Roostify’s Rajesh Bhat: ‘We’re still in the first quarter of the online mortgage game’

After going through a poor homebuying experience, Rajesh Bhat was compelled to find a better way.

Bhat is the CEO and co-founder of Roostify, an enterprise mortgage origination platform. The complexity and diversity of different parties participating in the mortgage ecosystem make creating a high-quality enterprise solution particularly challenging. Roostify is getting there, though, as evidenced by its vendor relationships with JPMorgan Chase, Guild Mortgage and other regional lenders and credit unions.

We caught up withRajesh about his intentions of building a technology-enab led mortgage product, the challenges and opportunities in online mortgage and different the future of mortgage will look from the offline version we know today.

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Below are highlights, edited for clarity, from the episode.

Why did you enter the digital mortgage space?
I had nothing to do with mortgage or real estate previously. I had spent my entire career in management consulting working with large Fortune 500 companies. The previous firm I was with was based in D.C. and it had opened up an office in the [San Francisco] Bay Area. I moved with my wife to help build out the west coast practice.

That first year, we spent the entire year looking for a home to buy and it was an entirely painful and traumatic experience. Born out of that was the idea behind Roostify. That’s where we began building out the solution we have today.

Why are mortgages so hard to digitize?
The eligibility aspect is complex. Once eligibility is determined, the fulfillment process is equally complex — if not more. Those two things coupled with the fact that on a normal year over half the mortgages issued have a real estate transaction integrally tied to the mortgage transaction make it very complex.

What you have from a consumer’s perspective is a party-counterparty transaction. But for the industry, there are multiple stakeholders behind the bank: title company, settlement company, appraisal company, etc. These different silos have done a poor job interfacing with one another historically. It creates a lot of the opacity and inefficiency in the mortgage market and frankly, a lot of the inflated costs that consumers bear in the process.

Where are we in the evolution of the digital mortgage?
If this is a four quarter game, we’re still in the first quarter. The evolution has been, and will continue to be, driven by the consumer. Banks recognize that consumers are willing to do certain tasks themselves to drive this process. Companies are launching now that really understand the consumer pain points and they’re delivering to that as opposed to banks’ pain points. That’s a paradigm shift.

They’re banking on that solving for the consumers will solve bank problems. That’s less of a hope now — it’s pretty well proven out.

How have banks addressed the demand to move mortgages online?
I believe banks have been passive. That’s largely because they were not motivated themselves to push the envelope nor were there solutions out there to help motivate the industry to change. As solutions have come forward and there is more momentum and credibility around new solutions, banks at a minimum have to take a look and understand what’s happening.

The early adopting banks are really proving out the space. In this space in particular, B2C companies have proven out the consumer appetite to transact digitally. When it comes to mortgage and real estate, though, there aren’t very many B2C companies proving it out. It is an ecosystem, so if I’m a very large title company getting my business through larger banks, I’m not going to pay a lot of attention to fintechs until they achieve scale.

Inside Wells Fargo’s plan to ‘disrupt the disruptors’

Like most aspects of banking, small business loans are no longer just about the financial agreement between the bank and the customer, but the personal attention that comes before and after the service. That’s a recurring theme among online lenders, but it’s also the view of Wells Fargo’s Lisa Stevens, president of western region regional banking.

Last year, the bank launched its own online lending product, FastFlex, in response to not only new competition from the likes of OnDeck Capital and Bond Street, but to its own customers asking for ease of access to loans, ease of use and guidance. Now it wants to open that product beyond Wells Fargo customers.

Based on the latest Community Reinvestment Act data released in 2016, Wells Fargo extended 473,847 loans and $21.3 billion in total loan originations under $1 million to U.S. small businesses that year. It is the top ranking U.S. small business lender by dollar amount.

Tearsheet caught up with Stevens about how Wells Fargo approaches small businesses and what competition from alternative lenders mean for the bank.

Wells Fargo is the number one SBA lender in dollars. What’s your focus?
It depends on customers, what their need is at the time. But our focus has been about being where our customers need to be and making it easy for them. The business encompasses a lot because it’s about trying to see things from perspective of a small business owner versus the perspective of the institution.

