Brian Zwerner of Kensington Blake Capital Discussion on Changes Hitting the Marketplace Lenders

May 28, 2016

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as a Senior Advisor to Provider Web Capital, a leading finance provider for small businesses in the healthcare sector.  Zwerner provides commentary on changes affecting the marketplace lenders.

The revelation that Lending Club pushed out its CEO and founder Renaud Laplanche has rocked the marketplace lending and FinTech worlds.  Laplanche was fired due to lack of disclosure of his interest in a fund that purchased loans from Lending Club and also for lack of controls around loans sold by Lending Club to the investment bank Jefferies.  That Lending Club felt the need to take such drastic steps to oust their founder who meant so much to the company and the marketplace industry as a whole has raised concerns about the viability of both.

After the news broker, shares of Lending Club plummeted.  The share price dropped from just over $7.00 pre-announcement to a low of nearly $3.50.  Shares have rebounded somewhat as Lending Club is working to secure buyer for their loans, but the damage has been done.  A number of buyers have announced that they have put on hold their purchases of loans from the company, and these buyers may never come back to Lending Club.  For a company fully dependent on outside capital to fund its origination, they may be faced with no choice but to sell the company to someone with a balance sheet.  Whether that eventually buyer is a bank, another non-bank lender, or a hedge fund, Lending Club’s future as an independent company is definitely in jeopardy.

The turmoil at Lending Club has rocked the entire marketplace lending industry.  If the largest player in the market can have these types of problems, then everyone else in the industry is suspect.  OnDeck saw their stock price drop a similar amount, and they are not even involved in the consumer loan space like Lending Club.  OnDeck only makes loans to small businesses, and their model is primarily a balance sheet model.  The Lending Club problems have clearly impacted the market.  How this situation resolves itself will determine the future of the industry.

Link to article from Wall Street Journal article on Laplanche’s firing:

http://www.wsj.com/articles/lendingclub-ceo-resigns-over-sales-review-1462795070

Link to article from Reuters on Laplanche’s ouster:

http://www.reuters.com/article/us-lendingclub-results-idUSKCN0Y01BK

More information on Provider Web Capital:

www.providerwebcapital.com/introduction

 

Advertisements

Brian Zwerner of Kensington Blake Capital Discussion on Banks Partnering with FinTech Firms

April 24, 2016

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as a Senior Advisor to Provider Web Capital, a leading finance provider for small businesses in the healthcare sector.  Zwerner provides commentary on banks partnering with FinTech firms.

There has been a lot of press recently on banks partnering with FinTech companies.  Early adopters included BBVA Compass, who partnered with OnDeck, and Regions Bank, who partnered with Fundation.  Both of these partnerships were about bringing small business lending to a larger portion of the bank’s client base.  Banks generally struggle to offer business loans below $250,000 in size, and a partnership with a FinTech finance company can effectively allow the bank to offer financing to more of its customers.

We have seen more activity in this space with the recent announcement of JP Morgan Chase partnering with OnDeck to reach more of Chase’s small business clients.  There are three ways we are seeing banks partner with FinTech platforms.  First, banks like Chase are using FinTech companies as service providers, with Chase taking the risk on the loans originated using OnDeck’s highly developed platform.  I expect this will be an exception pursued only by the largest banks.

More commonly we are seeing banks simply choose to lend to FinTech platforms that house their originated loans or to the investors that buy loans from these platforms.  I have heard of leverage as high as 5-10X the investment capital dedicated to small business finance contracts.

Lastly banks are creating origination partnerships where the bank refers its clients to FinTech platforms that can better serve the needs of its clients.  This mirrors Regions’ deal with Fundation.  In these cases, the banks are letting the FinTech platform bear the risk on these contracts typically, but I expect the banks will eventually provide capital for the loans as well.

We will see many more of these emerging partnerships as more banks realize the value of working with FinTech platforms.  What form will be most common and deliver the most value for banks and their customers is still to be seen.

