New York attorney general secures receiver for crypto firm
A receiver has been appointed for Coinseed, which is facing allegations from U.S. authorities
- By: James Langton
New York’s attorney general has obtained an order appointing a receiver to oversee crypto trading firm Coinseed Inc., which is allegedly operating illegally.
Letitia James, the state’s attorney general, has secured a court order that appoints a receiver — Michelle Gitlitz, the global head of Crowell & Moring LLP’s blockchain and digital assets practice — to safeguard investors’ assets.
Back in February, the AG’s office filed a lawsuit against Coinseed and its founder and CEO, Delgerdalai Davaasambuu, alleging that the firm operated as an unregistered commodities broker-dealer through its mobile app, among other infractions.
Now, citing ongoing fraudulent conduct, the AG has secured court-appointed oversight of Coinseed.
“When platforms operating illegally in New York seek to trade on investors’ money, we will use every tool at our disposal to stop their unlawful actions,” James said in a release. “This order appoints a court-appointed receiver before any other investments are squandered by Coinseed and its CEO.”
The U.S. Securities and Exchange Commission also charged Coinseed and Davaasambuu in federal district court in Manhattan back in February, alleging that they violated securities rules by selling unregistered digital assets. Those allegations have not been proven.
In Canada, the Ontario Securities Commission has also recently started bringing enforcement cases against offshore crypto trading platforms, alleging that they are violating securities rules by engaging in unregistered trading in securities and derivatives.
Stripe Teardown: How The $36B Payments Company Is Supercharging Online Retail
Today, around $4.3T worth of global commerce happens online. Stripe is intent on growing that number.
As businesses and consumers become more comfortable using credit cards online, the proportion of US commerce that takes place online has steadily increased over the last 20 years.
This growth has created major opportunities in the payments space, and companies like Stripe — a payments unicorn valued at a massive $36B — are hungry to capitalize on them.
Brothers Patrick and John Collison founded Stripe in 2010 in an attempt to gain share in online payments, a then-nascent market with seemingly boundless growth opportunities.
Specifically, the Collisons aimed to more seamlessly connect online businesses and payment processors, allowing more businesses to accept online payments.
“Stripe really did come about because we were really appalled by how hard it was to charge for things online.” — John Collison
To help enable online commerce, Stripe is building a suite of APIs that allow developers to implement its payment capabilities. These APIs handle everything from acceptance and processing to settlement and reconciliation, while ensuring compliance and security.
Stripe is also pursuing some more unexpected offerings, including resources to help companies build their own internal analytics tools, and Stripe Atlas, which helps entrepreneurs create US-incorporated businesses in minutes.
In an interview at CB Insights’ 2019 Future of Fintech conference, Stripe CPO William Gaybrick indicated that businesses are more constrained by developer resources than by capital.
The company’s strategy also includes deference to developers, as well as a focus on directly serving developers who build websites and applications using Stripe’s product. Stripe’s early success in acquiring customers was largely due to its mass appeal to the developer community.
Over the last decade, Stripe has expanded its platform beyond payments processing to handling more complex marketplace transactions through Stripe Connect, while also offering complementary services to help facilitate online commerce, drive growth for customers, and expand the funnel of internet businesses globally.
As a result of its product innovation efforts, Stripe has seen explosive growth in product adoption and valuation. Today, it works with companies in over 120 countries spanning every industry, company size, and business model. And the rise in e-commerce sales due to the Covid-19 pandemic has only added to Stripe’s growth rate.
Stripe has broadened its product offerings across the entire payments stack. In April 2020, the company raised $600M from investors including Sequoia, GV, Andreessen Horowitz, and General Catalyst at a $36B valuation. And Stripe’s target market includes both small startups and Fortune 500 giants looking for payments services.
Source: Stripe
In this report, we dive into Stripe’s unique strategy, growth trajectory, product set, and where the $36B payments giant sees the global online commerce market heading next.
TABLE OF CONTENTS
A decade of online payments innovation
- PayPal and Square emerge as leaders in the payments space
- ‘PayFac’ technology simplifies underwriting and onboarding merchants
- Expanding product suites: Stripe vs. Square
Stripe’s business strategy: How the $36B unicorn sets itself apart
- Focus on developers
- How Stripe makes money
- Stripe’s market opportunity
- Stripe’s valuation, funding, and investor history
- Company leadership and board members
How Stripe’s product suite feeds into its ultimate goals
- Goal 1: Broadly enable online commerce
- Online and offline payments
- Fraud prevention tools
- Goal 2: Support merchant partner growth
- Stripe Connect and billing services
- Virtual card issuance
- Business lending and corporate cards
- Goal 3: Grow the internet economy
- Stripe Atlas and Stripe Sigma reduce barriers to new business creation
Stripe’s recent strategic initiatives
- Stripe’s M&A mandate
- Empower developers
- Support new lines of business
- Promote internet-focused entrepreneurship
- Stripe is ramping up its private market investments
- International expansion
- Developer support
- Expansion into emerging markets
- More international expansion
- Product innovation
- Investment activity
- The road ahead
A decade of online payments innovation
Accepting online payments used to be a complicated undertaking.
Typically, when a company wanted to accept payments online, it had to set up a merchant account — a complex process involving legacy infrastructure and manual tasks that could take days or even weeks.
This process involved hurdles like regulations, fees, compliance standards, and payment card issuers — all of which became increasingly complex for international transactions. Additionally, the company had to underwrite risk and was on the hook in the event of fraud or returned items.
Online merchants also faced challenges around verifying the buyer’s identity with “card-not-present” transactions. This risk is reflected in processing fees, which are higher for online transactions.
As merchants increasingly turned to e-commerce, new companies have attempted to streamline the historically challenging process of accepting credit cards online.
PAYPAL AND SQUARE EMERGE AS LEADERS IN THE PAYMENTS SPACE
PayPal was the first major company to pioneer a new online payments method for budding e-commerce sites like eBay, which previously relied on checks and money orders. In 2000, PayPal launched business accounts, allowing businesses to accept unlimited credit card payments with a standard 2.9% + $0.30 rate per transaction.
