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One of the world's largest financial institutions, Citi is determined to keep pace with rapid changes in international commerce. As detailed in the April 2017 issue of PYMNTS.com's B2B API Tracker Citi believes APIs – Application Programing Interfaces – are the key to getting international businesses the financial information they need to prosper. "We realized [our] clients were getting into newer business models which require faster access to payments [and] faster access to information," Mayank Mishra, managing director and global head of channel services for Citi treasury and trade solutions, told B2B API Tracker. "We had to go with a standard that was well-accepted by clients so they wouldn’t have to go through massive infrastructure changes." He noted the company's heavy investments in APIs will give its customers "the flexibility they're looking for to access the relevant information they want." Like Citi, Experian is eager to serve clients in a nimble, open fashion. To address this need Experian has created an API Developer Hub. Found at developer.experian.com, the Experian API Developer Hub is poised to expose the company's deep and detailed data on businesses and consumers, in addition to Experian’s automotive, health, and decisioning services in both the US and across the globe to the developer community. The API Bonanza Although they have been around for years, APIs have recently garnered lots of attention from companies of all types and sizes. "APIs are a technology exposed over the web that allow applications (software programs) to talk to one another," explained Mike Myers, Experian's Senior Director of Product Marketing. "APIs provide software developers with instructions on how to easily access and integrate data that can help fast track new ideas, partnerships, and innovation." Myers leads a team that creates business information APIs for the API Developer Hub, giving developers easy access to Experian's business information to use as they see fit. Laid out simply and intuitively, the Developer Hub serves as an easy-to-use "window" through which users can see: The depth and breadth of information Experian can provide to them How to acquire this information in a form most useful to their company How this information can be easily requested and consumed Serving Both Established Core Customers and Aggressive Start-Ups Myers explained that there are two principal markets for the new API Developer Hub: Mike Myers Experian AgileWorks "The first is our core customers, mainly financial institutions, insurance companies, trade credit, credit managers – basically the user who needs to integrate Experian data to determine their customers’ status, needs to reduce friction and minimize risk when making credit decisions as well as satisfy compliance regulations. This use case has been our bread and butter for decades," Myers said. "They need to manage risk. They must ensure their operations are in compliance. And, perhaps most importantly, when issuing credit, the likelihood that they’re going to get paid. That’s really the bottom line and is a key issue our API developer portal is designed to address." The second use case is designed for the developer community. “Developers are working for companies of all types and sizes that have yet to experience the power Experian’s data assets can deliver. They may share similar needs to our core users, but they most likely also have completely different market problems which Experian data can help solve. Maybe it’s a subset of our data applied to a new use case or maybe it’s combining our data with other data in new and innovative ways.” Experian designed the API Developer Hub to be as user-friendly as possible. New accounts can be setup in minutes. "It's taken a historically offline process and converted it to real-time” Myers said. Developers can explore a host of options, including access to APIs for Business Search, Business Credit, Commercial Public Records and Business Compliance Insight. We don't know what new apps or offerings will appear because of this new venture, but with the amount of energy, imagination and innovation driving today's tech world, we suspect that through APIs, developers will enhance the power of companies -- and consumers -- in ways we can't yet even imagine. We are proud -- and thrilled -- to be contributing to this ongoing revolution. Experian Developer Hub