Link to article from American Banker on banks and FinTech:

http://www.americanbanker.com/news/bank-technology/are-fintech-and-community-banks-a-perfect-match-1080629-1.html

Link to article from American Banker on FinTech business growth plans:

http://www.americanbanker.com/news/bank-technology/fintechs-goals-are-changing-vcs-appetite-is-not-1080601-1.html

More information on Provider Web Capital:

www.providerwebcapital.com/introduction

 

Brian Zwerner of Kensington Blake Capital Review of Consumer Loan Repricings

February 21, 2016

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as a Senior Advisor to Provider Web Capital, a leading finance provider for small businesses in the healthcare sector.  Zwerner provides commentary on the recent repricings in the consumer lending space.

Recent news articles have highlighted that the two premier consumer lending platforms, Lending Club and Prosper, have raised the interest rates and expected defaults on their loans.  These two companies offer consumer installment loans through web-based platforms. These loans are typically used by borrowers to consolidate outstanding credit debt and extend terms out to 3-5 years.  The rates on these loans can vary widely from 5-25%, with the average rates in the low teens. 

Both Propser and Lending Club rely on marketplace models to fund their loans to consumers.  They have each established relationships with institutional and individual investors who purchase the loans originated on their platforms.  While they have many thousands of small individual investors signed up on their platform, it is my belief that a much smaller number of large institutional players drive the pricing for their businesses.  With the recent turmoil in the equity and debt markets, it is clear that these large investors are now demanding a higher rate for loans.

This small re-pricing event certainly shows the weakness behind the marketplace lending model.  While Lending Club and Prosper benefit from not having to raise capital and put assets and default risk on their balance sheet, they are beholden to investor appetite for their product. No number of investors signed up on their platform reduces the risk of a correlation to 1 event where all investors pull back at the same time and chose to sit on their hands.  We saw this type of activity in the credit crisis of 2008/09, we could certainly see it again.

Link to article on Prosper raising loan yields:

http://www.nasdaq.com/article/prosper-marketplace-boosts-rates-on-consumer-loans–update-20160217-01247

Link to article on Lending Club raising loan yields:

http://www.bloomberg.com/news/articles/2016-01-29/when-credit-market-concerns-arrive-at-the-marketplace-lenders

More information on Provider Web Capital:

www.providerwebcapital.com/introduction

 

Brian Zwerner of Kensington Blake Capital OnDeck Capital Presentation

January 1, 2016

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as a Senior Advisor to Provider Web Capital, a leading finance provider for small businesses in the healthcare sector. Zwerner provides commentary on the recent investor presentation by OnDeck Capital, a leading small business lender.

OnDeck Capital recently presented to investors at the JP Morgan FinTech and Specialty Finance Forum in New York City. This forum brought together some of the biggest publicly traded names in the sector. Other presenters included Sallie Mae, Green Dot, and Penny Mac. Investors from all over the globe were present to hear about the progress these platforms have made stealing market share from the banks and growing their businesses.

OnDeck reported on the continued growth of their origination platform. They recorded growth in 2015 in both originations and revenues of nearly 70% over 2014. OnDeck has now funded $3 billion to over 45,000 small businesses. They see a tremendous opportunity for further growth, as there are over 28 million small businesses in the United States, and many of them are not well served by traditional bank lending models. OnDeck’s speed of origination and underwriting is one of the keys to their continued success, along with their wide range of distribution partnerships. OnDeck has partnered with banks such as Chase and Compass Bank, as well as small business service firms like Intuit and Angie’s List. Expectations are for OnDeck to continue to grow its leading position in the small business lending marketplace.

Brian Zwerner works as a Senior Advisor to Provider Web Capital, a high growth FinTech finance company. While OnDeck provides financing to all sectors of U.S. small businesses, Provider Web Capital has chosen to focus on offering best in class solutions for the healthcare marketplace. Provider Web works with doctors, mental health professionals, home healthcare agencies and many other medical small businesses. They offer financing structures from $10,000 to $250,000 or more to their clients, with a fast and free application process. Similar to OnDeck, clients of Provider Web can receive funds within one to two business days. However while OnDeck typically has clients repay their loans with a fixed daily payment, and customers of Provider Web usually make repayment over time based on receipt of funds from their third party payer sources such as Medicare, Medicaid, and private insurance companies. This structure allows Provider Web to live by the mantra: “we get paid when you get paid”, a significant improvement of the daily fixed ACH structure offered by OnDeck and other competitors. Keep an eye on Provider Web Capital.

