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Trump, Republicans To Take Over in 2025
With the 2024 election results in, the regulatory and legislative environment for the small business finance industry could shift significantly at the federal level in the coming years. In particular, it will be worth paying specific attention to what happens with the Consumer Financial Protection Bureau (CFPB). As many readers are aware, the largest regulations ever imposed on the small business finance industry, promulgated by the CFPB, are slated to go in effect in July 2025. That date comes after fifteen literal years (Since Dodd-Frank was passed in 2010!) of delays caused by confusion, debates, and disputes over the CFPB’s right to exist, the meaning of the law’s statute, and court orders pushing it forward or temporarily delaying it. Feelings about the CFPB were so contentious under Trump’s last presidency that the agency temporarily rebranded itself as the BCFP (Bureau of Consumer Financial Protection) as a symbolic gesture of statutory defiance.
The CFPB’s looming oversight of small business finance starting next year had particularly alarmed those in the merchant cash advance space. Its current head, Rohit Chopra, had previously disclosed that his mission was to “wipe out” merchant cash advance companies. He had also said that the structure of their products “may be a sham.” In response, one trade group representing such companies filed a lawsuit against the CFPB earlier this year. That case has not been decided yet. Other segments of the small business finance industry will be watching the CFPB closely in 2025 as well.
Another outcome is that it could mean that individual states that lean the other way politically become more aggressive. As readers are aware, the stream of disclosure legislation over the last few years all came from the state level. It’s possible that environment starts to accelerate even faster.
View PosteBay: ‘We’ve Already Done $40M in MCAs’
eBay is coming in hot to the small business financing game. The company reported that it had connected merchants with $100M in funding YTD, over $40M of it being “business cash advances” through Liberis alone.
Liberis is a UK-based company that expanded into North America 4 years ago. It secured $112M in debt funding last year. The partnership between Liberis and eBay only started this past July. eBay’s other big funding partner is Funding Circle.
eBay’s role as a facilitator for funding follows what every other major e-commerce platform is doing. For example, Amazon, Shopify, Walmart, Lightspeed, and DoorDash all offer funding to sellers on their platforms. Technically, eBay was the first considering it had originally partnered up with Kabbage back in 2010. That relationship did not last, however.
View PostNerdwallet: Continued “Pressure in SMB Loan Originations”, Search Engine Traffic Flux
“We continue to see pressure in SMB loan originations, with rates remaining elevated and underwriting remaining tight,” said Lauren StClair, CFO of NerdWallet on the Q3 earnings call, “However, this was more than offset by growth in our renewals portfolio, which showcases the benefit of our vertical integration strategy and the reoccurring nature of the vertical when we pursue a higher touch experience.”
NerdWallet CEO Tim Chen further said that it was a “tough macro environment in SMB loans.”
Their SMB business overall, which includes several products, not just loan referrals, did well however in Q3, generating double digit YoY growth for a total of $27.8M in revenue.
Of additional note is NerdWallet’s commentary on search engine traffic and its impact to its business.
“After a stronger start of the quarter, we saw some additional deterioration in our search visibility in mid-Q3,” said Chen. “While traffic to our monetizing shopping-oriented content started to rebound as we exited the quarter, traffic to our non-monetizing learning-oriented content did not. As a result, Monthly Unique Users were down 7% year-over-year in Q3.”
deBanked drew attention to their search engine observations this past August after hearing Chen muse that the current state of organic search result rankings were not actually helping business owners get business loans. Chen dived into this subject yet again on the Q3 call, the full quote of which is worth including:
View Post“So, during our Q2 call, our search visibility was broadly stabilizing and actually starting to rebound a little bit. And then soon after our Q2 call, things took a turn for the worse. So with our shopping traffic, things got worse in August and September. But then going into October, rebounded back to a level that was a bit better even than where we were when we did the Q2 call. We think we did some things on our end to clean up the user experience that were net positive. Now, there were some exceptions, so for example, parts of credit cards and personal loans are still lagging. But, overall, we got a pretty good place – we got to a pretty good place on shopping pages and feel like we’ve figured out what to improve.