On May 9th we hosted an episode of Business Chat | Live on our YouTube channel and enjoyed an enlightening discussion with Gavin Harding, Senior Business Consultant with Experian Business Information Services. In our chat, Gavin shared highlights from his marketplace lending panel "Bridging The Gap: Reconnecting Investors with Marketplace Lenders in a Volatile World."   Gary: We'll get started here. Welcome everybody. My name is Gary Stockton and I'm with Experian Business Information Services and we're gonna do a Business Chat Live today focusing on marketplace lending. I'm happy to be joined by Gavin Harding, and he's a senior business consultant with our business information services team on the global consulting side of the business. And Gavin is out at the Experian Vision Conference, so good morning, Gavin, or good afternoon, I should say. Gavin: Well, it's a little of both. It's morning for you and afternoon form me. Hi, Gary. Gary: So you had hosted a panel discussion yesterday called Bridging the Gap: Reconnecting Marketplace Investors with Marketplace Lenders in a Volatile World. Who was on the panel with you? Gavin: Well we had a really good industry cross section. We had Nat Hoopes who is the executive director of the Marketplace Lending Association. We had Frank Rotman who is the founding partner of QED Investors. And we had Peter Renton, who is the co-founder of LendIt, probably the biggest online marketplace lending conference worldwide. Gary: Peter Renton, he has worked on the LendIt Conference, but also Lend Academy, right? That's a resource for marketplace lending. I listen to his podcast. Gavin: That's right. Gary: We've spoken to Pete a number of times, so he's quite the expert in that field. There's been, in terms of marketplace lending and the news, there has been some negative news around the industry in recent past. Is that something that came up? Gavin: Indeed it did. Over the last 12 to 18 months, there has been a spate of negative publicity. The industry in general, the media has in a way turned on the industry on the basis of a couple of events related to specific companies in the space. The good news is that while that negative publicity had a negative impact last year, it seems that the industry has rebounded. It seems that it was a watershed moment where the industry recommitted to transparency, where they enhanced their whole approach to risk, improved their approach to operations. So if we characterize last year as perhaps a low point, the general theme of the panel was that the industry's really poised for growth, has grown up a lot over the last year. And you know, we talked a lot about credibility and trust and so on, and Nat, from the Marketplace Lending Association, you know, obviously that group started about a year ago and it has now grown to 19 members, so pretty rapid growth. When we think about the 19 members, we estimated that that covers about 90-95% of the total volume of loans and credit facilities in the space. So Nat and his team worked hard on transparency, disclosure, harmonizing standards and so forth, so it was really good to have him on the panel. Gary: And Experian, are we a member of the MLA? Gavin: We are a proud associate member, yes we are. Gary: Excellent. So let's talk a little bit about bank partnerships and what are the kinds of things you were talking about related to bank partnerships? I'm sure that was a big part of the discussion. Gavin: It was. About 24, 36 months ago is when this topic became pretty hot. Lots of conversation between banks and players in the industry. Those conversations in some very high profile ways result in partnerships. We think about Chase, we think about OnDeck. As the year has progressed, what's started to happen is, the mood within the industry has changed. Banks now expect partners in this space to speak their language in terms of risk, to be fully compliant, to understand all the rules and regulations. So the short statement is that in the last year, within the online lending space, compliance has become a competitive advantage. Compliance and operational discipline has become a selling point. So again, that's part of the ongoing theme of the industry and the sector growing up and maturing, so really positive. The one comment that I believe Frank had was as we think about partnerships with the banks, be prepared to hear no a lot before you get to yes. Be prepared to translate between the two very distinct audiences. So in terms of working with banks, use their language, understand the regulations, understand what pressures and demands are on them, and the outcome of that will be a much higher success rate and much more positive, productive conversations. Gary: Excellent. How about the sector performance overall? Is it a growing sector? The banks, I would imagine they've expressed a lot of interest in that. Are we seeing growth in that sector? Gavin: Interesting question. We talked about some of the negative publicity last year. Some of that related to some practices in parts of the industry over the last two to three years, so what's happening now is, because of a refocus and redirection towards credit risk management putting out more and better loans for appropriate returns and so forth, we're seeing the whole industry performance has really been elevated. A lot of the perhaps substandard loans or facilities have now run off, run off meaning they've matured and have been paid off. And the new business that's been put on is more