OnDeck Investor Presentation Link:

https://s2.q4cdn.com/642656665/files/doc_presentations/2015/ONDK-Investor-Deck-Dec-JPM-Conference-FINAL-120115.pdf

More information on Provider Web Capital:

www.providerwebcapital.com/introduction

 

Brian Zwerner of Kensington Blake Capital Recent FinTech Capital Raises

November 21, 2015

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as a Senior Advisor to Provider Web Capital, a leading finance provider for small businesses in the healthcare sector. Zwerner provides commentary on the recent capital injections to FinTech platforms across consumer and small business lending. Money has been flooding into the sector as investor look to capitalize on new business models that look to unseat the banks across the United States.

This week alone saw two large capital raises in the consumer finance sector. Earnest is a platform focused on consumer loans, with recent success in the student loan sector. They just completed a $275MM raise, with $75MM in equity from Battery Ventures and $200MM in debt from insurers led by New York Life. In addition, another consumer loan platform called Avant raised $175MM in a private securitization this week from Victory Park and KKR. This comes only two months after Avant raised $325MM with a valuation over $1 Billion from General Atlantic and other private equity groups.

The small business loan space has also seen capital pouring into larger platforms. Kabbage, based in Atlanta, Georgia, recently raise $135MM from a collection of investors led by Reverence Capital Partners and including a number of foreign banks including ING, Santander, and Scotiabank. Kabbage also increased the size of their credit facility to $900 Million to increase their lending capacity to accommodate recent growth.

The FinTech market has seen a number of smaller raises completed by other FinTech platforms. Recently Orchard Platform raised $30 Million. Orchard is a services provider for marketplace lenders and investors. CommonBond is a student loan platform that raised $35MM, and Fundbox raised $50MM for the small business loan sector.

Brian Zwerner works as a Senior Advisor to Provider Web Capital, a high growth FinTech finance company. Provider Web Capital works with doctors, mental health professionals, home healthcare agencies and many other medical small businesses. They offer financing structures from $10,000 to $250,000 or more to their clients, with a fast and free application process. Clients receive funds within two business days, and they make repayment over time based on receipt of funds from their third party payer sources such as Medicare, Medicaid, and private insurance companies. This structure allows Provider Web to live by the mantra: “we get paid when you get paid”, a significant improvement of the daily fixed ACH structure offered by most competitors. Keep an eye on Provider Web Capital.

Article on Kabbage capital raise:

http://techcrunch.com/2015/10/14/kabbage-loans-unicorn/

TechCrunch on Earnest:

http://techcrunch.com/2015/11/17/lending-company-earnest-raises-275-million-as-fintech-remains-in-the-spotlight/#.tyr06et:5vpi

Article on Victory Park and Avant:

http://www.victoryparkcapital.com/news/news_2015_vpc_kkr_lead_an_inaugural_175_million_asset_backed_securitization.shtml

Fortune on Avant:

http://fortune.com/2015/09/29/lender-avant-300m-unicorn/

 

 

Brian Zwerner of Kensington Blake Capital Commentary on Growth of Non-Bank Lending Platforms

September 5, 2015

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as Chief Executive Officer of Provider Web Capital, a leading finance provider for small businesses in the healthcare sector. The last few years has seen a dramatic shift in small business lending to non-bank platforms, and Provider Web Capital has seen enormous growth in origination volumes. This success has played out across 20 or more small business specialty lenders, and interest in the sector is skyrocketing as a result.

