First Look: Honeycomb Credit

Last fall Finovate added an Accelerator Showcase where pre-seed startups from fintech accelerators pitch on stage for three minutes. That’s where I first heard George Cook, founder of Honeycomb Credit, one of two startups selected to pitch at FinovateSpring by accelerator AlphaLab.

The Pittsburgh-based company got its start as a class project at Dartmouth’s graduate school of business. But co-founder Cook and his classmate Ken Martin received so much positive feedback from the idea they decided to make it a real company in 2017.

The company is joining what was expected to be a crowded space of SMB crowdfunding. But the lengthy implementation of the U.S. crowdfunding framework has caused many of the 38 startups in the space to give up leaving room for new companies such as Honeycomb. The notable exception is Funding Circle which has raised $375M (note 1). Other active platforms include Finovate alums P2Binvestor (raised $9.2 million) and SeedInvest (raised $8.2 million) along with Crowdfunder (raised $6M), Fundable (acquired by and Wefunder (raised $2.3 million). Indiegogo (raised $56 million) is also now involved in equity crowdfunding, although it is currently a small piece of its overall rewards-based funding platform.

Honeycomb is a debt crowdfunder where investors loan money at bank-like rates to SMBs currently unqualified for bank funding. In addition, like Kickstarter or Indiegogo, non-monetary gifts and experiences are offered to incent action on the part of would-be-lenders. For example, Pittsburgh Pickle offered t-shirts to the first 20 investors in its $10,000 to $50,000 crowdfunding campaign (see screenshot at top). It also invited anyone who kicked in at least $1,000 to an exclusive event at the pickling facility.

The idea is to enable small businesses to tap their local community for debt capital on better terms than higher-rate alt-lenders such as Kabbage or OnDeck. According to Cook, its SMB customers are “near bank quality” but lack one or two of the typical prerequisites such as 3 years of tax returns. But at least one of their beta customers used Honeycomb not because they couldn’t get bank financing, but because they’d been burned in the past and preferred a non-bank alternative.

The loans are funded by individual investors on the platform, using the same model as Lending Club, Prosper, or Zopa. Thanks to the provisions of the crowdfunding act (specifically Reg CF), investors need not be accredited, an important aspect of the Honeycomb business model, which relies on the borrower’s friends, family and customers to fund the loan. Eventually as the business scales, HoneyComb expects to attract institutional and high net worth funds seeking yields from alternative assets.

Honeycomb’s special sauce is community and collateralization. It lends to existing businesses looking to expand expand their share of wallet within their predefined market. For example, it recently ran a successful campaign for an ice cream shop to buy a truck for mobile sales. And whenever possible, HoneyComb takes equipment as collateral on the loans.

Borrowers typically pay platform lenders 8% to 12% interest on 3- to 5-year installment loans. At the conclusion of a successful money-raising campaign, Honeycomb charges borrowers an 8% fee and investors 2.85%. Honeycomb doesn’t hold loans on its balance sheet, so all credit risk is pushed to investor/lenders.

Go-to-Market Strategy
The startup has begun rolling out the platform having ran two successful campaigns, raising $50,000 for an ice cream truck and $25,000 for several new greenhouses. There are currently two more in process, one of which has already surpassing its minimum raise amount.

To expand, Honeycomb is currently raising a seed round. They have received good publicity in their local market, but to make that scale to other markets Honeycomb may need to find local partners such as local development groups, governments, and financial institutions. However, Honeycomb believes that the public nature of crowdfunding campaigns will drive a large number of new customers to its platform keeping customer acquisition rates low.

To reach profitability Honeycomb needs to expand beyond its Western Pennsylvania home market. That’s going to be a challenge without compromising quality. The company hopes to attract revenue from ancillary services and balance sheet lending down the road, but that’s much easier said than done in the fickle SMB sector.

Bottom Line
As with many businesses, it’s all about scale and efficiency. Honeycomb will need to automate its processes while simultaneously increasing loan size. But as loan sizes increase, they will begin to run up against a raft of competitors, including banks and credit unions. But I also think there is a good opportunity to license the Honeycomb platform to banks and credit unions wanting to add crowdfunding to their SMB services.

Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience standard. 

1. Also in the UK there are 4 other platforms with good traction: Crowdcube (£21.2M raised for itself) Seedrs (£13.7M raised), SyndicateRoom (£8.7M raised) and Venturefounders (£6.8M raised).

