International Settlements ten percent of central banks have said they will develop a digital currency within the next three years.

China has taken the early lead in this race and has already been conducting tests worth more than $300mn. The EU has committed to building a CBDC by 2025 and the U.S. has even said they are examining the issue, though they have yet to commit to a timeline.

For years, the industry has talked about the transformative nature of using these technologies to democratize access to financial services and make markets more efficient. One of the biggest impediments to that vision has been the complicated nature of the tech and making it easily accessible to the general public.

To be clear only about 15 percent of Americans own cryptocurrency as of late 2019. That number is up from about 8 percent in 2018, which shows the knowledge base is growing but wide scale adoption is not apparent yet.

PayPal is helping to breakdown the complicated barriers allowing crypto holders to use their PayPal wallets. “The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly,” said Dan Schulman, president and CEO of PayPal, in a press release announcing the news.

As of this writing bitcoin is now above $13,500, and even surpassed $14,000 briefly, highs not seen since early 2018. Traders clearly believe the PayPal news has the potential to be a game changer with the payments firm having more than 345 million users and 26 million merchants globally. The price has also been impacted by the news that Square invested $50 million in bitcoin just last month.

CBDC’s will help tamp down the volatility and governmental unrest across the globe can also help to move more people towards crypto as a safe haven. There has always been a lot of potential with the crypto and blockchain community. For the first time a clear path to scale seems attainable.

All of the Fintechs Involved in PPP Loans

We share all of the fintech lenders who are currently involved in the Paycheck Protection Program

April 16, 2020 By Ryan Lichtenwald 7 Comments

It has been an interesting to say the least as we have watched everything play out with the Paycheck Protection Program loan process. Fintechs were eager to help small businesses with the $349 billion initially allocated to small businesses but initially there wasn’t clarity on when it might be possible. For many who wanted to be among the first to apply, going through a bank was the only option as LendIt Fintech experienced firsthand. As we stand today there are now many fintechs, both lenders and banks involved in the process although the initial $349 billion allocated to the PPP has run out, according to Senator Rubio this morning. It is expected that Congress will appropriate additional funds soon.

Approvals started with small business lenders like Kabbage, made possible through an unnamed bank partner. Then this week we saw lenders get approved on a standalone basis. Other fintechs have taken an entirely different route. StreetShares had originally planned to offer SBA loans but then opted to instead partner with Fiserv. They are providing to them a secure portal for bankers to review and prepare documents while also providing application processing and eligibility checks.

If you’re looking for a full list of PPP lenders, Gusto has created this helpful Google sheet which continues to be updated with the status of each lender.

We will continue to update the list below as more fintechs get approved.

Approved Fintech PPP Lenders

PayPal
Quickbooks
Square
OnDeck
Funding Circle
Kabbage
Bluevine
Credibly
Fundbox

Fintechs Working with Partner Banks for PPP Loans

Fundera
Lendio
Brex
Nav
SmartBiz
Biz2Credit

Fintech banks processing applications

Cross River Bank
Celtic Bank
Radius Bank
Sunrise Banks

It is difficult to overstate the importance of the PPP for the health of American small business. For many, it will have come too late but for millions of small businesses this money will allow them to stay in business and keep paying their employees. Congress needs to set aside its differences and provide more money for this program immediately. There is still a huge number of small businesses that need this money.

Square Gets Approval for Industrial Loan Charter

The two and a half year adventure has finally paid off for the company which serves small businesses in a variety of ways.

March 19, 2020 By Ryan Lichtenwald Leave a Comment

Square has officially received approval from regulators to start a Utah-based bank through what is known as an Industrial Loan Charter (ILC). Currently only seven states allow this type of charter but most of the existing ILCs have headquarters in Utah. The structure is similar to a commercial bank but the chartering process allows the bank to be owned by a regular company instead of a bank holding company.

ILCs in the past have been used for various companies to operate a financing arm. For instance a car manufacturer may seek an ILC in order to offer financing to their own customers. Another good recent example is Rakuten, a Japanese Online Retailer who applied for an ILC last year with an intention to offer loans, credit cards and other financial services to its US customers. The idea is not new in fintech either with SoFi filing an application back in 2017 (it was later pulled). While the ILC may seem like an easy choice for a fintech company, they face opposition with bank lobbying groups active in trying to prevent companies from getting approved. The argument is typically that these types of charters for non-bank institutions creates an unfair advantage.

Increasingly we are seeing established fintech companies pushing to become banks, but the path of least resistance so others can follow suit has yet to be proven out. However, it is likely that fintechs becoming banks will be the next big wave in fintech. Earlier this year Varo received approval for a National Bank Charter and LendingClub announced they were acquiring Radius Bank.