What’s the perspective of the institution, historically speaking?
From the 2008 recession to a couple years ago we knew diverse-segment small businesses were struggling more than they had prior to 2008. We did a study with Gallup to understand what are the pain points for Asian-, Hispanic-, African-, women- and veteran-owned businesses and what could we do to help revitalize these businesses at a faster rate.

What did you learn?
Small business owners know everything about their businesses but don’t necessarily know what they need to do to make sure they put all the right financial instruments and advice into place. We created four initiatives and one was to help with credit coaching.

What does that entail?
We call people that get declined and walk them through what happened, why they got declined and what they need to do to get approved. When small business owners they get declined for a line of credit or loan they often don’t know why. At the time we were the only financial institution to do something like this. FastFlex was also an answer to what some in the market were looking for.

How so?
It was that ability to control your inventory or be able to move quickly on something when you have an opportunity and you need to get credit quickly. With FastFlex, we came together and made the decision to basically disrupt the disruptors, create a product we knew would be competitive and easy access for our customers with the capabilities we had. But we did it fast. We’ve got more piloting the line of credit right now. Now we’re looking to offer Fast Flex to new customers who don’t have a history with us.

Is your business threatened by online lenders?
It’s a competitive market but thats a good thing for small businesses. All the online products that have come out have been a positive thing for small business owners because it’s given them more choices and opportunities. And it’s allowed us to sit back and rethink how we’re creating the best tools and advice.

What about Amazon?
Companies like Amazon, Zappos — they’re all fantastic opportunities for us to understand what’s the experience we should be creating for the business owner or customers and to be able to learn from others innovating.

How do you measure success?
There are financial metrics, the number of customers we’re reaching, how we continue to innovate and be responsive to a world that’s changing so quickly. We also have surveys based on what our customers are saying. The anecdotal success is just as important.

How SoFi is developing its financial services offerings

SoFi does a lot of things: career resources and networking, dating events and a dating app, online lending. But what it wants is to be millennials’ go-to partner for everything, and that means extending its financial products to deposits and credit cards.

SoFi has always been as much about culture and brand as product and tech. Now that it’s postponed its initial public offering in December (it raised $500 million in private funding shortly after) it has the luxury of time to develop its financial services offerings.

“While we run positive contribution margins around our credit products… it pales in comparison to what the lifetime value of that relationship is worth,” CEO Mike Cagney said at Fortune’s Brainstorm Tech conference in Aspen, Colorado Wednesday morning. “Not having that deposit product means that the bank, if it has that deposit product, is going to constantly try to cross sell [customers] and pull them back to the bank. That introduced this vulnerability in the business.”

SoFi started with the premise that the services millennials get from their banks is not what they want; that they would be the anti-bank and “be everything to these members,” Cagney said. Last year it ran a 45-second Super Bowl ad introducing “the beginning of a bankless world” with their slogan, “Don’t Bank. SoFi.”

Now, the company has two new strategies it hopes will help it capitalize on the lifetime value of customers. In December it bought mobile banking startup Zenbanx. “A lot of people didn’t understand why… they thought we were trying to get in the payment space,” Cagney said. And last month it applied for a bank charter.

“Theres a lot of irony in us applying for an [industrial loan company] license,” Cagney said. However, he specified that “the only ambition we have to put in the bank: deposits and credit cards. Our unsecured lending, our mortgage business, our wealth — all that stays outside the bank.”

There are also no branches planned for the non-bank financial services company, he confirmed, citing that in the 40 SoFi events he’s hosted and attended almost all other attendees have said they haven’t walked into a branch in the last five years, he claims.

Cagney said SoFi would be offering customers a sweep account, where funds are automatically managed between a primary cash account and secondary investment account, by the fourth quarter of this year. It’s FDIC approved, but SoFi, he maintained, isn’t a bank in providing it. The charter is a way for it to offer this type of bank product and still do all the things it considers core to the value of our business and the brand — like dating events and career resources — that it “couldn’t do in the confines of a bank holding company.”

SoFi is also in the exploratory stages of how to use alternative data like cell phone data for credit scoring as well as distributed ledger technology for title insurance.

