Creators need more than views—they need better financial tools

Banks have generally steered clear of influencer marketing even as some fintechs like Current and Chime have used it to connect more widely to their audiences. And this reluctance to use creators in their marketing is also emblematic of how little traditional FIs understand about this sector. This lack of understanding also seeps into capturing the creator economy as customers  and results in financial products that focus on making creators’ lives easier, being few and far in between. It’s a missed opportunity to connect to a customer base that is grossly underserved, growing rapidly – especially due to the low barrier to entry–, and strongly financially motivated. 78% of people report that being a creator helps them establish financial stability, according to research. And there are loads of issues that a so-inclined FI could potentially solve. Like any other SMB, creators need tools that help run their businesses, as well as ease the process of getting paid. While most big banks now have a healthy suite of products directed at SMBs, the nuances of the creator economy like unpredictability of payment and diversified income streams, warrant a dedicated strategy.

Source: Mastercard

Why FIs have been reticent

It won’t be wrong to say that what makes creators different from normal SMBs is also what makes them harder to build products for.

Influencers don’t fit existing molds: “Traditional banks are not engaged in building products for creators due to the instability of creators’ income streams. Banking business models are generally built around servicing “stable” customers, such as salaried employees or established businesses. They may view creators as higher-risk clients because it is difficult to apply traditional financial models like credit scoring, lending, and financial planning to them,” said Tachat Igityan, CFO and Founder of destream, a financial platform for content creators.

Tachat Igityan, CFO and founder,  destream

They have varying needs: Veteran Youtuber Hank Green, author and founder of Subbable, a crowd sourcing platform that was sold to Patreon, has expressed how hard it is to build products for this segment, having considered to build one himself during the years when VC funding was at its highest:

“Creators are so diverse in their needs that, to create a product that is scalable — and that doesn’t cost a ton of money trying to individualize itself for each individual creator — you end up creating a bad product,” said Green. Powerful platforms: Apart from the diversity inherent to this segment, building products for influencers is made more complicated by the power social media platforms hold in the lives of content creators. Even for Youtubers as skilled, famous, and experienced as Green, the exact amount of money they make on a particular platform can sometimes be unclear. “It’d be nice if I knew how much money I made. I have no idea, it hasn’t updated since January. It’s broken. It thinks I’m British. It’s paying me in pounds,” he said earlier this year.

Hank Green, Youtuber, Founder of Subbable

Why creators need FIs to act

Given that financial motivations are a top driver for most people to enter the creator economy, the lack of financial products keeps them from enjoying the fruits of their labor. Payments are at the heart of it all.

“Creators face financial challenges due to the irregularity of their income streams. Unlike traditional employees with salaries, creators have unstable earnings based on project timelines, client payments, or content success. Their income is formed from multiple sources, which makes managing payments more difficult. Also, international audiences and clients mean creators frequently deal with cross-border payments, which complicates their financial management even more,” said Igityan.

Although platforms optimize their experiences to ensure that creators have all they need to craft and post quality content, the same cannot be said for payment processes. “They typically connect to PayPal and leave it there,” he said.

“From our experience with PayPal, we’ve encountered issues like high transaction fees and their policy allowing refunds up to a certain number of days after a transaction, often without any explanation. This can be especially problematic for creators who may not have experience managing chargebacks or dealing with potential fraud.”

How to build financial products for creators

i) Business management tools: Creators too need tools that help with making running their business on a day-to-day basis easier. These tools include things like invoicing, payroll, and cash flow management.

ii) Make getting paid easier: Approaching the creator economy with a payments-first mindset might be the key to solving a big chunk of creators’ issues. A few years ago, ad revenue was the primary source of income for Youtubers but now the platform has diversified and creators can also earn from patronage and loyalty of their viewers through things like superchats and super stickers. “These new methods have increased the number of income streams and made them more consistent, but they have also introduced new challenges in managing multiple platforms and payment systems. Creators still face challenges related to high transaction fees, fluctuating income, and difficulties in accessing banking services, especially for international transactions or taxes,” said Igityan.