Many leading tech companies — including Google (Checkout), Yahoo (PayDirect), and Microsoft (Passport) — tried to compete with PayPal to gain a foothold in the online payments market, but ultimately shuttered these product lines in the mid-2000s.
Braintree, a Chicago-based payment infrastructure company founded in 2007, aimed to replace the traditional model where merchants used different providers for a payment gateway and a merchant account. The company was ultimately acquired by PayPal in 2013, and now represents a sizable chunk of its merchant business.
In 2009, a decade after PayPal started offering online payments, San Francisco-based startup Square brought payments innovation to the point-of-sale, allowing businesses with smaller transaction volumes to accept card payments with its card reader and mobile phone card reader.
Stripe also came on the scene that same year, offering a new approach to the payments ecosystem.
Square has since expanded its offerings to standalone, integrated point-of-sale terminals, as well as a broader ecosystem of applications and services such as lending (Square Capital), payroll services (Square Payroll), rewards (Square Loyalty), a debit card (Square Card), and many others.
‘PAYFAC’ TECHNOLOGY SIMPLIFIES UNDERWRITING AND ONBOARDING MERCHANTS
One key catalyst for online payment innovation was the introduction of the Payment Facilitator, or “PayFac,” in 2010.
The PayFac model dramatically simplified the merchant onboarding process for companies like Stripe, Square, and PayPal by letting them leverage a “master” merchant account rather than applying for their own.
This allowed companies like Stripe — one of the first PayFacs — to quickly underwrite and onboard new merchants. Payments companies assumed risk for losses associated with chargebacks, fraud, KYC, or AML, while also providing support, dispute management, and reporting.
Source: Finix
EXPANDING PRODUCT SUITES: STRIPE VS. SQUARE
In the same way that Square built a payment-centric ecosystem for brick-and-mortar SMBs and micro-merchants, Stripe has reinvented online payment acceptance.
Now both companies have moved beyond payments and built new businesses that serve a range of needs for small businesses.
Source: Square
Just as Square started with micro-merchants and moved upmarket, Stripe has innovated on its platform to expand its product offerings:
- Stripe Connect can handle more complex marketplace transactions.
- Stripe Billing optimizes subscription and invoice management.
- Stripe Payouts and Stripe Issuing facilitate the movement of money with instant cashouts for gig economy workers and virtual card issuance, respectively.
- Stripe Atlas (business incorporation tool) and Stripe Sigma (business analytics and reporting) can help simplify business operations.
- Stripe Treasury helps platforms offer embedded banking-as-a-service features.
- Stripe Climate allows businesses to direct part of their revenue toward carbon removal projects.
A selection of Stripe’s products. Source: Stripe
The Most Powerful Women in Banking
The 2020 honorees presented here are ordered differently than in past years. In this unprecedented year, we took an unprecedented — and temporary — break from our traditional ranking. Below are this year’s Most Powerful Women in Banking grouped according to their roles and listed alphabetically within those categories.
Twenty of this year’s honorees were among our 25 Most Powerful Women in Banking in 2019, while four — Citizens Bank of Edmond’s Jill Castilla, City National Bank’s Kelly Coffey and JPMorgan Chase’s Lori Beer and Jennifer Piepszak — are former Most Powerful Women to Watch making their debuts here. Returning to the list after a one-year absence is Marianne Lake, the former chief financial officer at JPMorgan Chase who is now the CEO of consumer lending.
Perhaps not surprisingly, JPMorgan Chase, the nation’s largest bank, has the most number of women on this year’s list, with a total of five. The others are Thasunda Brown Duckett, the CEO of consumer banking, and Stacey Friedman, the bank’s general counsel. Bank of America and Huntington Bancshares have the second-most, with two each. Scroll through to see the full list of the 25 Most Powerful Women in Banking for 2020.
Also be sure to check out:
Diane Reyes
HSBC
Read her full profile.
Ernie Johannson
BMO Financial Group
Read her full profile.
Karen Larrimer
PNC Financial Services Group
Read her full profile.
Diane Morais
Ally Financial
Read her full profile.
Sandy Pierce
Huntington Bancshares
Read her full profile.
… And now moving on to the Hall of Fame
Chief Operations and Technology Officer
Bank of America
After three years atop the Most Powerful Women in Banking list, Cathy Bessant has now become the second inductee into our Hall of Fame.
The only other Most Powerful Woman honoree to have earned this distinction is Beth Mooney, who retired as the chairman and chief executive of KeyCorp this spring.
We created the Hall of Fame for Mooney, with the idea that going forward those who ranked as the No. 1 Most Powerful Woman in Banking for three consecutive years would become eligible.
Bessant and Mooney will be joining us for a conversation during the virtual celebration for the Most Powerful Women. All are welcome to register for the event.
Read Bessant’s profiles as the No. 1 Most Powerful Woman here:
2019
2018
As Western countries start the slow return to business as usual, lenders and retailers will need to establish lending programs that can cope with the demand from consumers who are ready to begin spending again but are likely to have faced a period of financial uncertainty.
The US declared a state of national emergency on Friday 13th March, with each state deciding their own degree of lockdown due to COVID-19. The retail landscape has transformed ever since self-isolation measures began and continues to evolve with each day that social-distancing stays in place. With a considerable initial shift towards online purchasing following the closure of stores and a substantial amount of job losses, now is an essential time for lending institutions and retailers to consider what consumers are likely to need after self-isolation ends and the brick and mortar shops reopen. It was in reaction to the financial crisis in 2008, that fintech installment loan companies gained popularity with millennials keen to avoid credit card debt. While it is uncertain whether COVID-19 will trigger a full recession similar to the one that occurred in 2008, enough economic uncertainty has been created to assume that the financing space must grow to accommodate consumer needs.
Reduced incomes during COVID-19
US unemployment figures have risen by 22 million in just 4 weeks, others may have seen their salary reduced, with self-employed citizens and small business owners on decreased incomes. Towards the end of March, more than 80% of freelancers surveyed said they’ve already lost thousands of dollars in wages to COVID-19, a number that will have risen as people continue to cut back on goods and services. Consumers may have utilized their savings to be able to keep up with mortgage repayments and rent. While the hope remains that most jobs will be able to return to normal once restrictions are lifted and the economy slowly recovers, financing options will be a critical aspect when consumers are able to shop freely again.