But making $2,500 on a student refinancing transaction or $15,000 from a mortgage account is nothing compared to the $50,000 to $100,000 to $150,000 SoFi could make over the lifetime of a customer relationship. Cagney said he is confident that adding deposits to the business can get it to the tens of billions of dollars in valuation.

U.S. banks are valued at between $2,000 and $100,000 per customer. SoFi currently has 250,000 members today and anticipates 500,000 by end of year. Cagney said it’s not unrealistic to get two million customers at “$25,000 to $50,000 per customer, which gets us in the $50 to $100 billion valuation range.”

That’s why investing first in dating, schmoozing and booze — if all goes according to plan — fits so well with SoFi’s brand, the everything-to-millennials non-bank company. It’s also why it doesn’t just partner with a bank or sell to one.

“But to get there, we have to have a diverse product set and that includes deposit products. It’s not just from a revenue standpoint, it’s from a defensive standpoint,” he said.

The company is still making sense of when it could be ready to finally go public. Cagney only said that it’s “opportunistic” about the when factor and “there’s no urgency” to do it. Right now people still largely know SoFi as the online lender — which might be part of the reason the company postponed its IPO. In the spring of last year Lending Club, then the darling of the marketplace lenders, fired its CEO amid questionable lending practices and a conflict of interest in one of his personal investments. The events cast a heavy cloud over the online lending market and SoFi hasn’t said whether it’s waiting for that cloud pass or if it’s trying to shift its image away from online lending before going public.

But it’s very clear on something: an IPO is in its prospects. That, Cagney said, presents a “branding exercise” for the company. And the key to its brand is its culture of committing to its customer.

“You can think of it as technology or as product but the reality is… You can have an immediate impact on technology but ultimately, it can be replicated; product can be replicated,” he said, pointing to SoFi’s disruption of student loan refinancing. “There are a lot of fast followers.”

“The issue is around culture and whether you have a commitment in culture to deliver value into your customer base. If you don’t have that its not going to work… The reason the industry is so vulnerable right now is they don’t realize that the model they have isn’t going work for that next generation of consumer.”

How a Goldman Sachs brand is trying to erase debt stigma

For most people, Goldman Sachs conjures up images of money, power and scary cephalopods.

But the investment bank is getting into consumer lending now, which means it’s going to have to make its brand a little more relatable to the masses. In October, it launched Marcus, an online lending startup dedicated to helping people own their debt issues with a personal loan product and a new message: “Debt happens. It’s how you get out that counts.”

“There’s a stigma around debt, people don’t like to talk about it,” Nicole Sbarra, a product manager for Marcus, said at an event in New York Thursday night. “It makes them very uncomfortable. And most people also don’t think of credit card debt as actual debt, they see it as a balance… [Marcus] is going to help you understand that there’s more to you than this extreme amount of debt on your shoulders.”

While it’s a shift away from the image Goldman has built over decades, Marcus by Goldman Sachs is its own brand, which is as much to avoid alienating long time Goldman clients as it is to give confidence to Marcus customers. Marcus was built inside Goldman Sachs from scratch; no branches, no outdated technology systems, no baggage.

Marcus was co-created with thousands of consumers that helped designers to find out how they can best tackle the problem of getting out of debt. Marcus loans come without fees and lower rates than those of many credit cards, making it well positioned to compete with consumer banking products and online lending startups like Prosper.

Keeping the brand separate, as much as possible, from Goldman is necessary, in some ways, considering the bank’s history. From 2005 to 2007, Goldman issued and underwrote mortgages and securities backed by residential loans that were borrowed by consumers with poor credit. This led to the housing bubble burst and economic recession. Last year Goldman paid out $5.1 billion for its role in the financial crisis.

A key point the Marcus team found through research sessions was that when dealing with their finances — and particularly sensitive subjects like debt — they want to work with “a trusted, secure, extremely well-established brand,” Sbarra said.

“Marcus is a brand new brand, but Goldman Sachs has been around for a long time,” Sbarra said. “People like to think about banking with Goldman Sachs, but we think of ourselves as a startup within Goldman.”

Money is one of the most personal and sensitive topics for people, even people with lots of it, which is why empathy plays such an important role in building a financial product. The average American carries some $16,000 in credit card debt and about 70 percent of them don’t know there are alternative options to that credit card debt, said Michael Cerda, head of product.