Building products that can help make the management of these different types of payments easier and help improve access to liquidity may significantly contribute to how a creator approaches her business and strategizes about its scale.

iii) Know your creators: A large portion of creators are Gen Z, which means that FIs looking to enter the sector need to build a voice that connects with their values and addresses their concerns. “To connect with them [Gen Z]  effectively, fintech companies can also focus on providing educational content, such as budgeting tips, investment strategies, and credit score insights. This will help them position themselves not only as service platforms but also as trusted advisors,” he said. iv) Collaborate: Creators have found it hard to band together and advocate for their interests. For example, Green’s Creators Guild shut down after three years due to lack of funding. While creators may find it hard to collaborate and build movements that make social media platforms ensure their interests are guarded, FIs have enough power to do something about this. Their efforts don’t have to look like Green’s but they can bring platforms and creators to the same table and ensure that the technology doesn’t just make it easy for consumers to pay for content but also makes it easy for creators to gain access to this money.

‘To better serve content creators, banks could join these fintechs to integrate these offerings into their services. Moreover, creator platforms like YouTube, TikTok, and Instagram can collaborate with financial companies to offer integrated financial services, such as direct payouts, expense management, or tax optimization tools,” said Igityan.

Sidebar: Like creators, gig workers and Gen Z also suffer from inattention

Sidebar is a member-exclusive section, where we discuss stories that are tangential to the main story above. In this sidebar we discuss how far FIs have come when it comes to building products for other non-traditional types of customers like gig workers and Gen Z, and inform this discussion with Tearsheet’s proprietary research. If you want to keep reading, please consider becoming a TS Pro subscriber by clicking below. subscription wall for TS Pro

 

Funding Circle’s Sam Hodges explains how tech gives SMBs access to much-needed cash

sam hodges and funding circle

Funding Circle is a leader in a pack of new financial companies bringing increased scale and online convenience to the world of SMB lending. While traditional banks have shied away from expanding their credit operations, companies like Funding Circle have filled in the gaps, working closely with SMB borrowers to provide them needed credit, quickly and efficiently. Funding Circle has shown its intention to grow globally.

Tradestreaming sat down with Sam Hodges, co-founder of Funding Circle, USA, to get caught up on the company’s progress in light of a recent acquisition it made in Germany.

Why did you found Funding Circle?

Over the past few decades, banks have largely pulled out of small business lending due to tighter regulations and archaic credit models and technology that make it difficult for them to profitably underwrite small business loans. This has left millions of small business owners without access to the financing they need to grow – something I actually I experienced first-hand.

Sam Hedges, co-founder Funding Circle USA
Sam Hodges, Funding Circle USA

Along with a few business partners, I owned a successful network of fitness businesses – but getting access to capital was a horrible experience. We had a great financial profile, strong personal guarantors, extensive experience and a profitable business. Yet, we could not secure a loan to purchase new equipment to expand. We talked to almost one hundred different lenders and were either turned down or offered terms that simply didn’t make sense. The irony was, when my co-founder and I were working on Wall Street, we saw bankers lining up around the corner to give out $100 million loans for higher-risk businesses. That’s when we realized the traditional banking system was broken, and we set out to build a better solution.

Why is Funding Circle better than current solutions? How do you think your firm differentiates itself from the numerous competitors popping up?

The traditional banking system is broken and restricted by legacy issues, and many online lenders are either expensive or incredibly transactional, relying solely on computers to make credit decisions. At Funding Circle, we think small businesses deserve better.

We are the world’s leading global marketplace for small business loans and have been built from the ground up to help small businesses secure the funding they need to grow. Using technology to cut out the middlemen who take advantage of information asymmetry, we connect supply directly with demand for a fraction of the cost.

Unlike other lenders, we take a customer-first approach to create an experience that is fast, simple and very transparent. We also believe businesses are more than their credit score, which is why we layer human underwriters with our innovative technology and proprietary data analytics to look at the full picture and better assess the creditworthiness of a loan. It takes just 10 minutes to apply for a loan, and businesses can get affording financing in less than 10 days.

Can you give us a feel for the progress you’ve made in the business over the past couple of years (quantify it)?

Our business, along with the marketplace lending industry, has experienced tremendous growth over the past couple of years. Since 2010, we’ve helped more than 12,000 small businesses across the world access $1.6 billion in financing to help them grow, hire more people and ultimately stimulate the economy. Globally, we’re currently originating ~$100 million per month, and have 43,000 individual and institutional investors active on the marketplace.

One thing I’m particularly excited about is a groundbreaking deal we announced a few weeks ago to help millions of businesses across Europe sidestep the outdated banking system and borrower directly from investors, too. Last month, we joined forces with Zencap (now operating as Funding Circle) – continental Europe’s leading marketplace for business loans – to create the first truly global marketplace lending platform. We now operate in Germany, Spain and the Netherlands, alongside our existing operations in the UK and US. The market opportunity across continental Europe is larger than both the UK and US markets combined, with more than €1 trillion of outstanding loans for small businesses.