Ecommerce sales surged up
Following the closure of brick and mortar stores, there was an immediate shift towards online commerce. Ecommerce sales shot up by 40% in the US after a state of emergency was declared, boosting verticals such as toys, sporting goods, and camping. Even the baby boomers, who were previously averse to shopping online, have been left with no other choice.
While certain retailers have benefited from self-isolation measures, others are struggling. Online sales for apparel and accessories showed an overall decrease of 50.5% from February to March. The sales of big-ticket items, in particular, have reduced as consumers remain insecure about their financial situation.
People will want to upgrade furniture and technology
During this extended period of time in their homes, consumers will have thought a lot about an idealized vision of their environment. They will have used their furniture more extensively than before, sofas that were only being used on the weekends and dining tables suddenly needed for family meals. They will be looking to replace furniture and outdated technology that might have frustrated them whilst being at home all day. Additionally, people may be looking to book a holiday or event for the summer of 2021, when it might be safer to do so. Consumers have delayed these purchases whilst still in a state of crisis, including flights, home appliances, and technology devices. When asked whether they plan to buy the items they have put on hold, 36% of US internet users said they’re waiting for the outbreak to subside either locally or internationally.
What can be expected after COVID-19
We can only speculate as to how consumer behavior will adapt once lockdown measures lift, but imagine that consumers will enjoy the freedom of being able to go to malls and shop for leisure again. It is likely that there will be a significant increase in sales of big-ticket items to compensate for the decline during a state of crisis. Research already suggests that many consumers will want to either get back to spending normally or spend even more extravagantly than previously. Banks and retailers will need to walk a fine line to ensure that consumers are not burdened with loans that they cannot repay whilst being able to provide financial assistance to those who just need purchasing to be more manageable at this time.
Lenders must ensure that appropriate financing is available to retailers
Lenders must work with retailers to ensure that consumers have enough choice for financing instore as well as online, without relying on co-branded credit cards. Without a clear repayment plan and potentially high-interest rates, such cards could be detrimental to consumers exiting a financial crisis. If lenders and retailers are already offering installment loans, they should look at adding a ‘line of credit’ option, which would allow customers to complete individual purchases over time, and pay-back only the amount that is spent in monthly payments.
Bottom line – What to expect
As the economy slowly starts to return to normal, consumers will be spending more, making up for high-ticket and non-essential items that were not purchased during the uncertainty of the lockdown situation. Financing programs will be critical for consumers exiting this crisis, leading merchants to look frantically for solutions instore and online. The winners of this business will be lenders who are offering competitive loan programs that can be implemented quickly and easily to meet this demand.
Financing Becomes Even More Essential in the Wake of COVID-19
Why You Should Buy The Assets Of A Business Instead Of Its Stock
Or, Why a Stock Purchase is Incredibly Risky
When people think about buying a company, they have thought the only option was to purchase the company’s stock. But there’s a better way to go about buying companies that takes away many of the risks that pop up when you purchase a company’s stock. Let me explain.
When I buy the stock of a company, I’m essentially buying everything inside that business-including all of its assets. But I’m also buying its liabilities as well-;some of which might be unknown at the time of the purchase. In some cases, those liabilities could have been created years before. Yet, after you buy the company’s stock, they could suddenly rear their ugly head and force you to deal with the consequences.
There is no doubt that you will do proper due diligence as you consider the purchase of a business, but it’s really impossible to uncover every risk. This is especially true for hidden risks that even the owner doesn’t know about.
For example, let’s say that the business makes a popular lawn-care product. Every spring, homeowners spread the product all over their grass to make it as green as possible. Unfortunately, the product is also toxic to humans. The company didn’t know that it was toxic, so it kept selling its product for years-;up until the day you buy the company’s stock. Then the news breaks about the toxic nature of the product. Guess whose problem that is now? That type of issue sounds very expensive, but it’s easy to think up dozens of such hidden liability time-bombs.
While it is possible to create some protections from these kinds of surprises in your purchase agreement, where you try to assign liabilities to a seller and indemnify yourself, it can tricky to identify all of the unknown risks. Even worse is trying to recover a large settlement from seller well after escrow has cleared.
That’s why the better way to buy a company is to just acquire its assets rather than its stock. This essentially means that you create a new corporate entity-;call it Newco-;which then acquires all of the assets of the company you’re buying. You will hollow out the old business to build the new one. That includes employment contracts, intellectual property, machinery, and long-term leases. Even the name and brand equity would transfer over to the new business. You purchase all of the assets needed to operate the firm on a going forward basis.
If I was buying Coca-Cola, for example, I would want to acquire the incredibly valuable brand otherwise I would just be purchasing fizzy brown water company.
The key known and unknown liabilities, however, stay with the old business. While you might have to assume certain minor liabilities like any accounts payable owed to suppliers, the big risky backward-looking liabilities remain the responsibility of the seller.
Of course, there are always tax implications with any acquisition, so I also highly recommend that you consult an attorney and CPA to get the best advice on structing your deal when you acquire the assets of a business.
While this approach might sound obvious, I saw firsthand how not understanding this approach can be devastating to a business. There was a case where an inexperienced management team acquired the stock of a company before checking in with their board. By the time we heard about it, they were too far down the path to turn back and so the sale was consummated as a stock purchase.
That decision came back to bite us when we learned that there was a problem in how the acquired company had been billing its customers for the past few years. All of a sudden the new owner, Us, needed to fix that problem-;which quickly became incredibly expensive. It wasn’t long before everyone regretted making the deal in the first place.
So remember, when you have the opportunity to buy a company, steer clear of the stock and buy the assets instead. Not only will it make the deal easy to close, it also will allow you to avoid lots of potential risk.
Financing Becomes Even More Essential in the Wake of COVID-19
Yaacov Martin
As Western countries start the slow return to business as usual, lenders and retailers will need to establish lending programs that can cope with the demand from consumers who are ready to begin spending again but are likely to have faced a period of financial uncertainty.
