Daily Review: Alternative Lending Shows Positive Momentum – Q3 Earnings Reports

Business lending has traditionally been dominated by institutional players. Over the past several years, however, a gap in SME financing has been taken close to the heart by technology giants and startups alike. "There are a number of tech companies that do small business lending in varying degrees," Rania Succar, Head of QuickBooks Capital at Intuit, told CNBC. "For example Square, PayPal and Amazon offer loans to merchants."

According to the Federal Reserve, only 23% of businesses younger than five years get access to credit, which created a perfect environment for proliferation of alternative lenders. In fact, lending (along with payments) has long been the most well-funded and represented segment in FinTech.

Lending has become an extremely competitive space – companies for which it was never the primary focus are getting started with their own business financing arms (Intuit, MarketInvoice). Meanwhile, positive momentum in Q3 earning results of more established players draws a promising future for the whole segment that has seen its share of hardships.

Lending Club sees a healthy Q3

  • Q3 loan originations hit a six-quarter high of $2.4 billion, up 14% from $2.1 billion in Q2, and 20% from $2 billion in Q3 2016.
  • Q3 revenue hit a record high of $154 million, up 10% from $140 million in Q2, and 34% from $115 million in last year's quarter.
  • The revenue boost helped consolidated net losses narrow to $6.7 million from $25.4 million in Q2, and $36.5 million in Q3 2016.
  • Lending Club continued to expand its securitization program to build out an additional revenue stream. It has also begun implementing an updated credit model that better reflects current economy and protects investor yields.
  • Although Lending Club's latest results fell below analysts' expectations, they nevertheless demonstrated a continued upward trajectory.

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Square Reports Q3 Earnings as Business Lending Jumps 45% Year over Year

  • Square saw ongoing strength in transaction, subscription and services-based revenue.
  • Top-line revenue grew from the Q2 of 2017 increasing 33% YoY, up from 26%.
  • Gross Payment Volume (GPV) jumped 31% year over year to $17.4 billion, with strength in mid-market sellers.
  • Total net revenue hit $585 million, growing 33% versus a year prior. Net income came in at a $16 million loss.
  • Square facilitated 47,000 business loans totaling $303 million, up 45% YoY. In comparison, during Q2 2017, Square Capital originated over 49,000 SME loans of $318 million.
  • The past summer, Square launched a pilot of ‘Square Installments,’ a product that is integrated with Square Invoices. This credit offering allows a seller’s customers to finance purchases over several months.

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Australian Online Lender Prospa Tops Key Milestone as it Originates Over $500 Million in Loans

  • Over the past 12 months, Prospa has experienced dramatic growth, doubling the size of its loan book. Prospa has now provided credit to more than 12,000 SMEs in Australia and is the number one online lender in the country.
  • Prospa offers loans of up to $250,000 with a term of 3 to 24 months. Applications are said to be approved within hours.
  • Prospa placed second in the Fast 100 for 2017 thanks a 239% average revenue growth since 2013-14.
  • During 2017, Prospa has secured over $50 million in both equity and debt funding.
  • During the past 12 months, Prospa has grown its loan book by 200%.

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Accounting software giant Intuit launches direct business loans

  • Financial software firm Intuit is offering loans directly to businesses with a lending product called QuickBooks Capital. The company would enable firms to use its bookkeeping software to access up to $35,000 in credit, with a term between three and six months.
  • "As the largest small business accounting platform with approximately 2.4 million customers, the QuickBooks platform provides the most complete set of small business data available in the market," said Rania Succar, Head of QuickBooks Capital at Intuit.
  • QuickBooks Capital uses machine learning to help small businesses demonstrate creditworthiness.

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