Feature Friday: Sweep Accounts for the Mass Market

Does anyone remember when sweep accounts were all the rage? They were disruptive technology in the 1980s. The idea was to automatically sweep idle cash from non-interest bearing accounts to savings or investment accounts with higher yields. It’s still a core feature in treasury management accounts for large businesses, but you don’t hear much about it these days on the retail side.

Why? The small differential between checking and savings or money markets hardly justifies the trouble. If the average annual amount swept to savings was $2,500, it would only net an extra $1 or $2 annually (after tax) from a typical large U.S. bank, or up to $10 in a “high interest” account from a community bank or credit union.

But if instead of sweeping idle cash into savings, what if you could use it to pay down, even temporarily, a personal loan or revolving credit balance? All of a sudden, that $2,500 cushion is worth $300 or more annually (assuming 12% APR), 150x the return of sweeping to a bank savings account. That’s enough to get your customers’ attention.

Some overdraft credit lines work this way. You can freely transfer money between credit line and checking to minimize interest charges. I had the feature at US Bank years ago. During cash-strapped times, I would keep $0 in checking and every time I wrote a check it would trigger an automatic (and fee-free) credit line advance. It was a great system, but when the bank started charging fees on each automatic transfer, I abandoned my “sweep account” hack.

Fast-forward 10 years and Kasasa has reinvented the credit-line sweep with its hybrid loan product launched today. Kasasa loans offer a “take back” feature which allows consumers to pay down their loan balance at any time, and then get those extra funds back at any time in the future free of charge. Basically, in banking jargon, it’s a fixed-rate installment loan (with a repayment schedule), married to a credit line that allows you to move money in and out up to the extra amount you’ve paid in (see note 1). One sees this in the home equity space, but not in the personal loan arena.

A key part of the account’s appeal is the Loan Management Dashboard. Without the dashboard, the changing balances and available “excess” would be a customer services nightmare to explain and track. The dashboard makes it (relatively) simple to move money back and forth. There will be some customer service questions, but they should primarily be one-time only.

Bottom line: Kasasa’s hybrid loan is a winning concept, especially for its community bank and credit union clients looking to differentiate themselves from the big banks and online lenders. It’s a user-friendly approach that should play well with their loyal customer/member bases. The laon does have the downside of cannibalizing deposits while lowering loan balances. But with proper marketing, a Kasasa speciality, the incremental loan balances (and customers) should far outweigh the lower deposit totals.

Author: Jim Bruene (@netbanker) is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 

(1) Unlike a credit line where you can always borrow to the maximum credit line, in the Kasasa Loan, you can only borrow back your excess contributions. This is a benefit for consumers who prefer the discipline of a fixed repayment period rather than an open-ended credit line.

It’s Holiday Loan Time

MembersPlus Credit Union Holiday Loan Promotion (#2 of 3 in rotation)
MembersPlus Credit Union Holiday Loan Promotion (#2 of 3 in rotation)


I’ve been slightly obsessed with holiday-themed marketing, actually the lack of it, over the years. It’s not that I think putting a bow on your website will magically improve your return on equity (ROE). It’s that by not doing anything, it seems like you are just not trying. You put holiday decorations up in branches, why wouldn’t you extend that same thinking to your digital look and feel?

And it doesn’t have to be an extra cost (like those in-branch decorations). You can push holiday-themed promotions to cover the costs of the website changes and then some. One example, primarily offered by U.S. credit unions, is the so-called Holiday Loan (see other examples in our past coverage). These are small (usually under $5,000, sometimes just $1,000) unsecured installment loans to help families with surging holiday expenses. These loans typically must be repaid within 12 months so they are not outstanding next Christmas.

In poking around the web this afternoon, we saw a number of examples at credit unions (and the lone bank). My favorite was this promotion from MembersPlus Credit Union, a 10,000-member CU in the Boston area. Its Holiday Loan is currently featured on the homepage with a good supporting holiday graphic. The 7.99% APR is fair and undercuts most bank revolving credit and the 1-year payback schedule is good for helping members repay the debt before it becomes a burden a year from now. The maximum loan amount is $5,000.

Have a great weekend and don’t forget the hot chocolate!

The MemberPlus homepage currently display an eye-catching promo for its upcoming Member Appreciation Days (promo #1 of 3 in rotation).
The MembersPlus homepage currently displays an eye-catching promo for its upcoming Member Appreciation Days (promo #1 of 3 in rotation).

