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A Birdseye Views Of Alternative Finance


The Consumer Financial Protection Bureau (CFPB) has kicked off an inquiry into the U.S.’ SME finance space to understand how lenders lend to small businesses — or even define what they are.

“Small businesses fuel America’s economic engine, create jobs and nurture communities. Yet little is known about how well the lending market serves their financing needs,” said CFPB Director Richard Cordray in a statement. The bureau has requested information from industry stakeholders to kick off its inquiry and also released a white paper to explore SME lending, in which it concluded there is a “current lack of comprehensive data in this area.”

PYMNTS takes a look at some of the data that is available to provide an update on the world’s alternative finance sector — including the latest earnings stats from two of the industry’s largest players, Lending Club and OnDeck.

$34.2 trillion is held by the world’s shadow banking market, with the U.S. holding the most of that money than anyone else in the world, according to the latest data from the global Financial Stability Board (FSB). Followed by the Cayman Islands, Japan and Ireland, the U.S. has the most funds held by FIs and money managers other than traditional banks — including some alternative lenders. The data, which represents 2015 figures — the most recent offered by the FSB — shows a 3.2 percent increase in shadow banking funds. The FSB said the data will be used to assess whether new recommendations should be made about financial policy across the globe.

57.4 percent of U.K. SMEs are unaware of alternative lending options, finds the newest analysis from Close Brothers in its Business Barometer. Just over a third, the report found, said they are familiar with how invoice financing works. Reports said improving SMEs’ understanding of alternative finance could be critical to small business optimism, with cash flow problems and other financial concerns making significant impacts on SMEs’ ability to have a positive outlook on their own futures. According to Close Brothers, nearly two-thirds of small businesses said they have endured cash flow problems as a result of late invoice payments, for instance.

OnDeck shares fell 8 percent last week immediately following the alternative lender’s announcement that it would be increasing credit requirements further in an effort to boost long-term profitability. The move is likely to slow growth in the short term, however, said the company; CFO Howard Katzenberg said on a conference call that the stricter requirements are expected to lead to a 20 percent drop in loan originations in Q2 but did tell investors that the company would be focusing more on lending directly to SMEs. The company reported an 11 cents-per-share loss in Q1, with gross revenue increasing 48.4 percent — surpassing analyst estimates.

The 1 percent decline in loan origination volume posted by Lending Club could have investors worried as analysts said progress for the alternative lender has, on a whole, stalled. The company released its latest earnings report last week and said its loan origination volume has slipped 1 percent quarter over quarter and 29 percent year over year in Q1 2017. Net revenue similarly fell, but the company did reveal that bank investment in the company increased by 7 percent compared to Q4 2016. “Lending Club again stated that it’s pursuing growth but gave little evidence of how it’s doing this,” concluded one report in Business Insider. Still, reports said, the company continues its recovery after its CEO suddenly left and reports surfaced the company had intentionally misled investors.

SME loan approval rates among U.S. alternative lenders declined by 0.3 percent in April, hitting a 57.9 percent approval rate that month, said Biz2Credit in its latest small business lending index. “Alternative lending is losing its luster because competing lending institutions are improving their speed of processing loan requests and do so at lower interest rates,” the company’s CEO, Rohit Arora explained in a statement. Credit union approval rates are similarly declining, while big bank lending saw an uptick, hitting a new high for the index with a 24.3 percent approval rate.


New PYMNTS Study: Subscription Commerce Conversion Index – July 2020 

Staying home 24/7 has consumers turning to subscription services for both entertainment and their day-to-day needs. While that’s a great opportunity for providers, it also presents a challenge — 27.4 million consumers are looking to cancel their subscriptions because of friction and cost concerns. In the latest Subscription Commerce Conversion Index, PYMNTS reveals the five key features that can help companies keep subscribers loyal despite today’s challenging economic times.

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