Square Financial Services, Inc. is slated to launch in 2021 and will be supervised by the FDIC and Utah Department of Financial Institutions. This has been a two and a half year journey for Square who faced many challenges along the way. Even Walmart scrapped their plans after facing opposition with their ILC application in 2007. Some of the requirements for Square Financial Services include having significantly higher levels of capital than other banks as well as having the FDIC examine Square. Still, some regulators voted against their application citing concerns over profitability. FDIC board member Martin Gruenberg stated:

Square has yet to demonstrate its viability during a downturn in the economic cycle. In fact, it has failed to demonstrate its viability during the upside of an economic cycle.

Interestingly, Nelnet a company which services student loans also received approval this week. This is an exciting time for Square, a company that already serves small businesses in so many ways. It is going to be fascinating to watch where they take the business from here as the possibilities are almost limitless.

The Ten Biggest News Stories of the Decade in Marketplace Lending

We take a look back at the news stories that shaped marketplace lending in the 2010s

December 30, 2019 By Peter Renton 1 Comment

I started writing about marketplace lending back in 2010, so I have spent almost the entire decade immersed in this space. While we have expanded our coverage on Lend Academy today beyond marketplace lending this remains a major focus.

We have certainly come a long way in the past ten years and the industry is almost unrecognizable from where it was in 2010. Back then there were just two notable companies in the space, LendingClub and Prosper, originating just a few million dollars a month in loans. No one could have predicted that by the end of the decade marketplace lending would have led to a resurgence in personal loans and changed expectations for customer experience across all lending verticals.

As I look back at the past decade here are, in my opinion, the top ten most important news stories in chronological order.

Prosper Recapitalizes and Brings in a New Management Team
(January 2013)

At the time this was a huge story. The number two marketplace lender had been struggling for some time and was in serious danger of running out of money. This new funding round was small by today’s standards at $20 million but it ensured that Prosper would remain a going concern. The deal was architected by, the now fintech legend, Ron Suber as he brought in a new management team and a new board to guide Prosper on to their future growth path. It helped set the industry up for success over the next several years.

LendingClub Becomes First Marketplace Lender to go Public
(December 2014)

This was a momentous day for marketplace lending as market leader LendingClub became the industry’s first company to go public. The IPO was a huge success by any measure. By the end of the first day of trading LendingClub was valued at $8.46 billion and they had raised $870 million in cash. Of course, at the time we had no idea what would happen to the stock but there was a sense a real optimism that this company was going to change the world.

Second Circuit Rules on The Madden Decision
(August 2015)

The biggest legal issue the industry dealt with this decade was the ramifications of the Madden v Midland decision. We have been following this case since the Second Circuit ruling in 2015 and it has had far reaching consequences for the industry. It has led to a reduction in lending activity in Second Circuit states (NY, CT and VT) but the bigger concern was that this kind of ruling would spread nationally. That has not happened and there have been multiple regulatory fixes proposed plus the OCC and FDIC have weighed in as well. But as of this writing nothing concrete has changed since the 2015 decision.

SoFi Raises $1 Billion Led by SoftBank
(September 2015) [Read more…]

Are Digital Banks Struggling to Get Traction?

A new survey suggests that digital banks are not getting much traction yet but there is more to the story

May 22, 2019 By Peter Renton 4 Comments

An article in Forbes earlier this month about the traction of digital banks caught my attention. A survey of U.S. consumers conducted by Cornerstone Advisors showed that traction among many of these new neobanks (I use this term and digital bank interchangeably in this article) is not happening as quickly as many of us expected. According to the survey only 3% of millennials have their primary checking account at a digital bank like Chime, Simple or Moven.

The survey also found that only 7 million deposit accounts have been opened at digital banks and that only Ally, Chime and BankMobile have more than one million deposit accounts. Simple, the first digital neobank to launch almost 10 years ago, has just 517,000 accounts according to the survey.

Now, when Chime announced they had raised $200 million in March they claimed to have opened 3 million FDIC-insured bank accounts. So, it is quite possible this survey is undercounting the total or that maybe there is a difference between an open account and a funded one. Regardless, we have a long way to go before any digital bank can challenge the size of even a midsized regional bank.

There are, of course, many other neobanks not included in the survey. At LendIt Fintech USA 2019 last month the CEO of MoneyLion, Dee Choubey, said that his company has more than 4 million users today. Another example is Square Cash, which has over 15 million monthly active users and with the debit card some consumers are using this as a primary bank account. So, one could even include Square Cash as a neobank (Square is in the process of applying for a banking license).

All this should be put in the context of a special report in The Economist earlier in the month with the cover exclaiming “Tech’s raid on the banks”. One of the many interesting stories in that report was about “Flanker banks” where banks create a new brand to compete with themselves. We have seen that at JPMorgan Chase with Finn and Greenhouse by Wells Fargo and there are numerous examples internationally. But according to the Cornerstone Advisors survey Finn is not getting much traction yet – their number of 47,000 accounts is surprising, if not shocking, to me. Greenhouse is still in limited rollout.