On the partnerships side, last year in the UK we became the first marketplace to announce a formal referral partnership with Santander and have since announced a similar partnership with RBS. In the US, we’re in active talks with a wide range of banks and other lenders about how we can work together and are looking forward to announcing something soon.

Since launch, we have raised $273m in equity capital from the same investors that backed Facebook, Twitter, Airbnb and Wealthfront. And as of today, Funding Circle now has nearly 500 employees across the UK, the US and Continental Europe.

You just acquired Zencap which provides a foothold for further access into Europe. How do you think about international expansion?

Our vision for Funding Circle is as a global lending exchange, where business from all over the world come to find finance from an army of investors, big and small. Small businesses are underserved in most of parts of the world, and we believe our marketplace model can help millions of businesses and investors to get a better deal. At the moment, we are focusing all of our energy on building a successful business here in the UK, USA and Europe.

Who’s a typical borrower for Funding Cirlce? How about a typical investor?

Walk down Main Street in any American town, and you’ll see examples of our borrowers. They are restaurateurs, gas stations, medical clinics, construction firms and IT consultants. These are established businesses that have assets and cash flow to secure loans, and a legitimate plan for growth. More specifically, our borrowers have typically been in business for around ten years, have annual revenue of $2 million and employ about 10 people. On average, small businesses borrow $130,000 for 36 months and use their loan for expansion and growth.

On the investor side, we’ve seen really strong appetite for our loans from a wide range of investors of all shapes and sizes. In the US, our investors range from individual accredited investors and family offices to large global asset managers like Victory Park Capital and KLS.  Looking forward, we’ll continue to see an evolution and diversification in our investor base as we look to continue to bring down our cost of capital to offer even better rates and products for our borrowers.

What are Funding Circle’s challenges in the near future? What are the industry’s challenges?

Education and awareness remains a key focus for our industry. The most powerful marketplaces bring together the largest number and diversity of participants across a breadth of products and geographies. Our goal is to be the leading global marketplace for the full gamut of small business loan products worldwide. As a company and an industry, though, we still have a way to go in terms of raising awareness that there are other forms of financing out there that are fast, affordable and transparent alternatives to bank loans and MCAs.

We took a big step in this direction when, this summer in Washington DC, we partnered with other industry leaders to unveiled the first-ever gold standard for responsible business lending in America. As part of the initiative, we launched a national campaign to help educate small business owners about their rights as a borrower and how to find and compare different financing options.

Over the next few years at Funding Circle, we will continue to spread the word about the benefits marketplace lending and invest heavily in technology and talent to help us continue to build a transparent, sustainable and diverse marketplace.

With acquisition of Zencap, Funding Circle expands into Europe

Zencap acquired by Funding Circle

Funding Circle will be expanding ints online lending platform into Europe with its acquisition of Zencap, a German lender with a foothold in Germany, Spain and the Netherlands.

Speigel Online, who broke the story, says just 520 loans have been made over the Zencap platform, worth €35 million (£25.6 million, $39.6 million). Zencap had been identified as the fastest growing online lender in Europe and had received international attention when Victory Park Capital, a lender to online lenders, announced that it would open a €230 million lending facility to access loans on the Zencap platform.

Funding Circle, based in the UK, has demonstrated a willingness to internationalize its peer to peer small business lending platform. It first entered the US market via an acquisition of Endurance Lending in October 2013. Now, with Zencap as part of its international portfolio, Funding Circle is turning its attention to European expansion.

According to Business Insider, Funding Circle intends to do more acquisitions like Zencap to ramp its growth;

It’s been a lot better than we expected to be honest,” Desai tells Business Insider of the US expansion. If you look at it 2 years ago, when Funding Circle came together with Endurance, the old Endurance business was probably doing about $300,000 (£196,200) a month in new lending. If you look at it now, we’re doing around $30 million (£19.6 million) a month in the US. It’s 100 times as big in 2 years. And that’s 30% of our business now, the US.                                                   –Funding Circle CEO, Samir Desai

Funding Circle’s own most recent financing round closed in April 2015, raising $150M as part of a Series E round, in which BlackRock, DST, and Temasek participated. Funding Circle has raised nearly $300M in total and is reportedly valued at over $1 billion, a large startup for the UK fintech ecosystem.

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