The US declared a state of national emergency on Friday 13th March, with each state deciding their own degree of lock down due to COVID-19. The retail landscape has transformed ever since self-isolation measures began and continues to evolve with each day that social-distancing stays in place. With a considerable initial shift towards online purchasing following the closure of stores and a substantial amount of job losses, now is an essential time for lending institutions and retailers to consider what consumers are likely to need after self-isolation ends and the brick and mortar shops reopen. It was in reaction to the financial crisis in 2008, that fintech installment loan companies gained popularity with millennials keen to avoid credit card debt. While it is uncertain whether COVID-19 will trigger a full recession similar to the one that occurred in 2008, enough economic uncertainty has been created to assume that the financing space must grow to accommodate consumer needs.
Reduced incomes during COVID-19
US unemployment figures have risen by 22 million in just 4 weeks, others may have seen their salary reduced, with self-employed citizens and small business owners on decreased incomes. Towards the end of March, more than 80% of freelancers surveyed said they’ve already lost thousands of dollars in wages to COVID-19, a number that will have risen as people continue to cut back on goods and services. Consumers may have utilized their savings to be able to keep up with mortgage repayments and rent. While the hope remains that most jobs will be able to return to normal once restrictions are lifted and the economy slowly recovers, financing options will be a critical aspect when consumers are able to shop freely again.
Ecommerce sales surged up
Following the closure of brick and mortar stores, there was an immediate shift towards online commerce. Ecommerce sales shot up by 40% in the US after a state of emergency was declared, boosting verticals such as toys, sporting goods, and camping. Even the baby boomers, who were previously averse to shopping online, have been left with no other choice.
While certain retailers have benefited from self-isolation measures, others are struggling. Online sales for apparel and accessories showed an overall decrease of 50.5% from February to March. The sales of big-ticket items, in particular, have reduced as consumers remain insecure about their financial situation.
People will want to upgrade furniture and technology
During this extended period of time in their homes, consumers will have thought a lot about an idealized vision of their environment. They will have used their furniture more extensively than before, sofas that were only being used on the weekends and dining tables suddenly needed for family meals. They will be looking to replace furniture and outdated technology that might have frustrated them whilst being at home all day. Additionally, people may be looking to book a holiday or event for the summer of 2021, when it might be safer to do so. Consumers have delayed these purchases whilst still in a state of crisis, including flights, home appliances, and technology devices. When asked whether they plan to buy the items they have put on hold, 36% of US internet users said they’re waiting for the outbreak to subside either locally or internationally.
What can be expected after COVID-19
We can only speculate as to how consumer behavior will adapt once lockdown measures lift, but imagine that consumers will enjoy the freedom of being able to go to malls and shop for leisure again. It is likely that there will be a significant increase in sales of big-ticket items to compensate for the decline during a state of crisis. Research already suggests that many consumers will want to either get back to spending normally or spend even more extravagantly than previously. Banks and retailers will need to walk a fine line to ensure that consumers are not burdened with loans that they cannot repay whilst being able to provide financial assistance to those who just need purchasing to be more manageable at this time.
Lenders must ensure that appropriate financing is available to retailers
Lenders must work with retailers to ensure that consumers have enough choice for financing instore as well as online, without relying on co-branded credit cards. Without a clear repayment plan and potentially high-interest rates, such cards could be detrimental to consumers exiting a financial crisis. If lenders and retailers are already offering installment loans, they should look at adding a ‘line of credit’ option, which would allow customers to complete individual purchases over time, and pay-back only the amount that is spent in monthly payments.
Bottom line – What to expect
As the economy slowly starts to return to normal, consumers will be spending more, making up for high-ticket and non-essential items that were not purchased during the uncertainty of the lockdown situation. Financing programs will be critical for consumers exiting this crisis, leading merchants to look frantically for solutions in-store and online. The winners of this business will be lenders who are offering competitive loan programs that can be implemented quickly and easily to meet this demand.
The FTC Wants To Police Small Business Finance
On May 23, the Federal Trade Commission launched an investigation into unfair or deceptive practices in the small business financing industry, including by merchant cash advance providers.The agency is looking into, among other things, whether both financial technology companies and merchant cash advance firms are making misrepresentations in their marketing and advertising to small businesses, whether they employ brokers and lead-generators who make false and misleading claims, and whether they engage in legal chicanery and misconduct in structuring contracts and debt-servicing.
Evan Zullow, senior attorney at the FTC’s consumer protection division, told deBanked that the FTC is, moreover, investigating whether fintechs and MCAs employ “problematic,” “egregious” and “abusive” tactics in collecting debts. He cited such bullying actions as “making false threats of the consequences of not paying a debt,” as well as pressuring debtors with warnings that they could face jail time, that authorities would be notified of their “criminal” behavior, contacting third-parties like employers, colleagues, or family members, and even issuing physical threats.
“Broadly,” Zullow said in a telephone interview, “our work and authority reaches the full life cycle of the financing arrangement.” He added: “We’re looking closely at the conduct (of firms) in this industry and, if there’s unlawful conduct, we’ll take law enforcement action.”
The FTC investigation is one of several regulatory, legislative and law enforcement actions facing the merchant cash advance industry, which was triggered by a Bloomberg exposé last winter alleging sharp practices by some MCA firms.
The Bloomberg series told of high-cost financings, of MCA firms’ draining debtors’ bank accounts, and of controversial collections practices in which debtors signed contracts that included “confessions of judgment.”
The FTC long ago outlawed the use of COJs in consumer loan contracts and several states have banned their use in commercial transactions. In September, Governor Andrew Cuomo signed legislation prohibiting the use of COJs in New York State courts for out-of-state residents. And there is a bipartisan bill pending in the U.S. Senate authored by Florida Republican Marco Rubio and Ohio Democrat Sherrod Brown to outlaw COJs nationwide.
Mark Dabertin, a senior attorney at Pepper Hamilton, described the FTC’s investigation of small business financing as a “significant development.” But he also said that the agency’s “expansive reading of the FTC Act arguably presents the bigger news.” Writing in a legal memorandum to clients, Dabertin added: “It opens the door to introducing federal consumer protection laws into all manner of business-to-business conduct.”
The FTC inquiry into alternative small business financing is not the only investigation into the MCA industry. Citing unnamed sources, The Washington Post reported in June that the Manhattan district attorney is pursuing a criminal investigation of “a group of cash advance executives” and that the New York State attorney general’s office is conducting a separate civil probe.