Conversely, for that far bigger bucket of education-oriented traffic that is less commercial in nature, things got progressively worse throughout the quarter and recently stabilized at a lower level. So, what’s happening there is a renewed push by search engines to incorporate their own answers directly into the search results, like you mentioned AI overviews as an example. So, for those of you who have been following search over the years, this isn’t really anything new. So, for example, at one point when you search for the weather, it didn’t show up directly in the results, and eventually a module was inserted there. That trend towards the simpler stuff being pulled into search results is inevitable, and we’ve always been more insulated from that, but historically it happens in waves, and sometimes haircuts are MUUs.
So, we’ve generally seen a re-baselining after any major changes, and then eventual growth from there as you lap the impact. Oftentimes, those changes are rolled back. And so, over the last 10 years, I’d say these changes come in waves, and we’re in the middle of a big wave, and as long as we focus on delivering consumer value, we’re steering in the right direction, and things tend to sort themselves out. So, this headwind is driving our outlook for further MUU deceleration in Q4, because of the full quarter impact of some of the stuff that happened with those headwinds.
Now, in the long run, I do think an improving search experience is a win for the overall ecosystem and keeps it healthy and growing. And, really, I’d say the silver lining here is that Q3 was pretty brutal as far as some of the headwinds we faced in organic search, especially in highly commercial areas, and being able to hit like a 12% NGOI margin in Q3 in spite of that headwind is really a testament to some of the progress we’ve made in building a brand and a direct relationship with our users and our increasing competitiveness in other channels.”
PayPal is Back to Growing its Merchant Lending Program
After taking drastic action over the last year to rein in surging SMB lending charge-offs, PayPal believes it has corrected the issue.
“We have now fully lapped the actions taken last year to tighten credit underwriting and reduce on balance sheet risk,” said PayPal CFO Jamie Miller on the Q3 earnings call. “We’re seeing better performance across the portfolio, and have now started to modestly grow merchant originations. We’ll continue to prudently manage the portfolio’s exposure with the goal of sustaining our balance sheet-business model, while providing our customers with more ways to manage their cash flow, spending and borrowing needs.”
The reduction in originations since the pullback had been severe, down by as much as 50% by deBanked’s prior estimates.
View PostEnova Surpasses $1 Billion in SMB Loans in a Single Quarter For First Time
Enova’s small business loan arm had a huge 3rd quarter.
“Notably, for the first time in our history, we originated over $1 billion in small business loans, up 33% year-over-year and 14% sequentially,” said Enova CEO David Fisher during the company’s earning call. “The main drivers of this growth are consumer spending and confidence from small business owners in this current economy.”
Additionally, he said:
View PostAs discussed on our first quarter call, we identified opportunities within our SMB business that we believe would support continued strong growth with improved unit economics. We continue to see the benefits of this strategy in the third quarter as small business originations growth was strong, small business revenue yield continued to move higher sequentially and the small business quarterly net charge-off ratio remained on the low end of our expected range. Expectations for our future credit performance remained stable as the consolidated consumer and small business fair-value premiums were all largely unchanged from last quarter.
Intuit: Consumers Expected to Spend 34% Less This Holiday Season
It’s not all good news with the economy. According to Intuit, a QuickBooks-commissioned survey predicts a 34% drop in consumer holiday spending, an $85 billion decrease from last year.
Of those who plan to spend less this year, more than 6 in 10 say grocery and gas prices are to blame, the survey revealed. Another 4 in 10 say their wages haven’t kept up with inflation over the past year.
Ironically, small business owners are anticipating the opposite trend. Eighty-two percent of business owners surveyed, for example, said that they expect to earn the same or more revenue in total holiday sales than they did last year. Perhaps they need the optimism. Twenty-three percent of business owners surveyed said that if the holidays are not a success, it will make it a really difficult year. Five percent said they might have to close.
And of the revenue they do earn, the majority said it will just go toward paying down business debt.
Meanwhile, 59% of consumers that plan to shop online plan to do so through a business's website directly.
