The Lending Arena Grows Apace...
Markets continue to go from strength to strength, and our two listed names in the online lending arena continue to do well. LendingClub Corp. ($LC) posted solid results, but now understands fully well the meaning of “forward guidance” or outlook, and the impact it can have on a share price. The stock closed at $23.65 going into the results, only to close the next day at $20.51. Oops! In the meantime, LC continues to oscillate around the $20 level, looking for a base to form. Similar path for OnDeck Capital Inc. ($ONDK), from $19.37 to $16.42. So far, the numbers are solid, if not spectacular.
In terms of visibility, buzz, coverage etc., we continue to see a steady stream of news flow coming from US players, but increasingly, also from players in the United Kingdom. And we’re seeing an increasing number of situations whereby US companies are doing things in size, but overseas (UK mainly), and we’re seeing another movement as well, where a number of European companies (again, mainly the UK) are JV-ing or taking initiatives with US parties. So far the news flow, and so far so good.
With a number of leading players now being publicly traded, brokers, banks and other financial institutions are starting to publish research reports on these names in particular, and on the sector more in general. We were interested to see JMP Securities publishing “The next chapter in online lending”, with an update on market trends and key players. They detect eight key themes capturing the change in the landscape, compared to a few years ago – while talking about the ingredients of a “perfect storm”, which I summarize as “GFC, ZIRP and SM” (Great Financial Crisis, Zero Interest Rate Policy, Social Media).
Profits at Big Banks in Jeopardy
More importantly, you know that things are getting serious when the boys from Goldman Sachs Group Inc. (GS) publish a report (as part of a series), aptly titled “The Future of Finance, Part 1 – The Rise of the New Shadow Bank”. From the report: “…the twin forces of regulation and technology are opening the door for an expanding class of competitors to capture profit pools long controlled by banks…” Spoiler alert: they find $11 billion in annual profit at risk to leave the banking system over the next five years. Or about 7% of total profit (in 2014). Oops, again. Banks should start to take notice.
Now, most all of this is good - it's part of a normal and healthy development. And not unexpected, I might add.
But then, suddenly, there is something coming out of left field...business models that aggregate all this in novel ways, or that disrupts the disruptors. So bear with me for a moment, and get familiar with two names: Kickfurther and CashForce.
The Cool New Kids in Crowdfunding
Kickfurther has a very new take on inventory finance. Calling themselves the Evolution of Crowdfunding, the platform enables retail investors to directly invest in (part of) their favorite business’s inventory, which, upon selling through the business, will generate very attractive returns – think 7% to 10%, on a 2 to 4 month period. Do this all day long, and you’re looking at compelling APR’s. The platform just launched, and is getting solid traction in the market. But if you think about it for a moment, this model is really taking out the “disruptor”. After all, why go to one of the platforms to take out a short term loan when you can get it financed directly through your customers, fans or other supporters? They are also launching an affiliate store model, thereby giving users an extra opportunity to generate returns...very interesting, indeed.
CashForce is a very different animal. A European based financial software company that's now about to launch in the US, CashForce offers “total control of your cash flow” via a real time, dashboard-based interface. Automating cash forecasting on your ERP, it allows you to get deep insights into your future cash flows, helps you to take the right decision to increase cash flow, and most interestingly, picks finance solutions from their marketplace. To me, the latter feature is most interesting, as it is an approach that allows you to easily simulate the impact (again, in real time) of different scenarios, and pick the right third party finance solution through this marketplace, ultimately via APIs. So imagine, you’re running a scenario, and the systems tells you that you can optimize some of your flows by, for instance, taking out a loan, or consider a factoring solution. Through the Marketplace you will now be able, in real time, to simulate the impact of going with one of these solution vendors, and immediately see the impact of using that solution on your ongoing cash flow movements. And once you have selected an optimal solution through an API, you will be able to directly interface with that provider and go to implementation following agreed upon terms. A marketplace all right – but with a (CF) twist.
As I said in earlier contributions, and continue to repeat: you ain’t seen nothin’ yet.
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