The FTC’s investigation follows hard on the heels of a May 8 forum on small business financing. Labeled “Strictly Business,” the proceedings commenced with a brief address by FTC Commissioner Rohit Chopra, who paid homage to the vital role that small business plays in the U.S. economy. “Hard work and the creativity of entrepreneurs and new small businesses helped us grow,” he said.
But he expressed concern that entrepreneurship and small business formation in the U.S. was in decline. According to census data analyzed by the Kaufmann Foundation and the Brookings Institution, the commissioner noted, the number of new companies as a share of U.S. businesses has declined by 44 percent from 1978 to 2012.
“It’s getting harder and harder for entrepreneurs to launch new businesses,” Chopra declared. “Since the 1980s, new business formation began its long steady decline. A decade ago births of new firms started to be eclipsed by deaths of firms.”
Chopra singled out one-sided, unjust contracts as a particularly concerning phenomenon. “One of the most powerful weapons wielded by firms over new businesses is the take-it-or-leave-it contract,” he said, adding: “Contracts are ways that we put promises on paper. When it comes to commerce, arm’s length dealing codified through contracts is a prerequisite for prosperity. “But when a market structure requires small businesses to be dependent on a small set of dominant firms — or firms that don’t engage in scrupulous business practices — these incumbents can impose contract terms that cement dominance, extract rents, and make it harder for new businesses to emerge and thrive.”
The fintechs went first. In general, they stressed the speed and convenience of their loans and lines of credit, and the pioneering innovations in technology that allowed them to do deeper dives into companies seeking credit, and to tailor their products to the borrower’s needs. Panelists cited the “SMART Box” devised by Kabbage and OnDeck as examples of transparency. (Accompanying those companies’ loan offers, the SMART Box is modeled on the uniform terms contained in credit card offerings, which are mandated by the Truth in Lending Act. TILA does not pertain to commercial debt transactions.)
Sam Taussig, head of global policy at Kabbage, explained that his company typically provides loans to borrowers with five to seven employees — “truly Main Street American small businesses” — that are seeking out “project-based financing” or “working capital.”
“The average small business according to our research only has about 27 days of cash flow on hand,” Taussig told the fintech panel, FTC moderators and audience members. “So if you as a small business owner need to seize an opportunity to expand your revenue or (have) a one-off event — such as the freezer in your ice cream store breaks — it’s very difficult to access that capital quickly to get back to business or grow your business.”
Taussig contrasted the purpose of a commercial loan with consumer loans taken out to consolidate existing debt or purchase a consumer product that’s “a depreciating asset.” Fintechs, which typically supply lightning-quick loans to entrepreneurs to purchase equipment, meet payrolls, or build inventory, should be judged by a different standard.
A florist needs to purchase roses and carnations for Mother’s Day, an ice-cream store must replenish inventory over the summer, an Irish pub has to stock up on beer and add bartenders at St. Patrick’s Day.
The session was a snapshot of not just the fintech industry but of the state of small business. Lewis Goodwin, the head of banking services at Square Capital, noted that small businesses account for 48% of the U.S. workforce. Yet, he said, Square’s surveys show that 70% of them “are not able to get what they want” when they seek financing.
Square, he said, has made 700,000 loans for $4.5 billion in just the past few years, the platform’s average loan is between $6,000 and $7,000, and it never charges borrowers more than 15% of a business’s daily receipts. The No. 1 alternative for small businesses in need of capital is “friends and family,” Goodwin said, “and that’s a tough bank to go back to.”
Panelist Gwendy Brown, vice-president of research and policy at the Opportunity Fund, a non-profit microfinance organization, provided the fintechs with their most rocky moment when she declared that small businesses turning up at her fund were typically paying an annual percentage rate of 94 percent for fintech loans. And while most small business owners were knowledgeable about their businesses — the florists “know flowers in and out,” for example — they are often bewildered by the “landscape” of financial product offerings.
“Sophistication as a business owner,” Brown said, “does not necessarily equate into sophistication in being able to assess finance options.”
Panelist Claire Kramer Mills, vice-president of the Federal Reserve Bank of New York, reported that the country’s banks have made a dramatic exit from small business lending over the past ten years. A graphic would show that bank loans of more than $1 million have risen dramatically over the past decade but, she said, “When you look at the small loans, they’ve remained relatively flat and are not back to pre-crisis levels.”
Mills also said that 50% of small businesses in the Federal Reserve’s surveys “tell us that they have a funding shortfall of some sort or another. It’s more stark when you look at women-owned business, black or African-American owned businesses, and Latino-owned businesses.”
On the merchant cash advance panel there was less opportunity to dazzle the regulators and audience members with accounts of state-of-the-art technology and the ability to aggregate mountains of data to make online loans in as few as seven minutes, as Kabbage’s Taussig noted the fintech is wont to do.
Instead, industry panelists endeavored to explain to an audience — which included skeptical regulators, journalists, lawyers and critics — the precarious, high-risk nature of an MCA or factoring product, how it differs from a loan, and the upside to a merchant opting for a cash advance. (To their credit, one attendee told deBanked, the audience also included members of the MCA industry interested in compliance with federal law.)
A merchant cash advance is “a purchase of future receipts,” Kate Fisher, an attorney at Hudson Cook in Baltimore, explained. “The business promises to deliver a percentage of its revenue only to the extent as that revenue is created. If sales go down,” she explained, “then the business has a contractual right to pay less. If sales go up, the business may have to pay more.”
As for the major difference between a loan and a merchant cash advance: the borrower promises to repay the lender for the loan, Fisher noted, but for a cash advance “there’s no absolute obligation to repay.”
Scott Crockett, chief executive at Everest Business Funding, related two anecdotes, both involving cash advances to seasonal businesses. In the first instance, a summer resort in Georgia relied on Everest’s cash advances to tide it over during the off-season.
When the resort owner didn’t call back after two seasonal advances, Crockett said, Everest wanted to know the reason. The answer? The resort had been sold to Marriott Corporation. Thanking Everest, Crockett said, the former resort-owners reported that without the MCA, he would likely have sold off a share of his business to a private equity fund or an investor.