sustainable. It's a more disciplined approach. So yes, overall the sector has improved significantly in terms of performance over the last year. Gary: Excellent. And so, obviously you're meeting with plenty of Experian clients there at the conference. What is this, your third or fourth Vision? Gavin: This is my third and we are here with, I think it's a little over 500 of Experian's clients globally. Many of clients from Europe, Asia, and so on so it's a really great experience. Gary: Yeah, and I saw you had Steve Wozniak, co-founder of Apple Computer as one of your keynote speakers. Gavin: That's right, that's right. On Monday morning for our breakfast presentation, we had the Woz and the big news on that, Gary, is, I know this will probably startle any listeners, that apparently Steve Jobs was not always a very nice person. So that's a newsflash there. Gary: Brilliant guy, though. You can tell I'm a customer. Gavin: Fantastic. The innovation, the dynamism was just radiating from him. He talked about some of his rules of life and he said he was never interested in money, he was interested in thinking and creating things and making things work. Somebody said, "Steve, what motivated you when you were an employee at Hewlett Packard and how does that maybe translate into what we should be doing with employees?" And Steve Wozniak said the major attraction for him at Hewlett Packard was that they let him go into their stores, their inventory, and take whatever electronic parts and components he wanted to create his own products at night. So he would talk about going home, having dinner, and going back, going into the stores, grabbing the components, and then making the products. And some of the original pre-Apple I computers were made from Hewlett Packard parts in Steve Wozniak's - he said didn't actually have a garage. It was more of a basement, but in his house. So really an interesting presentation. A really dynamic guy. We were lucky to have him. Gary: And you also had, an economic presentation by Diane Swonk I think I saw. Gavin: Diane Swonk this morning, really interesting presentation. A little bit of a different perspective than what we often see in terms of the high-level economic factors like just raw unemployment versus full employment and so on. She dug a little bit deeper but beyond that she had a couple of key messages. One of the messages is that we are almost at, depending on definition, full employment. Wages have increased over the historical averages over the last couple of years. So while the broad improvement in the economy was visible, it's only now hitting our pocketbooks. It's only now coming through in consumer spending. So that was pretty positive. She has worked a lot with both the current and past administration in terms of economic advisors and committees and so on, done a lot of work in Washington, DC. She is very much taking a wait-and-see cautious approach in terms of what the administration is saying. She confirmed that the intent or the goal investing heavily in infrastructure should have a dramatic effect on the economy overall, so she was supportive of that. The one question she had, and actually what she said was that her son on the way to school in the morning on the back of a napkin should be able to work out what the plan is to spend and at the same time reduce taxes without the other side of the equation is, to be charitable, going to require further definition. Gary: Wow, sounds like quite a conference. I'm quite envious that I'm not there to enjoy it with you this time, but maybe next time. Gavin, I really appreciate you taking time out. I know that there's a lot of people that you should be meeting with there, so I'm gonna go ahead and maybe end it right there for now. Maybe we can schedule another business chat soon. I know something's coming up with Moody's Analytics and yourself in June and the next release of the Main Street Report for Q1, so I'm excited to maybe talk about that in further detail with you very soon. Gavin: I look forward to it. Thank you very much, Gary. Gary: All right. Thank you very much.   If you would like to be informed of new episodes of Business Chat | Live be sure to subscribe to our YouTube channel, and follow us on Twitter.    

