From Fringe to Mainstream:
The 2019 Fintech Roundtable
As fintech companies start counting their birthdays in the double-digits, both traditional lenders and regulatory bodies have had to accept the world rapid online lending has created. Ken Brause of OnDeck, Eyal Lifshitz of BlueVine and Sebastian Rymarz of Fundbox sat down with ABF Journal to take stock of the past decade or so in the fintech world, discuss some of the changes seen in 2018 and speculate on what the future may hold for the industry.
What distinguishes your company from a traditional lender?
Ken Brause: OnDeck was founded in 2006 and began lending online in 2007 as banks began to pull back on lending to small businesses. Small businesses are the economic backbone of America, accounting for more than 99% of all U.S. companies and employing over half of all private sector workers. However, they continue to face a growing credit gap as traditional large banks deny 44% of all small business loan applications and many are steadily exiting the small business credit market.
What distinguishes us from traditional lenders is the fact that OnDeck only lends online to small businesses. We have had that focus for over a decade, during which time we provided more than $11 billion in financing to small businesses in the U.S., Canada and Australia. Our focus on small businesses has resulted in a deep understanding of how they operate, what they want and how technology can be matched with customer service to make obtaining financing online a positive and ultra-fast experience for qualified small business owners.
Today, we have assets of over $1.1 billion that are funded by securitizations and debt facilities with major banks and insurance companies.
Eyal Lifshitz: Banks, the traditional source of capital for businesses, often aren’t focused on serving the needs of small business owners but instead prefer to serve the needs of larger companies which are a more profitable segment for them.
At BlueVine, we believe that there’s a huge opportunity to provide better financial products and services specifically for small businesses. We use advanced technology and AI to serve a diverse range of businesses, many of which don’t qualify for financing from traditional banks, as well as simplify the financing process for all business owners, making it better, faster and more flexible. Business owners can apply online in just 5 minutes and can get approved for funds in as fast as 20 minutes, without filling out mounds of paperwork and waiting weeks or even months to get approved like with traditional banks. Once approved, a business owner can login to their dashboard and get funds deposited into their bank account in a few hours when they need it. And we’re working hard on a set of new products which we believe will improve the financing experience for business owners even more.
Sebastian Rymarz: Fundbox is the first AI-enabled business capital platform designed to accelerate B2B commerce. The company uses newly accessible data sources and machine learning to build dynamic credit profiles of small to medium-sized businesses (SMEs) that the company serves. And for those companies that are approved credit, Fundbox provides access up to $100,000.
Unlike more traditional lenders that rely heavily on human underwriters to sift through endless amounts of paperwork needed to determine a credit score (such as bank statements, taxes and ownership records), Fundbox’s automated machine learning models can provide a credit decision in as fast as 45 seconds.
Fundbox combines transactional data from several different sources, including SaaS-based applications — like accounting, payroll and taxes — business bank accounts and 3rd party data suppliers. Collectively, these data sources paint a dynamic and more accurate credit composite of SMEs.
A unique feature that distinguishes Fundbox from traditional lenders is the company’s proprietary Small Business Graph. The Small Business Graph is made up of tens of millions of insights exchanged between millions of SMEs transacting with one another. The graph then helps to train the company’s machine learning models to recognize the potential for credit risk or fraud.
What do you provide for your customers that traditional lenders don’t?
Brause: OnDeck was founded with a mission to help underserved small businesses succeed. As previously mentioned, we provide our customers an experience that a traditional lender doesn’t offer by giving them online access to different forms of financing tailored to their specific needs, with quick decisions and, in some cases, instant availability of funding. We offer a wide range of term loans and lines of credit and are in the process of rolling out an equipment finance offering.
In addition to providing financing to small businesses, either directly or through our strategic partners and funding advisors, we license our platform to large banks, such as JPM Chase and PNC, to enable them to serve small businesses more efficiently and effectively.
Lifshitz: Traditional lenders, led by banks, have historically been the primary provider of working capital financing to small businesses. But they typically impose stringent requirements, which means it’s very hard for business owners to get approved for funding, particularly newer businesses.
Additionally, the application process is often long and paper-based, which means headaches and long wait times. Our platform and technology give business owners the ability to apply, get approved and manage their financing faster and with more flexibility. This means they get quick access to cash for different needs, including payroll, procuring supplies or even to take on an unexpected business opportunity. Additionally, we take pride in treating every customer like a VIP customer and partner closely with them to reach their financial goals. And it’s working. To date, we’ve provided over $1.5 billion in financing to over 15,000 small businesses nationwide.
Rymarz: Fundbox brings credit access directly to the point of need, breaking the B2B credit silos.
With API’s, Fundbox integrates a company’s risk assessment and on-demand credit offering directly into the native workflows of B2B platforms.
Access to Fundbox credit is then contextualized based on the workflow and the associated credit usecases.
One example of bringing credit to the point of need is the company’s integration within the accounting platform Intuit Quickbooks. Quickbooks customers can apply and/or access Fundbox credit with just a few clicks. And they can do this while staying within their workflow without disruption.
Fundamentally, the Fundbox team believes that credit should be made available when and where it’s needed so SME owners can quickly transact and then move on to the next task at hand. Accessing and using B2B credit should be as simple, fast and transparent as buying a cup of coffee.
Has technology changed the relationship between the lender and the borrower? If so, how?
Brause: Technology is absolutely changing the relationship between the lender and borrower. Technology, combined with data and analytics, transforms the entire borrowing experience. Customers can fill out an application and access their funds when and where it’s convenient for them — no need to come into a branch during certain hours. Customers can choose how they want to interact — online chat, telephone or not at all. And we’re able to respond quicker and make decisions with less demands on the borrower because technology provides us with an incredible amount of data that can be analyzed.