Launching: “The Guarantors” Helps NYC Renters Qualify for an Apartment


As a blogger/analyst/entrepreneur, it’s a mixed blessing when someone delivers on a market need you’ve been ranting about (here and here). You feel vindicated and you have a blog post that writes itself, but it knocks one thing off the top of your businesses-to-start list.

So begrudgingly, I introduce you to The Guarantors, an N.Y.C.-based startup that is stepping up to meet the needs of renters trying to qualify for an apartment in New York City, and eventually other markets such as Boston, Chicago and California. I was directly involved in one such qualification excercise two months ago.

The company essentially acts as your parent (if your parents could fill out reams of paperwork within 12 hours, were extremely well heeled and backed by surety bonds), stepping in to co-sign and guarantee your rental agreement. To make landlords trust the stand-in parent arrangement, the startup backstops its guarantees with insurance from The Hanover Insurance Company. If the renter does not fulfill the terms of the lease, The Guarantors, makes the landlords whole. It is a brilliant idea, and perfect for financial institutions to license or build themselves.

The only problem is cost. Depending on risk profiles, The Guarantor charges U.S. citizens 5% to 7% and international renters 7% to 10% of the annual rent, about 3 to 4 weeks’ rent to backstop a 12-month lease; leases up to 18 months are a higher rate). But by eliminating deposits that can equal that amount or more, it can be cash-flow-positive to the renter. Though, unlike a deposit, that money is gone for good. So it doesn’t help first-time renters without the initial cash surplus of two-month’s rent. However, a financial institution offering the service could loan the renter all or part of that. There is no cost to the landlord.

The company, currently operating in NYC, is open only to renters with a 630 or higher FICO score and annual income at least 27x the rent. Alternatively, the company allows co-signers with at least 45x the monthly income, or liquid assets of 75x the monthly rent, to guarantee the guarantee. Applications are approved with 12 hours.

The company launched in 2014 and spent 18 months nailing down the insurance deal with Hanover. It has taken a seed investment of an undisclosed amount from nine investors (50 Partners, Alven Capital, Arnaud Achour, Fides+Ratio, Kima Ventures, Partech Ventures, Residence Ventures, Silvertech Ventures and White Star Capital).

Bottom line: Renter financing/assistance is a promising new lending/customer service for financial institutions. You not only get new customers, new loans, new checking accounts, a foothold in the millennial market, a unique service to offer employers, satisfied renters (and their parents), but also become a local hero with write-ups in every newspaper, blog, and housing forum in your market. And, with a phone call or two, you will be on the nightly TV news every fall when it’s “apartment hunting” season.

Contact The Guarantors now and offer to be their first distribution partner outside New York City, or their first strategic investor. And if you are Wells Fargo, Capital One, American Express, or Chase, just buy them outright already.

Have a fantastic weekend all!

Tactics: Helping Students and Other First-Time Renters

SF Fire Credit Union offers loans up to $10,000 to cover rental expenses
SF Fire Credit Union offers loans up to $10,000 to cover rental expenses


Looking to provide real value to younger customers, especially the children of your core deposit base? Help them get started in the rental game. I have five family members who have recently rented in the Seattle and Los Angeles metro areas, and it’s a brutal seller’s market for apartments. Landlords are picky and require financial assurances similar to, or even more stringent, than a mortgage (pre-2008 anyway).

For example, as a co-signer on my son’s lease, I was asked to provide two years of tax returns despite the fact that he has a good job lined up (albeit not until after graduating in May) and sufficient current resources to pay the monthly tab. And then there’s the initial cash outlay (in his case, $4,000 in certified checks). All this is quite daunting for new renters or anyone looking to make a move.

Where financial problems exist, banks and credit unions have opportunities. Ideas include:

  1. Make it easier to save with a goal-based account: First-time renters often don’t realize the financial cost of getting started in an apartment. Offering a systematic savings program to help build the required balance is a win-win. For extra credit, provide a bonus when certain milestones are met and/or allow parents, aunts, uncles and grandparents to contribute as well. Simple, Moven, Mint and most PFM platforms offer goal-based savings; most financial institutions do not.
  2. Provide rental-deposit loans: If savings won’t cover it, offer a modest installment loan with an easy co-sign option. These small loans can also help build a positive credit history. Though rare, a few U.S. credit unions offer small loans specifically to cover rental deposit, first/last months’ rent, utility deposits, and so on, but it’s not typically something you see at banks. See the SF Fire Credit Union page above for an example.
  3. Help students in their apartment/roommate hunting: Team up with companies helping students and others find a place to live. For example, Rent College Pads, recently raised $1 million.
  4. Offer renter’s insurance: A low-cost, but valuable bit of peace-of-mind for young renters who can ill-afford to replace stolen or damaged items.
  5. Encourage more low-cost housing options: In tight rental markets, use your resources to find spare rooms within the community that could house students or others needing housing. A bank or credit union could offer loans to remodel or build new rental spaces.

