After successfully releasing two individual leaderboard analyses on the Fraud and Authentication and the International Remittance sectors of the payment industry, Let’s Talk Payments announces its third LTP9 leaderboard analysis on another important and increasingly popular category in the payments domain – TECHNOLOGY BASED ALTERNATIVE BUSINESS LENDING.
This leaderboard represents the most promising 9 companies in this category.
Alternative business lending companies have recently emerged in the lending space, leveraging state-of-the-art technologies to help non-profit organisations, small businesses, high-tech startups and up-and-running companies with their needs for loans, grants, equity-sharing arrangements, etc. These past 2-3 years have witnessed more than 100 players looking to be part of the alternative lending industry. Such companies include those that already offer term loans or cash advances but want to integrate new technologies in their service offerings as well.
Traditional lenders generally focus on both the small business owner’s personal credit history and key metrics about the borrower’s business, such as industry-specific trends and number of employees. Emerging online alternative lenders use these indicators but also use predictive modeling, data aggregation, and electronic payment technology to assess the health and performance of a business. These emerging lenders have devised techniques to use the data from PayPal, eBay, Amazon, social networking sites, shopping carts, shipping, and accounting programs to understand the merchant's performance and assess the risk comprehensively.
Small-business owners who need quick access to capital have a burgeoning industry eager to fund them. Business lending through online platforms has grown significantly in the past two years. The tight credit environment in the US is fueling the need for alternatives and these upcoming players seem ready to handle this demand.
Extensive research, including detailed company profiling and regular interactions with industry stakeholders, has helped us in developing key insights which are also backed by our own data analysis. The identification of these leaderboards has followed a rigorous methodology, beginning with a comprehensive list of all companies in the space and then analyzing each of them on a scorecard with 15+ subjective and objective parameters to finally arrive at a quantified assessment for each one of them. These parameters are further clubbed under 3 main heads: Impact, Momentum & Focus. Continuous brainstorming and exhaustive research have been instrumental in developing these scorecards to help capture all the salient aspects of this category – both at an industry and a company level. Our own coverage of the space on LTP over the past year+, coupled with first-hand industry experience, has been a valuable source of inputs in determining the LTP9 selection. [Read more about the selection framework here.]
Not limiting ourselves to publicly available information, but rather taking the additional step of listening directly to industry leaders is what drives the authenticity of the LTP9 framework. One very important aspect of LTP9 companies is their core competency in the category under consideration. This will help our readers to obtain a clear understanding of the product positioning of each company amidst a plethora of exciting companies in this space.
Notes: LTP9 is currently focused on the US market. Traditional Banking and Financial Institution led models for lending have not been considered for this particular leaderboard.
LTP9: Leaders in Technology based Alternative Business Lending – April 2014
A brief profile of the shortlisted ‘LTP9 in Technology based Alternative Business Lending’ companies:
On Deck has established itself as one of the leaders in online business lending with a high focus on technology. It has witnessed high growth rate of 152% y-o-y increase in loan originations in 2014. The company went for an IPO in late 2014 which marks a significant milestone for the company. It has issued $2 billion in total loan amount to date, of which 60% was achieved in 2014 thereby getting our high rating for traction. The technology deployed for achieving high accuracy in predicting bad credit risk for small businesses includes the use of advanced “Ondeck Score”, instead of using only personal credit scores. Its end-to-end integrated technology platform to facilitate business loans also helps us to rate it highly on the "Impact” made in simplifying the business loans process. The company charges an annual interest rate in the range of 18 to 36 percent.
This Atlanta based firm, founded in 2009, is found to be one of the fastest growing business lending companies in United States, with $550 million in loans disbursed to date. Instead of the conventional model of credit score checks, Kabbage provides business loans to its customers on the basis of their transaction history, user feedback ratings and even gaming and social-media participation. They do this by capturing real time data. The company’s growth, business model and highly efficient technology of approving loans within 10 minutes, accompanied with other factors has fetched the company $270 million in funding in April 2014 from Guggenheim Securities. This is estimated to be one of the largest capital infusions ever made into a small business lender, and the biggest in the online lending space. The company has also been successful in raising funds from other leading investors such as BlueRun Ventures, David Bonderman, Warren Stephens to name a few. With amazing momentum and great impact in solving the lending problem, Kabbage qualifies for the LTP9 leaderboard in this category.