Loan stacking is a small but serious problem for Online Marketplace Lenders (OMLs). Often invisible to the issuers of commercial capital, businesses that engage in this insidious practice are significantly more likely to become delinquent on their payments and even default entirely on their obligations. If you manage a company that issues commercial credit, you need to be diligent in weeding out these bad players to protect not only yourself but your industry as a whole. What is Loan Stacking? Simply put, loan stacking is the opening of multiple credit lines within a short period of time. (Sometimes as little as 24 or 48 hours.) Because there is a natural lag in credit reporting, the lenders involved usually are unaware that other companies are transacting with the same customer. On the personal credit side, loan stacking is a potential problem for borrowers who run their multiple credit lines near – or up to – their maximums and then find they can no longer meet all of their monthly obligations. However, it’s not uncommon for individuals to carry multiple credit cards, and most credit card companies already have reliable systems in place to ensure borrowers don’t get more credit than their incomes justify. Things are different on the commercial side. Today, a lot of short-term borrowing occurs online through Merchant Cash Advances (MCAs). Repayment takes the form of weekly or even daily debits against the businesses’ cash receipts pulled directly from the borrower's checking account. For example, a restaurant may take out a $10,000 cash advance, the lender then taking five percent of that restaurant’s daily receipts until the advance is repaid – with interest. MCAs  are not technically considered “loans,” and thus are not subject to the same regulations and oversight as traditional commercial lending.  Such advances usually cover a period of four to eight months. Some can go as long as 12 months, but rarely do they go longer. MCAs are most popular among retail stores and have helped many small businesses get funding when needed. However, problems arise when a business takes out several cash advances at the same time. Instead of paying, say, 5 percent of daily receipts to a single lender, the restaurant loses perhaps 20 percent to four lenders simultaneously. At this rate, the business becomes unsustainable and defaults. Not only is commercial loan stacking a risky practice, it can be legally problematic. Many MCA providers are now placing anti-stacking language in their contracts that require borrowers to pledge not to promise their receipts to any other companies. Stacking loans violates this provision and thus may be tantamount to fraud. How common is commercial loan stacking? Based on our research and analysis, we believe that between five and six percent of all merchant cash advances are stacked. In 2013, the MCA market accounted for about $3 billion in transactions. By December 2016, that number had probably doubled. That means that between $150 million and $360 million in commercial loans are stacked. Granted, that's a drop in the bucket for the $1.9 trillion commercial lending industry, but for a small company just getting in the business of making such credit advances, it could be a serious threat to their portfolio's health. Why loan stacking occurs Why do MCA lenders allow themselves to be pitted against each other in this fashion?  Blame the internet. The same internet that gives us the benefits of virtually instantaneous credit applications, reviews and approvals also makes it possible for businesses to easily make multiple applications within a 24- or 48-hour period. Many commercial credit reporting companies may provide updates as quick as 24 hours in some cases, a commercial MCA lender receiving a cash advance application may experience a slight delay in knowing if other lenders are working with the same customer. As for borrowers, most don't stack because they are not intending to commit fraud or otherwise game the system. They're doing so because, at the time, they believe they have no choice. Running a small business is difficult. Businesses often operate on thin margins and owners may, at times, struggle to make payroll. If there's a sudden setback or cash flow suddenly stalls, an owner may need a sizeable cash infusion just to keep the doors open. Being an optimistic lot, most owners who get multiple MCA loans do so in the belief they can quickly get over the hump, recover their losses, rapidly pay back what they owe and no one will be any the wiser. Sometimes, this strategy works. But too often, it does not. And that's when things get nasty. How to avoid loan stacking customers If you are an MCA lender and wish to avoid loan stacking customers, you have three tools at your disposal: Before making a cash advance, ask to see a full year of checking account activity. If you see a pattern of weekly or daily debits in a similar dollar range, this could be a sign that the business already has an MCA in place. If the business is relatively new, check their credit report for a high number of UCC (Uniform Commercial Code) filings. A large number of hard credit inquiries often indicates the owner is doing a lot of loan shopping, and this can indicate loan stacking. Sign up for Experian's custom short-term industry specific risk model consulting services. Signs of loan stacking, particularly in young companies with excessive UCC filings, can often be spotted using this service. For MCAs and all other forms of commercial lending to work, all parties have to play by the rules. Discouraging loan stacking not only benefits lenders, but also the borrowers who depend on the services these lenders provide.  