The full report can be viewed here. View Post
New Jersey Tries Commercial Financing Disclosure Bill Again
For the 7th year in a row the legislature in New Jersey is trying to pass a commercial financing disclosure bill. While a notable component is an APR requirement it also applies a broad warning to brokers.
A broker shall not make or use:
(1) any false or misleading representations or omit any material fact in the offer or sale of the services of a broker or engage, directly or indirectly, in any act that operates or would operate as fraud or deception upon any person in connection with the offer or sale of the services of a broker, notwithstanding the absence of reliance by the buyer; or
(2) any false or deceptive representation in its business dealings.1
The full language can be found here.
View PostMeet the CAFE That Can Accelerate Your Fintech Startup
Newer fintechs on a mission to advance financial health and wellness for low-to-moderate income individuals and underserved populations may not have to weather the startup journey alone. Inside the Fintech Innovation Hub, situated on University of Delaware’s STAR campus, is the non-profit Center for Advancing Financial Equity (CAFE). Supported by numerous partnerships including the Small Business Administration, Discover, the Small Business Development Center (SBDC), the American Bankers Association, and more, one of its signature initiatives is its bi-annual fintech accelerator, which aims to identify, support and grow extraordinary financial accelerated technologies and innovations. Hundreds of companies apply but only six get selected for each cohort of the accelerator. One of those selected this past Spring, Parlay, offers a powerful tool to improve small business loan applications. Another, Stratyfy, offers interpretable AI solutions that enable financial institutions to make more accurate, efficient, and fair financial decisions in credit risk, fraud, and compliance.
Being accepted into CAFE requires a startup to already be up and operating.
“[These companies are] in market, the products are built already,” said Kristen Castell, Managing Director of CAFE. “They do have some customers, some of them are enterprise customers like banks, a full time team, and many of them have raised money already.”
Castell tells deBanked that the companies applying to the accelerator still need a lot of help in terms of making industry connections, scaling distribution, and developing the right partnerships. It’s an eight-week program, some of which takes place on location at the Fintech Innovation Hub in Delaware. The rest is virtual. Applicants and those selected can be from anywhere in the US. The founders, all connected by some level of common interest, are bound to form a bond throughout the unique experience. Last week for example, the members of the Fall cohort went on a field trip to the Wilmington, Delaware headquarters of Best Egg (F/K/A Marlette), an online lender, and got to learn about their path from being a startup in 2014 to the fintech stalwart they are today.
“This time, we have some opportunities to meet the American Bankers Association in Washington, DC,” Castell said. “We also meet the regulators at CFPB in Washington, DC. There’s some other conference opportunities like another accelerator called RevTech Labs that has an investor conference in Charlotte. So there’s an opportunity to pitch there to investors.”
The learning curve for any company coming through the accelerator is dramatically shortened by the access and guidance they get, whether that be from other fintechs, from bankers, from regulators, or the largest fintech trade association, the American Fintech Council.
At the end of it all there’s a demo day in person at the Fintech Innovation Hub in Delaware, where they present to investors, bankers, academics, industry and community leaders, non-profit organizations and entrepreneurs alike to show what they’re made of.
Castell, a former banker herself that previously worked for JPMorgan and BlackRock, also experienced a taste of being a fintech entrepreneur when she became interested in impact investing. It’s a scene she loves. When the plan for CAFE was in development, the opportunity to be involved with financial inclusion, technology, and startups all in one was something she really wanted to take on.
“It’s really been an incredible opportunity to build the organization, to build the program, to work with all these partners, to bring all these stakeholders that I had mentioned earlier in and we’re not done,” she said. “We’re just getting started.”
The six members of the Fall cohort are Carvertise, GivingCredit, Kredit Academy, Odynn, Salus, and Prismm. Sponsors include the American Bankers Association (ABA), Siegfried Advisory, Delaware Prosperity Partnership (DPP), Wolf & Co, Delaware Tech Park, deBanked, and Discover Financial Services.
deBanked is expected to attend the demo day in November. View Post