Square, a leading payments company, processing an estimated $30 billion a year, has put a strong foot forward in the online business lending arena through its product called “Square Capital”. Square Capital decides eligibility for a business loan based on the merchant’s processing volume and the history that goes through Square systems anyways. Through Square Capital, the company is expected to attract more customers for its payment processing service. Square Capital is being offered to Square’s own merchant base and therefore Square is at an advantage to analyze the creditworthiness and eligibility of customers for offering business loans. The company has also adopted a customized repayment model allowing merchant to pay more when business is strong and less if things slow down; this adds significantly to the impact it will have on the business lending ecosystem.
Paypal Working Capital
Paypal has entered into online business lending through the model of extending working capital loans to the companies already using Paypal’s payment services. Having started the service in late 2013, the company is estimated to have extended loans to about 90,000 merchants by the end of 2014. Although it currently forms a small percentage of the company’s 9 million plus active merchant base, there is a huge potential in this offering. With continued operations, Paypal Working Capital is expected to reach millions of existing Paypals customers. An attractive aspect about PayPal Working Capital (PPWC) is that your credit score does not become a factor when you apply for a loan. PPWC can become one of the cheapest options if the loan is paid quickly i.e. if a majority of PayPal sales go towards loan repayment.
Found in 2007, Biz2Credit offers a marketplace model for implementing Online Business Lending, linking small business borrowers and financial institutions. Using the latest technology, their proprietary tool “BizAnalyser” matches borrowers to financial institutions based on each company's unique profile. Biz2Credit has achieved a substantial LTP9 score on traction with more than $1.2 billion in small business funding achieved for 11,000 companies throughout the U.S with a network of 1.6 million users, 1,300+ lenders, working with credit rating agencies such as D&B and Equifax. The company stands strong on the our Impact dimension in the LTP9 leaderboard given its use of technology which enables the lending process to be completed in less than 4 minutes.
With an established presence in the small and medium sized business lending industry, CAN Capital has shown a consistent growth in loan originations. Over the past 5 years, CAN Capital has experienced significant growth, including a 29% CAGR growth in originations and a 24% revenue CAGR growth. The company earns a high traction score with an estimated $814 million in loan originations in 2014 and 6000+ businesses funded since 2010. CAN Capital’s promising operations are also marked by a $650 million credit facility secured this month (April 2015), from a dozen leading lenders including Morgan Stanley, Barclays, UBS and J.P. Morgan to name a few.
Funding Circle has a strong presence in business lending at a global level with a footprint of $850 million in loans disbursed in UK and US. This London based company started its US operations in October 2013 and our analysis shows that it has achieved multifold growth in its loan originations over a 6 month period, amounting to an estimated 21x jump; so the company is rated well with a high traction score. The company’s groundwork seems to be promising with the acquisition of Endurance Lending Network – a web-based lender focused on small and medium businesses in the United States, making it eligible to hold a strong place in LTP9. Back in August 2014, the company had acquired a semi-stealth startup called LeapPay to speed up the turnaround time it offers on loans, and also to keep expanding its business in the U.S. Funding Circle is integrated with products such as Quickbooks, Freshbooks and Xero. Recently, Temasek, a Singapore based investment company, revealed its intent to buy a stake in the company for 30 million pounds. Funding Circle has over 37,000 registered active investors and over 8,000 businesses have borrowed from the company.
We had to give a lot of thought before including Kickstarter in this list because in a way it doesn't technically help ‘fund’ the companies, but rather people pay to ‘buy products’ that will be shipped later. But then we looked at actual people who have considered both lending companies and Kickstarter for the same purpose. In both the lending as well as the crowdfunding model, money is made available to the startup or company in advance so they can build the product or the service and fund the team, infrastructure and processes. In both the cases, the company is supposed to provide a return to the investors (institutional or retail) in some form - it could be money (interest) or kind (product of the company). Given the similarity in "purpose" and other supporting factors, we have included the crowdfunding model for small businesses and early startups in this LTP9.
Kickstarter operates on a crowdfunding platform helping businesses or people to raise funds for creative projects or early startups in diverse fields such as movies, music, art, theater, games, comics, design, and photography. Found in 2009, this company has shown significant momentum of having pledged more than $1.6 billion to projects by over 8.3 million creators. The company operates on the concept of ‘donation based lending’ and has evolved as one of the largest funding platforms for creative projects amidst all other companies currently operating on a similar model.
Founded in 2012, Fundbox has been showing significant growth rates of 300% quarter over quarter in the past 18 months. Fundbox brings a great deal of focus in business lending by providing small businesses a solution to fund their bills. It does that by linking to their business accounting systems and by leveraging deep data analytics to accelerate cash flow and to clear invoices for small businesses. Company has closed total funding of $57.5 million recently and stands high on the LTP9 factors of Focus and Momentum.
Note: We will also publish an exclusive LTP9 Canvas Report based on this category.
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