This year’s Marketplace Lending and Investing Conference explored issues of transparency, partnership, consistency and sustainability.  There was healthy debate on each of these topics and the audience, presenters and panelists frequently returned to the theme of the relationship between Marketplace Lenders, Fintech, Banks and Investors.  As the conference unfolded I thought about the role of small businesses in the relationship between these stakeholders.  How do mom and pop small businesses fit into these complex, rapidly evolving relationships? In mid-2015 The Federal Reserve of Cleveland published a report.  The title was “Alternative Lending Through The Eyes of ‘Mom & Pop’ Small-Business Owners: Findings from Online Focus Groups”.  The report found that the small business owners participating in the online focus groups had a number of common concerns: Marketplace Lenders’ sites are attractive … but how secure? How private is the information the small business provides? It is difficult to compare product offerings, features and pricing The small business owners bank is a source of advice but is not necessarily considered as an option for funding There are some clear parallels with the conference’s focus on transparency, partnership and sustainability.  See if any of these sound familiar: Regulators at the federal and state level are researching the Marketplace Lending industry and exploring ways and means of regulating the space. They are particularly focusing on issues of disclosure, fairness, privacy and governance.  The CFPB – Consumer Financial Protection Bureau has been particularly active.  There are two recent examples that illustrate increasing protection for small businesses. Dwolla was hit with a $100,000 fine in March of 2016, directly related to data security practices.  Then, in late September LendUp was fined $3.5 million for deceiving its customers.  The list of lenders who have strayed from fair and transparent business practices is long and growing.  Fortunately, regulatory supervision of the online marketplace is here to stay. Banks largely abandoned the small business segment post 2008. Lack of profitability is most often cited as the reason for the exodus.  Marketplace Lenders entered the space, delivered a wide range of product offerings, high levels of responsiveness and a relatively painless customer experience.   Now, eight years later, banks and Marketplace Lenders are partnering to make the most of their relative strengths – deep customer relationships and the capability to deliver exceptional customer choice and experience, through technology. Leaders in the various stakeholder organizations are still focused on surviving, meeting goals for growth, managing risk and optimizing returns.  In the past these may have conflicted with the small business owners interests.    In late 2016, they are in alignment … and that is good news for small business owners throughout the US economy. If you would like to hear more of what I learned at Marketplace Lending and Investing, check out the Live Marketplace Lending & Investing Q&A I recorded from the conference.          

Reporting business data to Experian is an important and essential part of the credit ecosystem. Data provides a more complete credit history and in turn helps small businesses grow. Small businesses that have limited tradelines can sometimes face difficulty qualifying for loans and getting access to capital, so lenders and commercial trade partners who report data to Experian are giving small businesses the credit they deserve. How to report data to Experian You can start the process of reporting data to Experian by following a simple 8-step process outlined in this video. Our data acquisition specialists are standing by to help onboard new business data contributors and can answer questions to make it a seamless onboarding experience. You can also find more information on our data reporting page experian.com/datareportingbusiness. We have also created a handy Infographic which describes how to contribute both consumer and small business data. Get Started Reporting to Experian

According to the U.S. Small Business Administration (SBA), small businesses account for 99.7 percent of U.S. employer firms and 64 percent of new private-sector jobs. So it stands to reason that the way small businesses go, the economy probably follows suit. One of the biggest challenges for small businesses, however, is the ability to access capital. In order for them to grow, they need money. Many of these smaller firms have limited to no credit history on file. For that reason, it is imperative for lenders and trade creditors to leverage comprehensive data sources (both financial and non-financial), enabling them to make smarter business decisions and help small businesses access credit. It is Experian’s core belief that an open and secure data sharing program is crucial to helping small businesses get the credit they deserve, and it's Small Business Credit Share® program is at the center of this ideal. Small Business Credit Share℠ is a Credit Data Sharing "Club" Small Business Credit Share℠ (SBCS) is a consortium of banks, credit card companies, leasing agencies and other companies that have agreed to provide financial and non-financial data in exchange for exclusive access to data from other contributors. By gaining access to this database, lenders and trade creditors can make more informed decisions, while also promoting financial inclusion and spurring growth within the small business segment. Currently, six of the nation's top ten financial institutions are members, as well as several telecommunications and utilities companies. Small Business Credit Share℠ offers more aggregates (data elements) than any other service of its type. Whereas many lenders rely primarily on summary data (e.g., a credit score and reports of missed payments over the past year), Small Business Credit Share reports include a vast array of detailed credit, financial and non-financial data. As a requirement of membership, members must contribute at least 10 pieces of data on each small business account, such as account types, highest credit utilized, total