[Read more…]

Square Launches Point of Sale Consumer Installment Loans

In their first foray into consumer loans Square Installments will offer loans from $250 to $10,000 with terms up to one year

October 8, 2018 By Peter Renton Leave a Comment

Last week we learned that Square, best known for their small business credit card processing service, is getting into the consumer loan business. Lending is not new to Square, they launched Square Capital in 2014 to help their small business customers get access to capital. But they have never offered a financing option direct to the consumer until now.

While the typical transaction on Square is small they had more than 36 million transactions larger than $250 in the past year. And these are the transactions they are going after with their new Square Installments product.

Loans will range from $250 to $10,000 and will have terms of three, six or twelve months. Interest rates will range from 0% – 24% APR. The application process is fairly simple with applications able to be completed in store on the customer’s own phone and most applications will be approved or rejected instantly. Square takes on the credit risk as the customer pays the loan back to Square directly and the merchant receives the full amount of the sale.

The way it works is that the customer, once approved, is given a virtual credit card number to provide to the merchant to process the transaction and trigger the loan. It is interesting that they quote APRs starting at 0%. Given that Square will be making significant income on the merchant processing fee I could see how offering a super prime customer a 0% loan could make sense for them in certain situations. [Read more…]

The New Breed of Small Business Lenders: Amazon, Paypal and Square

We explore the small business lenders of tomorrow who have significant advantages in customer acquisition and data.

July 25, 2017 By Ryan Lichtenwald 1 Comment

If asked where to get a small business loan most people would state their local banks or even some of the bigger traditional banks. Those aware of the online lending space may mention the likes of Kabbage, OnDeck, Funding Circle or maybe even some of the new online initiatives of big banks like Wells Fargo’s FastFlex product. However there is another, often overlooked segment of small business lenders and they are names you have heard of: Amazon, Paypal and Square.

Until recently I hadn’t paid much attention to these companies. Amazon in particular flies under the radar and little is known about their lending business. Recently it came out that they are doing a considerable amount of lending to small businesses. Amazon lent $1 billion in the last year and has lent $3 billion to more than 20,000 small businesses since launching their lending product in 2011.

Most alternative small business lenders aim to innovate on pricing, speed, transparency or underwriting. Many also claim the use of data for underwriting purposes as a main differentiator. I’d argue that Amazon has more of an advantage when it comes to data since most other lenders rely on third parties or the small business to provide access to their data. Since Amazon is a marketplace for sellers they have an incredible amount of data on the cash flow of businesses that operate on the platform. They also have a significant pool of borrowers, resulting in virtually no customer acquisition costs.

The best way to understand how Amazon lends money to small businesses is hearing about it directly from a borrower. The podcast called Marketplace recently interviewed an Amazon seller and it was fascinating to hear how it works. [Read more…]

An Overview of Small Business Loan Funding

We delve into the various ways small businesses can access capital.

December 19, 2016 By Todd Anderson 2 Comments

As non bank lenders continue to gain market share across different loan segments, we wanted to give a complete overview of online small business lending and how diverse the options are for all types of businesses today.

Understanding your company and where you fit within the ecosystem of small businesses is still the most important question you can ask. The options available vary in loan size, interest rates and term length dependent on the type of business you run. Though one thing is certain, today there is such a wide array of options available that most business owners should be able to secure funding.

SBA Loans

SBA or Small Business Administration loans are considered some of the best funding options available for their low interest rates, though their detailed paperwork and lengthy approval process tend to limit the types of firms who can secure these loans. There are three different types of loans offered by the SBA; 7(a) SBA Loan Program, CDC/504 SBA Loan Program and the less used Microloan Program. We will delve deeper below but these loans are designed for companies with very good credit, collateral and a solid business plan. The loans are not delivered directly by the SBA, the SBA acts as a guarantor so the banks can then allocate some of their small business lending to the SBA programs. Some of the top lenders in this space include Wells Fargo, US Bank and JP Morgan Chase; national, regional and community banks are the main lenders of SBA Loans.

7(a) SBA Loan

Loan Amount – $5,000 – $5,000,000
Loan Term – 5 – 25 years
Interest Rates – 6 – 13%

This is the most well known and most commonly used loan that the SBA program offers. This loan can be used to expand a company, finance equipment, purchase real estate or to make an acquisition. Businesses consider SBA loans as the top financing product to get approved for, however the process of applying and ultimately being approved is quite extensive. Companies need to provide financial statements, explanation of use of proceeds, details on collateral and full business descriptions. The process is still very similar to getting a traditional loan through a bank as the entire period can last about 90 days. [Read more…]