Bottom line: One of the best ways to cement a long-term relationship is to help someone (or their kids) find a place to live, and provide a means of handling the initial financial burden. I encourage financial institutions, and their fintech partners, to make a home for this strategy in your 2017 gameplans.

Giving Customers Credit

declined_plateOne of the most frustrating aspects of modern day borrowing, especially in the heavily securitized U.S. home loan market, is the price you pay for not being “normal.”  I faced this for more than two decades as a business owner. Even with a 20-year track record in business and great personal credit scores, without that regular paycheck and W-2 documentation, it was maddeningly hard to get a new mortgage, refi, or even a car loan or credit card sometimes.

But having worked on the other side, I understand that certain groups, such as small business owners, pose higher risk. So it’s understandable that underwriting, pricing, and documentation requirements for new customers are more onerous. The extra paperwork may be frustrating, but business owners understand risk vs. return, and can come to terms with it.

However, there is another situation that makes customers pull out their hair, rant on social media, and tell their friends to avoid that bank. It’s when you’ve been a customer for years, even decades, but your lender decides you should be in a higher-risk group, even though you’ve done nothing risky. There is a classic example of this in the Wall Street Journal today. It tells the tale of a Seattle couple who are renting a cottage behind their primary residence in a completely legal and transparent way. And when they mentioned this seemingly great $30,000 improvement to their income in a home-equity loan-refi app, their bank, one of the largest in the United States, promptly turned them away saying it didn’t offer home-equity loans on properties with home-based businesses.

Certainly, the bank can make the business decision not to lend to any category where it doesn’t like the overall risk vs. return. But their underwriting should be flexible enough to look at an existing loan that’s in good standing, and realize that if the borrower is pulling in an extra $30,000 from AirBnB, the default risk on that loan has been lowered.

umpqua logoThe bank isn’t commenting on this particular loan application, so we don’t know if there are other extenuating circumstances. Perhaps the couple had a debt go into collection or other credit problems. But since I’ve personally run into similar problems while maintaining excellent credit, I believe the couple’s story is probably accurate.

Bottom line: One bank’s loss is often another’s gain. This story had a happy ending as the couple was able to refinance through super community bank Umpqua. Now that its win has been immortalized by the national press, expect Umpqua to feature this story throughout its market.

Commentary: Prosper Signals Move into PFM with $30 Million Acquisition of BillGuard

billguard_prosperIt’s a little bittersweet when two of my favorite fintech companies combine. I am happy for both, but will miss seeing what BillGuard could have done as a stand-alone financial transaction watchdog (see note 1). After raising $16.5 million, the $30 million in cash—plus undisclosed amount of Prosper stock (note 2)—should provide a decent payday for investors, founders and employees. Caveat: without knowing the liquidation preferences of later investors, or the stock piece, we don’t really know how all the stakeholders fared.

From the sounds of it, though, it’s no acqui-hire. BillGuard said it’s tripling its dev team to 75 and will be heading full-speed-ahead on its product roadmap. That sounds good for BillGuard.

The more difficult question is why Prosper is spending 20% of the $165 million it raised in April on an ancillary service? The company says it is looking to move into broader financial management. And with 1 million visitors per month—the vast majority of which are likely to be unqualified for a Prosper loan—marketing PFM and credit-monitoring services have some appeal. But it seems like it could be a distraction (note 3).

But at least from the outside, I’m not seeing BillGuard as a significant value-add at this point. Even if Prosper were to convert 1% of its 1-million/mo traffic (optimistic) into BillGuard’s $5 to $10/mo credit-monitoring services with a margin of 50%, that would only add $75,000/month to the bottom line or about $900,000 in the first year—assuming 50/50 mix at the two price levels. Depending on attrition rates, that would grow over time, but it’s still not a great return on $30+ million. And if Prosper is looking to mine BillGuard’s 1.7 million customers for new loans, the lender could have done it much cheaper via partnership.