“The team spoke with some 10,000 customers and learned about this stigma, learned about how to consult about it, learned about how anxious people got about it,” Cerda said. “It’s everything from that emotional level to the detailed level of all these fees, all these rates, the jargon and the terminology. What the team did was really take a great swing at making it very simple to understand.”

For example, they learned that “origination fees” are widely misunderstood among the general population, so Marcus calls it a “sign-up fee” on the site — as in, “No sign-up fees. Since that’s not a very warm welcome.” Consumers said other players in the space put credit scores and APRs front and center, so Marcus asks how much users want to borrow and how much they can afford to pay on a monthly basis.

“People don’t think about when they want to be out of debt by, they think about what they can afford to pay every month,” Sbarra said.

Inside Bond Street’s content marketing strategy

High interest rates and a downmarket reputation don’t usually make for good marketing. But online lender Bond Street is trying to turn that messaging around with a content marketing strategy that focuses more on user experience than the nitty gritty.

“That’s really helped us organically build a reputation within certain industry categories and geographies,” said Michael Jones, director of community development at Bond Street. “We’ve concentrated our efforts towards initiatives in which we can serve as both an advocate and resources to small businesses.”

Jones said the company is “passionate about building a brand,” which it does by creating editorial content. It has a blog that profiles business owners Bond Street serves across the country, like the guys behind the Two Hands cafes and restaurants or the women that launched Sky Ting Yoga in New York City; and an online magazine that looks at the cultural and economic impact of independent businesses in New York (celebrity restaurateur Daniel Boulud and artist Baron von Fancy are among many interviews that address the importance of supporting local businesses). It also has a podcast called the Nitty Gritty that features the entrepreneurs behind brands like Sweetgreen, charity:water, McNally Jackson and Smitten Ice Cream; and a series of city-specific resources for female entrepreneurs.

Jones declined to share Bond Street’s annual content marketing budget, but said the company has two dedicated employees working on content marketing, out of about 40 total employees.

Many small business lenders strive to build a community by creating products and services to help people beyond just a transaction, said Ian Benton, an analyst in Javelin Strategy’s small business practice. And it’s not just the nonbank lenders. Banks are just as focused on the customer relationship, which was once built and developed in person around a transaction. Technology has widened the gap between the borrower and the lender so much so that the lending industry is almost entirely commoditized and shopping for lenders is easy.

“Customers don’t need to have the previous relationship, so banks and fintech providers are looking for reasons to strengthen those customer relationships,” he said.

Marketing has become expensive for online lenders because of the high cost of customer acquisition. Partnerships are an easy way to bring that cost down, Benton said. To date, Bond Street has partnered with WeWork to offer loans to member companies of the co-working space company; SMB-focused software companies like Booker and Front Desk to offer their clients discounted loans; and most recently, with NerdWallet, the comparison shopping site for credit cards and other financial services, to help provide small business owners with financing options.

“The opportunity for lending is not just to take advantage of the gap in capital available to small businesses, but rather to become their financial partner, and improve an antiquated process that is more than ripe for change,” Jones said.

Bond Street is just one example of online lenders and other financial startups that market heavily around the idea of speed, ease and the idea that it can get small businesses the money they need and get it to them fast. Transparency has become a significant theme for them too, one that has helped them move away from “risky” borrowers.

Last week the Federal Reserve Bank of New York issued a report that found small businesses taking out loans with online lenders showed higher levels of dissatisfaction than those borrowing from traditional banking institutions. Most borrowers cited lack of transparency as a major cause of their dissatisfaction, but borrowers of online lenders also cited higher interest rates and unfavorable repayment terms.

Online lenders’ APRs can get as high as a 44 percent compared to what a bank might charge – which looks more like seven percent, typically – and can get into the triple digits when businesses decide to renew their loans, according to Evan Singer, CEO of SmartBiz Loans, an online platform that connects small businesses with banks for Small Business Administration loans. This is often what causes confusion about transparency. At Bond Street annual interest rates start at six percent, though most customers will see rates between eight percent and 16 percent. Jones said the company always communicates its APR and interest rates to customers and that there’s no prepayment penalty with its product.