Technology, however, isn’t a substitute for personal interaction, and judging by the comments our customers make about their experience with us, the personal interactions they have with our people remain incredibly important to the process. We’re constantly innovating on behalf of our small business customers, not just in technology but in our everyday interactions with them.
Lifshitz: Yes, it has. Technology dramatically solved one of biggest headaches many small businesses endured: long and sometimes arduous approval processes.
Today, with advances in technology, lenders have significantly improved the financing process — making it much faster and simpler. Business owners aren’t required to provide as many documents and are evaluated quickly. It’s a much better process. Additionally, advances in machine learning methods and improved data availability have allowed lenders to evaluate a business owner’s creditworthiness faster and more accurately, reducing the lender’s risk while offering financing to more businesses, including those that historically may not qualify for a traditional bank financing.
Despite these advances in technology, the best lenders have not lost sight of the personal service element. That is still important. In BlueVine’s case, we have dedicated advisors for all of our business owners to ensure that they make the best financial decision for their business.
Rymarz: Yes, technology has definitely changed the relationships between lenders and the SME customers they serve.
The days of having to apply for a line of credit face-to-face are over. Now, more lenders (traditional and alternative) are processing applications digitally, using a combination of human underwriters and automated applications to provide a credit decision in just a few minutes. This means that SMEs can access credit at the speed of business opportunity, instead of having to wait.
According to a KPMG report, investment in U.S.-based fintech companies surged to $14.2 billion in the first half of 2018. How has the large influx of capital changed the industry and the startups coming into it?
Brause: The increase in capital inflows into fintech companies validate the need to innovate in financial services, the increased adoption of these technologies and reflect a belief that the sector offers strong growth prospects and the potential for above-market returns. In addition to equity capital, the fixed income markets have also become more receptive to fintechs, providing various forms of debt financing at competitive terms. These inflows have certainly increased the number and strength of fintech companies competing with traditional banks and other financial service providers. Fortunately, the addressable market is large enough to support new entrants.
Lifshitz: The influx of capital over the past year has dramatically helped bring more innovation and competition to the financial services industry, resulting in better, faster and simpler products for consumers and small businesses. The investments have enabled fintech companies to expand and, more importantly, to invest more in the technology to create even more sophisticated platforms to deliver financial products faster, more seamlessly and with richer functionality.
Rymarz: 2018 proved to be a record-setting year for fintech investment. It’s not surprising that fintech investment is surging given the value that companies in this sector are bringing to their customers. The tectonic shift in the data and technology has made fintech an incredibly disruptive category, beyond what many investors expected. This is why we will continue to see lots of investment capital flowing into fintech.
The OCC announced it would begin accepting applications for national bank charters from non-depository fintech companies, which seems to signal an arrival for fintech into the mainstream. In what way do you see this affecting the industry going forward, both the good and the bad?
Brause: As fintech lenders grow and reach a certain size, scale and maturity, we expect to see additional focus on our space by regulators and policymakers. Generally speaking, we applaud the OCC’s efforts because they present a path to greater regulatory certainty for an industry that is subject to a patchwork of overlapping, and at times conflicting, state and federal regulations. At the same time, we understand that the rising profile of fintech lending in the eyes of policymakers means the industry will be under increased scrutiny. We are hopeful that such increased focus will help advance best practices, encourage innovation and ensure that the market for providing credit to small businesses remains competitive.
Lifshitz: When the OCC announced this move in July, it stressed the need to “promote economic opportunity that can improve financial services to consumers. businesses, and communities.” That was a significant statement for the fintech industry. There are many details that need to be worked out in creating a new framework that would include fintech companies. We certainly look forward to helping move the discussion forward.
How do you see the technology evolving over the next four years? What innovations can we look forward to?
Brause: While innovation is difficult to predict, it almost always fills a need. In the case of lending, I expect to see the continued shift from ‘analog to digital’ as it relates to the process of applying, funding and servicing of loans. As a result, we should see increased adoption of these technologies, by both borrowers and lenders — a trend that should bode well for OnDeck. I also expect to see the further digitization and connectivity of data, which will result in improvements in both the speed and efficiency of analytics, decisioning and servicing. I am excited about the opportunities that lay ahead!
Lifshitz: At the beginning of 2018, I said in an opinion piece that the days of one trick ponies in fintech are numbered. I still strongly believe that. Fintech has made it easier for consumers and businesses to manage their finances, apply for different kinds of loans, and process payments. And fintech companies have grown to understand that to thrive in this space they must be able to serve a broader set of their customers’ needs. That’s why you see fintech lenders that started with one product expanding into multiple lending categories and even into other types of financial services, like wealth management or payments. This is also true for us at BlueVine. Just two years after we rolled out our invoice factoring product, we introduced a business line of credit in 2016, after realizing the need for such a product.
Many of the major fintech players are less than 10 years old, which means these are still fairly young companies. Their platforms and technologies are also new and evolving. I can only speak for what I hope to see in BlueVine. I expect our platform to become even more sophisticated, making it possible to underwrite and offer financing much faster, with multiple products available for the business owner to choose from.
Rymarz: Over the next four years, we will see significant advancements in fintech innovation in the areas of standardization of API’s for data sharing, better data protection made possible by blockchain, the automation of regulatory compliance with regulatory technology and greater user experience centricity enabled by artificial intelligence.
The combination of security, compliance and user experience will continue to drive demand for fintech services. •