By providing a cash advance Everest acted “more like a temporary equity partner,” Crockett remarked.
In the second instance, a restaurant in the Florida Keys that relied on a cash advance from Everest to get through the slow summer season was destroyed by Hurricane Irma. “Thank God no one was hurt,” Crockett said, “but the business owner didn’t owe us anything. We had purchased future revenues that never materialized.”
The outsized risk borne by the MCA industry is not confined entirely to the firm making the advance, asserted Jared Weitz, chief executive at United Capital Service, a consultancy and broker based in Great Neck, N.Y. It also extends to the broker. Weitz reported that a big difference between the MCA industry and other funding sources, such as a bank loan backed by the Small Business Administration, is that ”you are responsible to give that commission back if that merchant does not perform or goes into an actual default up to 90 days in.
“I think that’s important,” Weitz added, “because on (both) the broker side and on the funding side, we really are taking a ride with the merchant to make sure that the business succeeds.”
FTC’s panel moderators prodded the MCA firms to describe a typical factor rate. Jesse Carlson, senior vice-president and general counsel at Kapitus, asserted that the factor rate can vary, but did not provide a rate.
“Our average financing is approximately $50,000, it’s approximately 11-12 months,” he said. “On a $50,000 funding we would be purchasing $65,000 of future revenue of that business.”
The FTC moderator asked how that financing arrangement compared with a “typical” annual percentage rate for a small business financing loan and whether businesses “understand the difference.”
Carlson replied: “There is no interest rate and there is no APR. There is no set repayment period, so there is no term.” He added: “We provide (the) total cost in a very clear disclosure on the first page of all of our contracts.”
Ami Kassar, founder and chief executive of Multifunding, a loan broker that does 70% of its work with the Small Business Administration, emerged as the panelist most critical of the MCA industry. If a small business owner takes an advance of $50,000, Kassar said, the advance is “often quoted as a factor rate of 20%. The merchant thinks about that as a 20% rate. But on a six-month payback, it’s closer to 60-65%.”
He asserted that small businesses would do better to borrow the same amount of money using an SBA loan, pay 8 1/4 percent and take 10 years to pay back. It would take more effort and the wait might be longer, but “the impact on their cash flow is dramatic” — $600 per month versus $600 a day, he said — “compared to some of these other solutions.”
Kassar warned about “enticing” offers from MCA firms on the Internet, particularly for a business owner in a bind. “If you jump on that train and take a short-term amortization, oftentimes the cash flow pressure that creates forces you into a cycle of short-term renewals. As your situation gets tougher and tougher, you get into situations of stacking and stacking.”
On a final panel on, among other matters, whether there is uniformity in the commercial funding business, panelists described a massive muddle of financial products.
As they sought out information about costs and terms and what the application process was like, she said, “They’re telling us that it’s very difficult to find even some basic information. Some of the lenders are very explicit about costs and fees. Others however require a visitor to go to the website to enter business and personal information before finding even the basics about the products.” That experience, Lipman said, was “problematic.”
She also said that, once they were identified as prospective borrowers on the Internet, the Fed’s shoppers were barraged with a ceaseless spate of online credit offers.
John Arensmeyer, chief executive at Small Business Majority, an advocacy organization, called for greater consistency and transparency in the marketplace. “We hear all the time, ‘Gee, why do we need to worry about this? These are business people,’” he said. “The reality is that unless a business is large enough to have a controller or head of accounting, they are no more sophisticated than the average consumer.
“Even about the question of whether a merchant cash advance is a loan or not,” Arensmeyer added. “To the average small business owner everything is a loan. These legal distinctions are meaningless. It’s pretty much the Wild West.”
In the aftermath of the forum, the question now is: What is the FTC likely to do?
Zullow, the FTC attorney, referred deBanked to several recent cases — including actions against Avant and SoFi — in which the agency sanctioned online lenders that engaged in unfair or deceptive practices, or misrepresented their products to consumers.
These included a $3.85 million settlement in April, 2019, with Avant, an online lending company. The FTC had charged that the fintech had made “unauthorized charges on consumers’ accounts” and “unlawfully required consumers to consent to automatic payments from their bank accounts,” the agency said in a statement.
In the settlement with SoFi, the FTC alleged that the online lender, “made prominent false statements about loan refinancing savings in television, print, and internet advertisements.” Under the final order, “SoFi is prohibited from misrepresenting to consumers how much money consumers will save,” according to an FTC press release.
But these are traditional actions against consumer lenders. A more relevant FTC action, says Pepper Hamilton attorney Dabertin, was the FTC’s “Operation Main Street,” a major enforcement action taken in July, 2018 when the agency joined forces with a dozen law enforcement partners to bring civil and criminal charges against 24 alleged scam artists charged with bilking U.S. small businesses for more than $290 million.
In the multi-pronged campaign, which Zullow also cited, the FTC collaborated with two U.S. attorneys’ offices, the attorneys general of eight states, the U.S. Postal Inspection Service, and the Better Business Bureau. According to the FTC, the strike force took action against six types of fraudulent schemes, including:
- Unordered merchandise scams in which the defendants charged consumers for toner, light bulbs, cleaner and other office supplies that they never ordered;
- Imposter scams in which the defendants use deceptive tactics, such as claiming an affiliation with a government or private entity, to trick consumers into paying for corporate materials, filings, registrations, or fees;
- Scams involving unsolicited faxes or robocalls offering business loans and vacation packages.
“(O)ur organic statute, the FTC Act, allows us to address unfair and deceptive practices even with respect to businesses,” Smith declared, “And I want to make clear that we believe strongly in the importance of small businesses to the economy, the importance of loans and financing to the economy.
Smith asserted that the agency could be casting a wide net. “The FTC Act gives us broad authority to stop deceptive and unfair practices by nonbank lenders, marketers, brokers, ISOs, servicers, lead generators and collectors.”
As fintechs and MCAs, in particular, await forthcoming actions by the commission, their membership should take pains to comport themselves ethically and responsibly, counsels Hudson Cook attorney Fisher. “I don’t think businesses should be nervous,” she says, “but they should be motivated to improve compliance with the law.”