“In the broker ecosystem, there’s this large network of ISOs that charge incredibly high rates, and also aren’t totally transparent about what they’re offering to their customers,” Jones said. “We made the decision early on that we didn’t want to work with people who would compromise the customer experience.”

Transparency remains a sticking point for online lenders

Transparency is the big sticking point when it comes to why small businesses still prefer banks to online lenders.

A small business credit survey by the Federal Reserve Bank of New York found 46 percent customer satisfaction at online lenders like Lending Club and OnDeck Capital with a 19 percent rate of dissatisfied customers – compared with large banks’ 61 percent of customers who indicated they were satisfied with their small business loan process and 15 percent of whom expressed dissatisfaction. Almost half of all customers specified that their dissatisfaction came from a “lack of transparency.”

Rohit Arora, CEO of Biz2Credit, an online small business platform that matches entrepreneurs with credit solutions, said online lending solutions can be a little misleading. They’re good solutions for customers whose expectations have been raised by expediency of the digitized commerce sector, but the reality is that banks’ core functions are still in the dark ages, he said.

“Large banks and small banks still haven’t gone online,” Arora said. “You can’t go and get $200,000 from your bank – that can take you four to six weeks. In other sectors, convenience and price go in tandem, in financial services, convenience comes at a cost. That’s when the higher dissatisfaction level comes into the picture.”

Jeremy Ruch, Bond Street head of business advisory, said that transparency around pricing and profits is generally the sticking point. Customers of other alternative lending products aren’t perfectly clear on what the requirements of their loan products are, how they qualify or why they don’t or what exactly they’re paying for, he said, although he maintained that Bond Street receives mostly positive feedback about the transparency of its loan process.

“Transparency is obviously incredibly important to us,” he said. “It’s for that reason that we make a point of actually highlighting the interest rate to our customers before they sign up. It’s about being completely open about all elements of our process and clear about what they’re signing up for before they do it.”

Online lending customers are also dissatisfied with higher interest rates and unfavorable repayment terms, two common issues for the growing industry, which continues to have a higher cost of capital and for customer acquisitions.

Those issues are also what’s driving bank-fintech partnerships like the agreement between On Deck Capital and JPMorgan Chase, which is trying to grow its small business loans aggressively. Plus, online lenders target riskier businesses that probably couldn’t get credit from a bank.

Arora said a big challenge for online lenders is simply that they haven’t spent the time or money to build comparison-type dashboards that would help customers understand exactly what they’re getting.

“A lot of online lenders are failing. They’re catering to a larger proportion of customers now compared to banks – not in terms of dollar value but in terms of units. And customers need more education, you have to explain to them why you’re charging a higher rate.”

How one startup aims to help ‘credit invisible’ foreign workers in the U.S.

For millions of immigrants and temporary foreign residents in the U.S., establishing a financial identity here can be complicated and expensive. Since credit reports don’t cross borders, an immigrant with an exceptional credit score in his home country may arrive in the U.S. as ‘credit invisible’ — a status that may render him ineligible for loans or long-term housing.

“From getting a credit card, an auto loan, or getting a mortgage, all those use cases require a financial identity,“ said Misha Esipov, CEO of Nova Credit, a startup that’s developed a product called “Nova Credit Passport,” an alternative credit report that’s based on credit bureau data from other countries. The product launched last summer.

Nova Credit is an alternative score to assess foreign residents’ creditworthiness based on their home country credit data. It can also be used for Americans returning to the country after years working abroad. The company obtains the data through agreements with major foreign credit bureaus, a process that can only be initiated with the customer’s consent, Esipov said. Though Nova Credit is initially focusing on India and Mexico, it’s entered into arrangements with credit bureaus in Europe, Canada, Australia and the Philippines. Its revenue model is based on fees to lenders who request the reports.

“We can enable lenders and landlords to instantly pull consumer credit files from Mexico and India as easily as they pull a traditional U.S. credit file,” he said. Nova Credit’s system works through API integration with foreign credit bureaus. Its model uses machine learning to spit out a score that’s comparable to U.S. credit scores, noted Esipov.

While not commenting specifically about Nova Credit’s tool, David Shellenberger, FICO’s senior director for scoring and analytics noted that FICO’s own efforts to expand access to credit are centered around its alternative data-based FICO XD score in the U.S. and includes efforts to expand access to credit in other countries. TransUnion and Experian could not provide comments by deadline.

