Merchant Cash Advances Are Still Hot by Paul Sweeney Stillfunding Funding the the Unbankable Unbankable

July/August 2019 BORN TO BORROW FINANCIAL EDUCATION MIGHT NOT MATTER Snapshot on Australia: Growth in the Making By Cheryl Winokur Munk Gold Rush: Merchant Cash Advances Are Still Hot By Paul Sweeney StillFunding Funding the the Unbankable Unbankable Send us your DECLINED & high risk deals yellowstonecap.com/iso 855-972-2748 www.fundrycap.com Our Employees Are Our Backbone. If you have Industry experience, we want you to join our sales team! OUR VALUES LIFE AT UCS Table of Contents July/August 2019 Featured 2 BORN TO BORROW FINANCIAL EDUCATION MIGHT NOT MATTER By: ED MCKINLEY Inside 02 08 26 BORN TO BORROW SNAPSHOT ON AUSTRALIA: INDUSTRY NEWS FINANCIAL EDUCATION GROWTH IN THE MAKING MIGHT NOT MATTER 28 16 TORONTO RECAP GOLD RUSH: MERCHANT CASH ADVANCES ARE STILL HOT July/August 2019 Letter From the Editor PUBLISHER Sean Murray EDITOR —IN —CHIEF Sean Murray ART DIRECTOR Deborah Barlay BY SEAN MURRAY SALES 212.220.9084 Why does history repeat itself? Why do some people continue to make deBanked is a publication by: adverse decisions even after being supplied with the necessary tools and Raharney Capital, LLC knowledge to avoid them? There’s a theory out there based on research 325 Gold Street, Ste 502 that financial education has virtually no impact on how consumers Brooklyn, NY 11201 approach their finances. It’s a wild idea to consider, that education isn’t 212.220.9084 an effective way to change financial behavior. Because if that doesn’t For advertising information or general inquiries, work, then what does? Does anything? In Born to Borrow, we delve email [email protected] or call 212.220.9084. into the amount of debt consumers have racked up in the post financial crisis era and explore how this may have happened. For permission to reprint published material, email [email protected]. The publisher is But that’s the USA. What about Australia? It’s been four years since not offering products or advice related to law, deBanked examined the Australian market, so we’ve checked in and accounting, tax, investments, or securities. found (*gasp!*) that there are similarities with the Canadian market, The content herein does not necessarily reflect the views and opinions of the a market we’ve become intimately familiar with. So as you read about publisher unless specifically stated. Australia, make sure to follow that up by checking out the coverage of our event in Toronto. deBanked CONNECT Canada was a major success VISIT US AT DEBANKED.COM and we’ll be back there again next year. I hope you enjoy our last issue of Summer 2019. I look forward to seeing your at our event in San Diego on October 24th. You can visit at www.debankedsandiego.com –Sean Murray Featured Story BORN TO BORROW FINANCIAL EDUCATION MIGHT NOT MATTER By: ED MCKINLEY onsumer debt has surpassed $4 trillion for the first time, and it’s continuing its ascent into the stratosphere. It’s getting big enough to trigger the next recession, and financial education isn’t changing the underlying consumer behavior. Personal loan balances shot up $21 billion last year to close 2018 at a record high of $138 billion, according to a TransUnion Industry Insights Report. The average unsecured personal loan debt per borrower was $8,402 as of the end of last year, TransUnion says. Much of the increase in consumer debt has emerged with the rise of fintechs— such as Personal Capital, Lending Club, Kabbage and Wealthfront—notes Rutger van Faassen, vice president of consumer lending at a U.S. office of London-based Informa Financial Intelligence, a company that advises financial institutions and operates C offices in 43 countries. Featured Story /BORN TO BORROW Financial Education Might Not Matter In fact, Fintech loans now comprise 38% of all finance vehicle with better terms, van Faassen says. “So unsecured personal loan balances, a larger market if I get the money at the point of sale, which might have share than any of the more traditional institutions, been zero for six months and then it steps up to 20-plus the TransUnion report notes. Banks’ market share has percent, there is no problem with refinancing that debt,” decreased from 40% in 2013 to 28% today, while credit he says. unions’ share has declined from 31% to 21% during the But there’s a downside to the ease of borrowing, van same time period, TransUnion says. Faassen cautions. It could trigger the next recession, even Fintechs are also gaining at the expense of the home- though unemployment remains low. Despite modest equity market, van Faassen maintains. “They’re eating recent gains, wages have remained nearly stagnant for away at some of the balance that maybe historically years. That means an increase in interest rates could was in home-equity