Peter Renton, writing at LendAcademy, has the best justification for the deal I’ve seen. Prosper needs something to stay engaged with loan customers—and presumably denied loan customers—since there is little reason for them to log back in once the loan has been made and automatic payments established.

All those reasons are part of the valuation. But my guess is that Prosper has something grander cooking, and BillGuard is just a piece of that puzzle. Perhaps they seek to take on Credit Karma in the broader credit-reporting/lead-gen space. I look forward to more news down the road.



1: Chris Larsen showcased Prosper at our initial multi-unicorn-producing Finovate in NYC in 2007, winning our very first Best of Show trophy (along with Mint and MortgageBot).
BillGuard was named Best of Show at its two Finovate appearances, 2011 and 2012.

2: The terms of the deal were not disclosed in the official announcement. VentureBeat appears to be the widely cited source of the “$30 million plus stock” terms.

3: I bet Prosper’s FI investors—BBVA, Suntrust, Chase, USAA—like the deal. They not only have an inside peek at BillGuard’s metrics, but also a ringside seat to see how a lending specialist can or cannot expand into broader banking/PFM services.


US Bank Adds “Thank a Banker” to Homepage

usbank_thankabanker_boxUS Bank has been on a roll lately, appearing in our blog more times this summer than in the previous three years. Its latest novelty? A unique “thank a banker” function, complete with smiley face emoji, prominently located at the bottom-middle of homepage (below the fold on my 13-inch laptop). It’s shown to both customers and non-customers.

I wasn’t sure what to make of it. While I don’t see the harm, it would seem to be a fairly low-usage feature to warrant homepage real estate. But the more I thought about it, the more I liked it. It’s great brand positioning, essentially saying, ‘Hey, look. we aren’t one of those impersonal banks. Our customers love us so much we have to put a box on our homepage to collect all the compliments.’

And then if anyone actually does use it, the bank gets a stream of attaboy/girls to send out to staff. Clever. Hopefully, the bank sends the customer a nice thank-you email (I hadn’t received one 30 minutes after submitting form).

The website function is outsourced to an employee-recognition specialist, OC Tanner. An URL is displayed to US Bank customers as they fill out the 13-field form, a hefty 9 of which are required fields (see second screenshot below).


More importantly, I like the Labor Day loan sale at the top of the US Bank homepage (see below). It’s traditionally a big car-buying weekend, so it’s a great time to promote vehicle lending, especially with the still ridiculously low APRs available here.


US Bank homepage (3 Sep 2015, 10:00 a.m. Pacific):


US Bank “thank-a-banker” form (link):




Six Alt-Lending Unicorns Worth Combined $15 Billion: Lending Club, Prosper, On Deck, Sofi, Avant, Funding Circle

Fortune_feb2015_coverPayments companies, especially mobile, have dominated the fintech news cycle for much of the past four years. But as those well-funded payments companies vie to become global standards, attention has turned to the lending arena. At least six alt-lending startups (not including China) have now passed the billion-dollar valuation mark:

1. LendingClub: $7.2 billion (public: LC)

The company launched as one of the original Facebook desktop apps in May 2007 and made its industry debut at the first Finovate in September 2007. Its December 2014 IPO briefly valued the company at $9 billion, the largest-ever IPO for a fintech startup.

2. Prosper: $1.9 billion (valuation from $165 million round announced last week)

The company was the second person-to-person lender in the world (after the U.K.’s Zopa) and the first in the United States, launching in Feb. 2006. It also made its industry debut at the first Finovate in 2007. It was much larger than Lending Club during its first few years; however, high default rates from its pure auction model scared away early investors. But the company retooled its underwriting and has become the third largest consumer P2P marketplace in the USA (and the world outside China).

3. On Deck Capital: $1.5 billion (public: ONDK)

Small and mid-sized businesses (SMB) were hit hard in the 2008 recession with lower profits combined with a massive dry spell in traditional bank credit. So, naturally, entrepreneurs moved in and picked up the slack. On Deck was one of the first on the scene, making its Finovate debut in 2009. Originally, On Deck was dipping its toes into the direct lending space as a proof of concept for its small-business lending platform it hoped to sell to banks. But it turns out they were in the right place at the right time, and, after a December IPO, On Deck is a successful public lender valued at $1.5 billion.