Following the credit crisis, banks across the United States tightened credit standards. These new standards have persisted 7 years later, and they are unlikely to loosen any time soon. In the addition, the higher cost of regulation for banks has led banks to pull back from completing small loans to businesses. In a recent meeting with a banker at a top four institution, he reported that loans under $1MM are difficult to support, and loans under $250K are nearly impossible. Relationship managers at his bank are required to meet face to face with every customer before making a loan, and they also have to meet each client in their loan portfolio in person every quarter. A recent Wall Street Journal article on Live Oak Bank reported that the bank is attempting to move faster and be more like a non-bank lender. However the bank has to use two private jets to ferry its executives around the country to meet with clients in person to match the regulatory standards. Banks do not have the flexibility to serve the needs of the small business community and will not for many years to come.

These challenges in the banking sector have led to the explosive growth in non-bank lenders. Market leaders such as OnDeck Capital, CAN Capital, and Kabbage are all seeing big annual origination growth. All three institutions have completed capital raises or opened new leverage facilities in the past year. This has allowed them to increase lending capacity and support demand for short-term working capital for small business across the country in all sectors. Specialty groups like Provider Web Capital are seeing higher growth rates.

Investor interest in the non-bank finance sector is at all-time high as well. This can be seen in the heavy interest in two large conference for the sector in the fall. The American Banker is holding a conference on Marketplace Lending and Investing on November 4/5th in New York City. Speakers from the non-bank lending industry include: Daniel Demeo – CEO CAN Capital, Noah Breslow – CEO OnDeck Capital, and Sam Hodges – CEO Funding Circle. Provider Web Capital will be present at this American Banker conference. The IMN group is also holding a conference in New York on October 29th focused on Investor in Marketplace Lending. Key sponsors include Funding Circle. Common Bond, and Lending Home.

IMN conference link:

https://www.imn.org/structured-finance/conference/Investors-Marketplace-Lending/

American Banker conference link:

http://www.americanbanker.com/conferences/marketplace-lending-investing/

Brian Zwerner of Kensington Blake Capital Commentary on OnDeck Capital 2nd Quarter Earnings

August 7, 2015

Kensington Blake Capital’s Managing Principal Brian Zwerner serves as Chief Executive Officer of Provider Web Capital, one of the leading finance providers to the healthcare small business market. He is witnessing firsthand the growth of non-bank finance companies lending to small businesses across all industries. Recently OnDeck Capital, one of the leaders across all small business industries, reporting earnings for the 2nd quarter.

While OnDeck achieved record gross revenues of $63.3MM in the quarter, the market did not cheer their results. Shares of the lender were quickly down over 20% and not sit well below the December IPO price at only $9.18. The market value of the company has fallen to only $630MM, after originally reaching just under $2 Billion.

OnDeck’s earnings release cheered its 78% revenue growth from last year’s second quarter. They also reported that net income jumped significantly from $1.5MM last year to $7.3MM this quarter. Origination volume at $419MM for the quarter was up 69% from the same quarter last year. OnDeck has also reduced its role as a balance sheet lender, selling off 34% of their volume for the quarter to third party investors. This trend should allow them to achieve higher multiples in the long run but has hurt short term earnings due to lower spread income.

The biggest problem with OnDeck’s results was the stagnation of their origination volumes. The $419MM number for the quarter was essentially unchanged from the $416MM in Q1 2015. OnDeck reported missteps in their marketing strategies which led to wasted expenses that did not produce results. They also reported a need to re-train some of their third party referral partners, which also hurt growth.

Provider Web Capital did not experience similar problems. The younger business is still in a heavy growth phase, with over 50% quarter over quarter origination growth. Provider Web’s specialized financing product better fits the needs of the healthcare market it serves, which is leading to many new customers and great results. Look for Provider Web to continue to take share from OnDeck and other established players.

Commentary by Brian Zwerner, Managing Principal, Kensington Blake Capital, LLC.

www.kensingtonblakecapital.com

Please see quarterly earnings release from OnDeck Capital:

https://investors.ondeck.com/press-and-events/press-releases/press-release-details/2015/OnDeck-Reports-Second-Quarter-2015-Financial-Results/default.aspx

Please see article from Motley Fool reviewing OnDeck’s results:

http://www.fool.com/investing/general/2015/08/04/why-shares-of-ondeck-dropped-more-than-20.aspx