loans,” he says. While total debt is lessen consumers’ ability to pay off their debts, he says. increasing, the amount that’s in home equity loans is Meanwhile, at least some large mortgage lenders have actually shrinking, he notes. begun running into problems, a situation that bears an What’s more, fintechs are changing the way Americans eerie resemblance to the beginning of the Great Recession think about credit, van Faassen continues. Until recently, that struck near the end of 2007, notes a report in consumers experienced a two-step process. First, they luckbox magazine, a publication for investors. Stearns identified a need or desire, like a washer and dryer or Holding, the parent of Sterns Lending, the nation’s 20th home renovation. Realizing they didn’t have the cash largest mortgage lender, filed for bankruptcy protection to fund those dreams, they took the second step by just after the July 4 holiday, the luckbox article says. approaching a financial institution for a loan. Another worrisome sign with regard to the possibility If consumers chose a home equity line of credit to of recession is emerging as institutional investors buy into procure the cash, they had to wait for something like 40 the peer to peer lending market. Institutional investors days from the beginning of the application process to the bought batches of sliced and diced home mortgage time they got the money, van Faassen says. “You really securities that helped bring about the Great Depression. had to be sure you wanted something,” or the process Then there’s the nagging notion that the country and wasn’t worth the effort, he says. the world are becoming ripe for recession simply because Fintechs have removed a lot of the “pain” from that no downturns have occurred for a while. Talk to that process, van Faassen says. With algorithms helping to effect was circulating at the recent LendIt Conference, van assess the risk that an applicant can’t or won’t repay a Faassen observes. Fintech executives often come from debt and digitization easing access to financial records, the banking world and thus still find themselves haunted fintechs can quickly evaluate and make a decision on an by the specter of the Great Recession. That’s why they’re application. Tech also helps assess applicants with thin already beginning to tighten underwriting for consumer or nonexistent credit files, which broadens the clientele credit van Faassen says. while also contributing to total consumer debt. One difference this time around lies in the fact that Meanwhile, mimicking an age old process in the nothing about the increase in consumer debt appears to car business, merchants are beginning to make credit be hidden from public view, van Faassen says. Before, available at the point of sale. Walmart, for example, investors fell victim to the mistaken impression that recently signed a deal with Affirm, a Silicon Valley risky mortgage-backed securities were rated AAA when lender, to provide point-of-sale loans of three, six or they weren’t. 12 months to finance purchases ranging from $150 to Plus, the increase in peer-to-peer lending could keep $2,000. Shoppers apply for the loans by providing basic the economy going even if big financial institutions freeze information on their mobile phones and don’t have to the way they did during the Great Recession, van Faassen talk to anyone in person about their finances. Affirm’s notes. “Hopefully, with the new structures that are out CEO Max Levchin has called the underwriting process there, we can keep liquidity going,” he says. ‘basically instant.” That raises key questions for the alternative small- If that convenience comes at too high a cost, it doesn’t business funding community. The industry came into matter much because borrowers can later find another being partly as a response to banks’ tightened lending 4 deBanked / July/August 2019 / deBanked.com 䈀攀猀琀䈀甀礀刀愀琀攀猀匀礀渀搀椀挀愀琀椀漀渀匀伀匀㐀栀漀甀爀吀甀爀渀䄀爀漀甀渀搀䌀䄀倀䤀吀䄀䰀䌀漀渀琀愀挀琀唀猀吀漀搀愀礀㨀䄀搀瘀愀渀挀攀搀倀愀爀琀渀攀爀倀漀爀琀愀氀 ⠀㈀㄀㈀⤀ⴀ㈀㌀㔀ⴀ㔀㐀㔀㔀䤀琀ᤠ猀吀栀愀琀䔀愀猀礀椀渀昀漀䀀猀漀猀挀愀瀀椀琀愀氀⸀挀漀洀 Featured Story /BORN TO BORROW Financial Education Might Not Matter policies during the Great Recession, so perhaps a consumer debt by speeding up repayment, Beasley downturn isn’t such a bad thing for the sector. But a maintains. In this example, suggesting higher payments downturn for the economy in general could cripple would prompt some consumers to pay off their debt merchants’ ability to pay off debt. more quickly. But all bets are off during hard times. In the last In an exception to standard practice, a credit card recession the conventional wisdom that consumers company called Petal does exactly that by placing a slider make their mortgage payment before paying other bills on its website to help borrowers determine the amount of was turned on its head.

Load more