She recommends that companies make certain that they have a robust vendor-management policy in place, and that they review contracts with ISOs. Companies should also ensure that they have the ability to audit ISOs and monitor any complaints. “Take them seriously and respond,” Fisher says.
Companies would also do well to review advertising on their websites to ascertain that claims are not deceptive, and see to it that customer service and collections are “done in a way that is fair and not deceptive,” she says, adding of the FTC investigation: “This is a wake-up call.”
Last modified: October 25, 2019
Lenders, Leaders, and Las Vegas: Money20/20 Review
Two things arrived in Las Vegas last month: the first being an unusual dip in local weather, with temperatures dropping to the low forties at times and woolen hats making an appearance; the second being Money20/20.
Now in its seventh year, the conference runs smoothly to the point of being habitual, a trait several attendees mentioned to me when asked how they felt about the 2019 edition.
Running from Sunday the 27thto Wednesday the 30th, each day offered a different focus. The first of these being alternative finance, blockchains, and cryptos. Here, leaders from LendingClub, Kabbage, and OnDeck, among others, took to the stages to discuss issues ranging from strategies in the face of a recession to AI in lending. Running throughout were conversations about where cannabis banking regulation was headed and what can be done to prepare. Of note was Jontae James of NatureTrak, who spoke from the Leadership Lodge Stage, pitching his company as a solution to compliance issues facing lenders who want to work with cannabis companies.
The following days contained a mix of subjects, with Monday featuring many events relating to payments and entrepreneurship; Tuesday being the day for cybersecurity, regulation, and banking; and Wednesday closing the show with various talks on emerging technologies. Among the highlights of these were a talk from David Marcus of Calibra on the currency’s efforts to alter the financial landscape, a discussion on growth in emerging markets from Ant Financial’s Douglas Feagin, and words from BlueVine’s Eyal Lifshitz on the needs of small businesses.
Outside of the stages where these were held was the main expo hall. Dotted with booths and stands, the narrow pathways that were carved out by these were lined with a mix of businesses.
In overwhelming numbers though were companies offering identity verification services. A growing industry in today’s increasingly online world, their presence dominated the hall, with it being hard to turn around without being offered a pamphlet on the importance of knowing who your customers are and how much it will cost to confirm their existence and authenticity.
And while walking through the hall and stopping at stalls to talk offered pleasant and informative conversation, there was an underlying tenseness to some of the chatting. Perhaps it was the unrelenting air conditioning that caused this? Or the endless stream of coffee available had rattled some nerve endings? Or maybe it was the frequency with which an oncoming recession was referenced in the titles of talks?
Who knows, what is likely though is that if it is the last of these possibilities, in the case of a “looming crisis,” as one event labelled it, what was talked about in Vegas may not stay in Vegas.
Last modified: November 3, 2019
Nov 1 2019, 4:14PM
Mortgage rates held steady today after moving sharply lower yesterday. “Sharply,” in this context, means that many lenders saw rates move lower by as much as an eighth of a percentage point versus the previous morning. Changes of that magnitude are rarely seen in the space of 24-48 hours. In fact, more often than not, entire weeks go by with a 0.125% change in average 30yr fixed rates.
The size and speed of the move is interesting in and of itself, but it’s made more interesting by the fact that this week’s most prevalent mortgage rate headlines claimed that rates were actually HIGHER. Rest assured, that’s not the case. So what’s with the misleading headlines?
This is actually a fairly common occurrence. It stems from the fact that the industry’s longest-standing and most widely-cited mortgage rate barometer–Freddie Mac’s weekly rate survey–is only updated once per week. Moreover, Freddie’s weekly rate is announced on Thursday morning whereas the data is primarily collected on Monday and Tuesday. The last 2 days of the week aren’t even counted.
All of the above means that any significant movement in rates in the 2nd half of any given week can create a big discrepancy between Freddie’s numbers and reality. The differences are only more pronounced if rates were moving in the opposite direction heading into the first part of the week, which is exactly what happened this time around.
In other words, Monday–the day that gets the most weight in Freddie’s survey–saw the highest rates of the current week. They didn’t fall much on Tuesday or Wednesday, which is the last possible opportunity for rate quotes to make it into the survey. As such, the survey logically conveyed “higher mortgage rates this week” just in time for lenders’ actual rate sheets to improve at their fastest pace since March 22nd, 2019.
Loan Originator Perspective
Today’s jobs report surpassed expectations, but bonds retained most of yesterday’s gains. The drama over US/China tariffs MAY be easing, which won’t help rates. I am locking loans closing within 45 days for most clients. –Ted Rood, Senior Originator
Today’s Most Prevalent Rates
- 30YR FIXED -3.625-3.75%
- FHA/VA – 3.375%
- 15 YEAR FIXED – 3.375%
- 5 YEAR ARMS – 3.25-3.75% depending on the lender
Ongoing Lock/Float Considerations
- 2019 has been the best year for mortgage rates since 2011. Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections
- Fed policy and the US/China trade war have been key players. Major updates on either front could cause a volatile reaction in rates
- The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.
- Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.
By
Chief Operating Officer, Mortgage News Daily / MBS Live
This is great,
I will add the financing for dental work!!!
Enjoy!!!
19 Genius Dental Marketing Ideas to Grow Your Practice
I hate the dentist. More than I hate going to the hospital or eating my vegetables, the dentist is my least favorite appointment. And, due to the fact I move around a lot, I’m constantly looking for a new dentist to trust my teeth with.
Talking to friends who also struggled with finding a dentist, I heard all kinds of horror stories—anything from getting fake cavities filled to being overcharged for a service they didn’t receive. What we could all agree on: finding a good dentist is hard.
You might find that bringing in good clients, and lots of them, is hard too! Here are some smart marketing ideas to make it easier for your potential customers to find your practice.
1. Local Awareness Facebook Ads
While you want to get the word out about your dental practice, being specific about who you market to is important. Most likely, you don’t want to be showing ads for your practice outside of a 50-mile radius—if you are in Pennsylvania and someone in California is seeing your ad, that doesn’t do anyone any good.