4. Sofi: $1.3 billion (based on Goldman Sachs fundraising efforts for the Feb 2015 round; however, recent press reports say the company is looking to raise $500 million in a 2015 IPO valuing it at $3.5 billion)

With $700 million in loans originated in Q1 2015, Sofi just passed Prosper to become #2 in the United States—and in the world, outside of China. The company initially focused on refinancing student loans for graduates of elite universities, but it has diversified into other types of consumer and SMB lending.

5. Avant: $1+ billion. Forbes recently estimated its value at $875 million; we think that’s low based on the $1.4 billion, including $350 million in equity, that startup has raised.

Like On Deck, Avant is targeting a segment abandoned by traditional lenders in the aftermath of the 2008 financial crisis. But Avant’s specialty is sub-prime borrowers, a segment with higher margins in good times, but risky bets in downturns.

6. Funding Circle: $1 billion, based on an estimate in The Telegraph this month

The only non-U.S. company on the list is London’s Funding Circle (although Wonga is probably still close, and has been above $1 billion in the past). Funding Circle, which specializes in SMB marketplace lending, was founded in 2010 and moved into the U.S. market last year with the acquisition of Endurance Lending.


Also in the running: Finovate alums Kabbage—meet them at FinovateSpring next month, along with a handful of other promising newcomers; CAN Capital; Kreditech; and Wonga, which was valued well above $1 billion in 2012, but has had a falling out with U.K. regulators. Several peer-to-peer lenders in China are believed to have obtained unicorn status, the biggest being Lufax, which was said to be valued at almost $10 billion by the Wall Street Journal last week.

Launching: Self Lender Helps Build Credit with Digital "Credit-Builder" Loans

image Ever since the financial debacle of 2008, it’s been harder for consumers to establish their first credit account. Therefore, with no credit history or score, it becomes even harder to get credit. That’s created a Catch-22 around new credit that Denver-based startup Self Lender looks to address. The company launched today at TechCrunch Disrupt (see full presentation here, at bottom of post).

Self Lender has a fairly straightforward value proposition.

  • Agree to transfer a certain amount of money to yourself for a set period of time via the Self Lender platform.
  • Self Lender reports the payments to credit bureaus as a secured loan.
  • At the end of the contract period, between 3 and 12 months, the user gets their money back (without interest) or can use the funds as a down payment on a vehicle or other item with the balance financed by Self Lender lending partners (see screenshot below).

The funds are held in an FDIC-insured account. Users can make their monthly transfers via ACH, debit card, paper check/money orders, or via cash through PayNearMe’s network. The startup also will accept bitcoin payments, an interesting side note that wasn’t mentioned during their demo.

Self Lender will make a few dollars on interest and lead-gen commissions, but its primary business model revolves around charging $3 per month for the service.

Thoughts: Many banks and credit unions offer products with similar benefits. According to CUNA (note 1), 15% of U.S. credit unions offer “credit builder loans.” Banks and credit unions also offer CD/saving secured loans. But those deposit-secured loans generally require a good sum of cash to get started. For example, Wells Fargo has a $3,000 minimum deposit and $75 origination fee. Self Lender lets you get started with just $25.

So, the concept is good. But I think it will be difficult for the company to get consumers to entrust them directly, so distribution through FI or PFM partners is crucial. To that end, during the Q&A session, Self Lender said it was hoping to ink deals with one or more major banks in the near future. 


Self Lender demonstrates how the money saved in the platform can be used as down payment (9 Sep 2014)



1. Source: NY Times, 6 Feb 2012.

The Rise (finally) of Online Specialty Lenders


One thing that always struck me as odd about the financial services startups of the late ’90s and early 2000s was their obsession with deposits. I can understand the appeal of having people send you money; it’s a rock-solid, low-risk part of the banking business model. But it also contains massively entrenched players who already have the consumers’ trust, along with a vast branch network to back it up. And it’s a commodity.

The much bigger opportunity for newcomers, to my thinking, is to go after the loan side. Consumer trust is almost a non-issue since you are handing them the money. And loan underwriting is both an art and a science with thousands of variables to innovate on. 

But it’s a dicey area for investors. The economic downturn of 2000-2002 spooked the VCs as dotcom-darling NextCard went belly up (as did other non-online, sub-prime lenders). Then the big hit in 2007/2008 killed whatever business plans had been drawn up in the post-2002 period. And there will always be concerns about where to find more funds to lend out, especially in the post-securitization world.