One analyst with experience working with two major U.S. credit bureaus said that a score based on foreign credit bureau data may not be reliable enough for U.S. lenders.

“The challenge is that is there enough information to generate a score that a U.S. lender would consider to be reliable enough to use when underwriting credit — that’s the dilemma,” said John Ulzheimer, a Fair Credit Reporting Act consultant who has previously worked with Equifax and FICO.

Even using data from the most sophisticated non-U.S. credit reporting systems may still not generate comparable scores, said Ulzheimer.

“Even Canada is different — there are considerably more lenders in the U.S. than there are in Canada, and we market credit much more aggressively than Canadian banks,” said Ulzheimer. “If you look at the prototypical Canadian credit report vs. the prototypical American credit report, the American one is going to have more information than a Canadian one would have.”

He added that some emerging markets have limited credit reporting infrastructure that may not generate a comprehensive enough picture upon which U.S. lenders can rely. U.S. credit reports are based entirely on financial services data, while foreign reports may include utilities and housing information, he added.

Despite these challenges, Esipov said the uptake from U.S. lenders has been positive so far, adding that Nova Credit has been working with U.S. banks, credit card issuers, and property management companies.

“For them, this is an opportunity to solve a problem that a lot of their customers have been looking for a solution for for decades,” he said. “It’s ridiculous that even for our friendly neighbors to the north and south, we can’t help citizens from those countries or even Americans coming from those countries land on their feet — we’ve finally created a global system that allows that to happen.”

Credit bureaus assess ‘unscoreables’ and offer others a second chance

For the millions of Americans who have bad credit or no credit, buying a car or home is still out of reach. Credit bureaus are now working to change that by using “alternative data” — a broader range of information than what’s usually considered in one’s credit report.

The proportion of Americans that can’t access credit is frighteningly large. A Federal Reserve survey last year found that 40 percent of those who desired credit had a “real or perceived difficulty accessing it,” while the Consumer Finance Protection Bureau estimates that about 45 million Americans are either “credit invisible” or “unscoreable”.

Until recently, offering access to low-score or no-score individuals was the domain of startups. For instance, Elevate Credit offers small-value loans (between $500 and $3000) to borrowers who may have trouble accessing credit through banks.

Elevate bases lending decisions on information outside of the traditional scoring models. It considers the applicant’s bank transaction history and other areas not usually considered by the major credit bureaus, including utilities. These types of borrowers are often middle-income earners who need an additional reserve of money to cover the “speed bumps,” said Jonathan Walker, executive director of Elevate’s in-house think tank, the Center for the New Middle Class.

“If you just go with FICO it’s not predictive enough,” he said.

Major credit bureaus, including FICO and TransUnion, are now working to incorporate new types of data into their scoring models. It’s a feature lenders have asked for, said David Shellenberger, FICO’s senior director for scoring and analytics.

Traditional credit scores consider the number of credit accounts, how long the individual has had those accounts, and payment history, but they often leave out other clues to an individual’s financial life, including how often they pay their phone bill or the cash flow in their checking account.

Credit bureaus have developed alternate scores that can be assessed alongside or in place of the traditional score. FICO’s XD Score uses utility and property payments data, and TransUnion’s CreditVision Link score also incorporates non-traditional data, including smaller loans not included in credit files such as rent-to-own furniture and magazine subscription clubs. TransUnion says the alternate score can move over 23 million Americans from non-prime to prime status and according to FICO, over half of previously unscorable borrowers can be assessed through its XD score.

“You get a much deeper view of the consumer and their willingness to engage in responsible bill paying activity,” he said Mike Mondelli, TransUnion’s svp of alternative data.

Elevate shares this view, noting that a holistic view of the consumer is key.

“When we talk about the underserved, everybody thinks it’s the bottom third of the income ladder, but it’s actually the top of the bottom third to the bottom of the top third,” said Stephen Shaper, a board member at Elevate. “They’re mid-America — they’re nurses, teachers, firemen. It’s the heart of America that makes America run.”

Hi 5! The top five fintech stories we’re following today

top 5 weekly fintech stories

Can fintech drive new auto lending?