Local Awareness ads are a great way to reach a local audience, and you can now use the new map card to share locally relevant details about your dental business, like the address, distance to the business, hours of operation, and a “Get directions” link. Your CTA can even be a call button, an easy prompt to make an appointment.
2. Click to Call Ads
The main goal for dental marketing or advertising is that patients and prospects book an appointment—which is usually done by picking up the phone and calling the office. Click-to-call ads are available through Facebook and Google Ads (formerly known as Google AdWords) on mobile, desktop, and tablet. This extension can be added to existing ads, or you can create call-only campaigns.
3. Mobile Call-Only Ads
According to Google, most healthcare-related searches are performed on a smartphone. And one in twenty Google searches is for health-related information. Don’t miss out. You can create ads exclusively for mobile with call-only campaigns through Google Ads.
4. Facebook Demographic Targeting
Facebook has an insane amount of demographic targeting available, and you can be using this to your advantage. Other than the obvious, you can also target potential customers by language, relationship status, employment, income, and interests. Research has shown that women make 90% of all dental buying decisions. Make sure you’re getting in front of the crowd by targeting ads to women who recently bought children’s clothes and live in your area.
5. Appointment Reminders
Whether it comes in the form of a postcard or a phone call, appointment reminders are important to make sure your patients show up. Streamline this process by using Google calendar alerts, and sending appointment confirmations and reminder by email.
You can also easily use these methods to remind your patients to make an appointment, i.e. for an annual cleaning.
6. Google Ads Income Targeting
Yes, everyone should floss regularly and go to the dentist for annual cleanings. In truth, most people don’t. In Google Ads, you can target different demographics based on income level.
Navigate over to the settings tab and select “Advanced Location.” It will bring up this menu:
Select the “Location groups” tab and you’ll notice a list of three options. The one you want is called “Demographics.”
Now, choose the household income tier (or tiers) you’re interested in and click the big red “add” button!
This can be used to target higher income levels with ads for teeth whitening or veneers; lower income levels may be more interested in maintaining basic health.
7. Remarketing Ads
Remarketing is frequently described as “easy money.” It helps you reach people who have visited your website, or practice, by serving specific ads focused on re-capturing those potential customers. At your dental practice, if you collect email addresses, you can leverage these through Customer Match on Google Ads and Facebook! Just upload the email addresses to create a remarketing audience and create an ad that would entice patients to visit your practice again—maybe a reminder for a cleaning, or whitening.
8. New! Facebook Messaging Ad Type
Facebook recently announced a new ad feature which utilizes Messenger to communicate with businesses. Advertisers will be able to use “Send Message” as a CTA on their ads, which would then take the prospect to messenger. This is only in beta now, but should be rolling out fully soon!
9. Google Maps Ads
An advertisement on Google maps could literally lead a potential patient right to your dental practice. When “dentist” is entered into the search bar, results are shown on the map and on the search results list. On mobile, these ads also include directions and call CTAs.
10. Waze Ads
Like Google Maps, you can also directly advertise on Waze. Because Waze is a community-based application, advertisements are a little different—customers near your business will see a “digital billboard” appear on the map, as well as in the search results. They can either navigate to your dental practice or save the location for later.
11. Emergency Keywords
Two months ago, I found myself googling “emergency wisdom tooth extraction boston” at 2AM. The first two results didn’t provide a “call” CTA, so I chose the third and two more from the Google maps results with the highest ratings. None of them picked up (which was expected), but I made an appointment with the first practice that called me back.
Bidding on keywords like “emergency” or “urgent” is an easy way to get clients with immediate needs and high intent; imagine the return on investment for those keywords! But make sure that your practice can take emergency cases and provides an easy way to contact the practice, or else you may get a bad review on Google…
12. ZocDoc
If there is something millennials hate as much as having to pay for wifi, it’s talking to medical professionals on the phone. ZocDoc is a mobile app that helps patients find doctors based on specialty, insurance, location, and availability; it’s almost like booking a doctor’s appointment on Open Table. It is now in most major cities—and some smaller ones too!
13. Yelp
According to a study done in 2014, 88% of consumers trust online reviews as much as personal recommendations. I cannot stress the importance of Yelp enough—claim your business! Likely, people are already writing reviews of your practice, which should be fielded and checked for accuracy. Yelp is the first place millennials go looking for a good dentist, make sure you’re getting in front of potential patients.
14. Instagram
Ever heard of Dr. Pimple Popper? Though not for the faint of heart, this dermatologist popularized popping zits on Instagram. Celebrities advertise teeth whitening products on their Instagram’s, and orthodontists show off nice before-and-after pictures.
Instagram has become a place to shop as well—create an Instagram for your practice to show-off your unique techniques, and advertise to potential patients through social media. If you regularly update, it is sure to keep your practice top-of-mind for your followers.
15. Email Marketing
Imagine a world in which your patients could email the practice when they wanted to make an appointment. Your receptionist could respond with a few timing options, and ta-da, an appointment is made and on the calendar. Even better, you can send bills this way, reminder emails, and cute “we haven’t seen you in a while!” emails.
16. Referral Bonuses
The Pride Institute reports that 93% of people trust recommendations from their friends. Encourage those recommendations! Referral bonuses can be used to retain current customers and expand your practice. Express your gratitude and give $10 off a dental visit for every referral that makes an appointment! To make it easy, give out business referral cards when patients check-out and tuck them into any mail you send.
17. Video Advertising
As Margot recently reported, the healthcare industry is increasingly using video marketing. Don’t miss the boat! Video with real people from your practice can help develop a personal connection with your prospects, which can lead to trust, recommendations, and more appointments.
18. Direct Mail
The days of stuffing mailboxes with postcard advertisements are not over. Direct mail still works, especially for baby boomers, and it is a good opportunity to show off your specialty or competitive price points. One practice found that out of every 5,000 postcards sent, they received an average of 35 phone calls and 7 new patients. That’s a great return on investment!
19. Local Events
As a kid, I played in recreational sports leagues where each team was sponsored by a local business, which paid for our team shirts emblazoned with the business’s logo. Not only does this get your business out in front of parents with little kids, you could also throw in free toothbrushes and a small postcard with information on kid’s dental health. A practice that did this with kindergarteners reported that 70% of parents switched to the practice after receiving this info.