Fast-forward seven years. We are finally seeing an explosion of consumer and small business lending online (with mobile coming on). This newfound activity is being led by the so-called crowdfunders and P2P lenders tapping institutional money along with accredited investors (and VCs) to deliver capital using a mix of debt and equity terms.

Another specialty lending area exploding online is secondary educational financing (note 1). For example, Sofi started by targeting graduates of elite U.S. universities. CommonBond is focusing on graduate students. ProdigyFinance lends to international MBA students.

The latest entrant in the educational space is CoderLoan (screenshot below). The NYC-based startup is working with employers and educational institutions to help finance participants in coding bootcamps, where tuition can run $10,000 for a summer-long program. Employer sponsors can repay the CoderLoan after a set amount of time on the job. Or the graduates themselves can afford to repay the loans with their developer-level salaries.  

Bottom line: The uptick in digital specialty lending is win-win-win. There are potentially good returns for investors (note 2) while more capital flows to both entrepreneurs looking to expand and employees wanting to sharpen skills. Ultimately, that leads to a more productive and engaged workforce and a more rigorous economy. 


CoderLoan homepage (link, 27 May 2014)


1. For a 38-minute discussion on crowdfunding student lending, check out the panel at the Lendit conference in San Francisco three weeks ago (link). The panel included Vince Passione, LendKey; Mike Cagney of SoFi; David Klein of Commonbond; Cameron Stevens of Prodigy Finance; and Brendon McQueen of
2. Most of the activity is too recent to fully understand whether the risk is being priced adequately (see NextCard in 2002), but the results from the earliest entrants — Zopa, Prosper and Lending Club — are promising.
3. For much more on crowdfunding (debt and equity), see our May 2013 report (subscription).

Fintech Four: Banno, Borro, Personetics & are on a Roll

It’s been a crazy week in fintech, and it’s only Wednesday morning. Because my brain can hold no more than four stories at a time (and that’s a stretch), it’s time to publish a “fintech four” mid-week. I don’t know which of these is more dramatic, so I’ll go in alphabetic order: 

1. joins the billion-dollar fintech club

Thumbnail image for auction.jpgI’m not sure everyone considers a fintech play, but as an online asset sales platform (which moved $7 billion last year), it’s close enough for me. It just raised a fresh $50 million from Google Ventures at a valuation of $1.2 billion. So I’ll be adding to our “Fintech billion-dollar club.” 

>>> Metrics and more from Bloomberg here.

2. Banno acquired by Jack Henry

banno.jpgWhile we don’t know the $$ number, given the traction Finovate alum Banno had in the market (375 bank clients), and the relatively high valuations in the fintech space these days ($1.75 billion for Stripe), this must have been a pretty nice payday for the owners and investors in Iowa-based Banno (formerly T8 Webware). Founder Wade Arnold is staying on at Jack Henry and is super excited about his future with the Kansas City-based technology vendor. 
English: Wordmark of Borro, the characters &qu...

3. Borro borrows $112 million

In one of the biggest fundraising rounds in fintech history, U.K.-based Borro landed $112 million to further its high-end online pawn brokerage business. I met founder Paul Aitken last fall and was impressed with the product, which allows consumers to borrow against non-liquid assets, say, a Jacob Lawrence in the hall, at pretty high rates (3% to 4% per month). Until then, I had no idea there was a large, underserved (near prime?) market holding high-end assets (outside Downton Abbey anyway). Even so, I was shocked to see a $112 million round. While terms of the deal weren’t disclosed, I have to believe all or part of the money is debt, not equity. So I’m not going to add Borro to the billion-dollar club, yet. Apparently online lending is back! 

>>> Average loan amount = $12k (against a $20k value)… see Press release
>>> TechCrunch breaks down the Borro loan process and metrics here

4. Personetics is on a roll

pesonetics.jpgAt this week’s great Bank Innovation event in Seattle, I finally had a chance to meet face-to-face with Personetics, the Sequoia-backed “predictive financial services engine.” I’ve been impressed with what I’ve read about the company, and loved the Fiserv demo at FinovateEurope last month (demo here) featuring a forward-looking PFM piece powered by Personetics. But I had no idea how much traction the company was gaining in less than three years since its A-round. While I can’t name names, if even one of these deals moves into production, it has the potential to change the face of online banking. 
>>> Fiserv demo at FinovateEurope featuring insights powered by Personetics here (12 Feb 2014)