Startups smell money as the auto industry has bounced back post-2007 (there is an estimated $1 trillion in auto loans outstanding in the U.S.) New partnerships, like the kind Ford struck with AutoFi this past week, are being inked between auto lenders and fintechs. There are still plenty of opportunities to improve the buying, lending, and payment experience in the car market.

 

Forget fintechs. Focus on GAAF

It’s becoming a more common theme. The financial industry is waking up to the fact that today’s tech giants, Google, Apple, Amazon, and Facebook, are interested in securing their piece of the financial industry pie. A recent Accenture survey polled investors found that a lot of people were definitely open to receiving investment advice from their favorite tech firms.

Whoever wins the race for the future of fintech, it’s about humans. And has the potential to be massively more inclusive than our system today. And may be located in…Florida?

State of the business: Online lending

online loan growth for SMBs

There are a lot of new options for businesses to go online to access working capital. Even so, very few businesses are turning to these alternative sources and that means they’re struggling with cashflow. That may begin to change as more alternative lenders and banks collaborate.

Financial media generates growth

Technology hasn’t been kind to the media industry. Financial media also suffers from the same trends impacting the industry as a whole: decreasing engagement, struggling ad sales, and noisy alternatives. But Bloomberg has found a way to restart traffic to its homepage.

As media firms have become leaner, that’s meant there are fewer people on staff to work on new products. The FT created a new special projects editor to help bring good ideas to life. Early results look promising.

The year of the 1099er

As the gig economy includes more people taking on project-based work, a growing number of Americans file 1099 forms when they do their taxes. The online tax software industry is all over this trend, launching new products to service DIYers. Many of these services have free versions, like Credit Karma’s new offering. Credit Karma will make money, just like it does with the 60 million users of its free credit scoring service, by making referral offers for credit cards and loans.

Financial firms are trying to connect our financial dots. That’s why the JPM-Intuit partnership is a big step for data sharing.

The state of online SMB lending in 4 charts

online lending in 4 charts

Small and medium size business may still be the economic heart of the U.S. economy, but they’re in need of much-needed oxygenated cash. It’s hard to be an SMB and in the wake of the 2007 economic crisis, small businesses are finding it harder than ever to borrow money. Smaller banks were always more likely to lend to small businesses, but they’re getting gobbled up by the larger players. Online players are making a dent, albeit a small one.

No rose-colored glasses for SMBs

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It’s no wonder that SMBs aren’t optimistic about their futures. The median SMB holds 27 buffer days of cash in reserve, according to the JPMorgan Chase and Co. Institute. And when they look to access small working capital loans to improve their cash flows, they aren’t finding a lot of lenders willing to work with them.

Can you help a brother out?

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It’s not like the average SMB has a major appetite for cash, either. 76 percent of loans that SMBs apply for are less than $250,000 and amost half of them are under $50,000, according to a paper co-written by authors at the Harvard Business School and business loan marketplace, Fundera. While there are more choices for businesses looking for cash, traditional lending hasn’t closed the gap in small business lending.

More opportunities to borrow online, but there’s a catch

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While traditional lending hasn’t stepped up to fill this small business lending gap, alternatives have sprouted up. As more SMBs turn to online lenders, they’re not always coming back happy. That’s mostly due to the high costs of some of these early loans. “Replicating the value of the lending relationship in creating a good customer/ product fit between the borrower and the loan they take out is currently a critical challenge for the new online entrants,”  HBS and Fundera wrote in The State of Small Business Lending: Innovation and Technology and the Implications.

Online and alternative lending is growing

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The demand from SMBs is still strong and they’re increasingly going online to access capital. Approximately one-in-six small businesses considering a loan will apply to an online lender this year. But because there’s a lack of data collection on overall loan originations in the U.S., it’s tough to accurately size the effect of new entrants in the SMB lending space.

The HBS/Fundera research estimated that annual online lending originations in 2015 were around $5 billion, growing 120-150 percent year over year. As 2016 numbers begin to trickle in, it will be interested to see how balance sheet lenders, like OnDeck and CAN Capital, grew relative to marketplace lenders, like Lending Club and Prosper, which had their own struggles during the year.