account balance and payment history profiles. Together, these aggregates provide a much deeper, more meaningful view of a small business than was ever possible when drawing from just a handful of sources. They have also proven to be a far more accurate predictor of credit risk than any other service Membership Provides Benefits to Financial Institutions and Borrowers Alike Small Business Credit Share℠ provides significant benefits to member institutions as well as to the customers they serve. For example, Small Business Credit Share allows members to see the obligations an applicant already has to other lenders. With this knowledge, a lender can make sure an applicant does not become overextended and thus jeopardize their ability to pay back the loans already outstanding. A lender can also generate reports that, when shared with a customer, help ensure that paying back that lender becomes a priority so as to strengthen their credit score. Small Business Credit Share can also help members achieve SBA compliance, as the SBA mandates reporting to "bureaus" for all SBA-backed loans (SOP 50 57). To Get More, Give More As in life, what you can get out of the Small Business Credit Share℠ tends to be directly proportional to what you put into it. The more data members share, the clearer the picture of their small business borrowers becomes, and the smarter credit decisions they are able to make. Watch our Small Business Credit Share Program Overview Video We're encouraged by the overwhelmingly positive reception the Small Business Credit Share has received from the financial industry as a whole and from our member companies in particular. We remain committed to the idea that financial inclusion provides a strong value proposition to the Financial Services community, and believe Small Business Credit Share aligns with that ideal. Small Business Credit Share

Businesses are faced with the need to collect on delinquent accounts. When pursuing these past-due accounts, the most successful way to approach them is with a combination of perseverance, politeness, and professionalism. This serves the dual purpose of increasing the likelihood of receiving a prompt payment and also staying within the guidelines set forth by the Fair Debt Collections Practices Act. Perseverance While constantly calling a customer for payment can be a drag, perseverance will pay off—literally. Keep notes when calling the customer, detailing when you called, the time you called and if the customer promised payment. If payment was promised, make a note of when. Most software will have note-taking capabilities, so use that to keep track of whether the customer is following through with payments or not. Aim to call once a week to keep your company in the forefront of the customer's payable person. Politeness Being polite can be trying when the customer is being evasive about payment status. Remember the old adage of catching more flies with honey than vinegar. Being polite gives the customer less reason to avoid payment. Share a story or joke with them. Get familiar with the person doing the payments for your business. Avoid negative outbursts containing vulgar language or calling multiple times per day, which are both violations of FDCPA code. Professional Above all, remain professional. Do not allow emotion or personal feelings about the customer cloud your attitude. This is strictly business, and the customer who may be slow or evading payment would do the same to anyone else in your position. Talk to them about payment plans if they are having a hard time paying. If they are hesitant to pay, ask for the reason why. Is there an issue with the product or service your company offers? If there is a problem with the product, talk to product/servicesupport staff to see if they are aware of this issue. If they are, ask them to contact the client with the solution. Sometimes it is necessary to involve sales representatives while collecting. The sales rep can go in and play "Good Cop," letting the customer know that they would love to sell them more product or further service, but that there's a problem with the account that needs to be resolved with the customer's accounts payable department. This normally results in the procurement associate contacting the accounts payable department and asking why payment has not been made on the prior purchase. Thisfacilitate payment, and in turn, increase company cash flow. Using these techniques will reflect respect and courtesy, which in turn elicits goodwill with the customer. Business Chat | LIVE - Credit & Collections with Katie Keitch We had a great interview about best practices in B2B Collection with Katie Keich. Katie is the V.P. of Commercial Services at InsideARM. She shares how to drive a successful collections strategy in your credit department or through 3rd party collections. Learn more about InsideARM

Simply put, online marketplace lending is here to stay. Virtually unheard of just 10 years ago, Web-based companies that offer funding options beyond traditional bank loans have grown considerably. Small businesses — drawn by the easy application process and flexible repayment terms, have become increasingly comfortable working with online lenders, which offer rapid access to capital, a wide array of niche products, and a low-friction customer experience.  The lack of regulation and higher-than-market interest rates that often accompany these “alternative” loans have not deterred borrowers from trying this new source of business financing. Despite their growth, however, online lenders still make up only a small segment of the overall small-business loan market. While that paints a clear picture of the current online marketplace lending environment, what does the future hold? How is the industry, still in its infancy, likely to change as it responds to pressures from competitors, borrowers and regulators? Here are some trends we can expect to see over the next several years: Growth — As online lending becomes more mainstream, look for the industry to expand exponentially. In 2014, online lenders combined to issue loans totaling about $12 billion in the United States. In a recent report, Morgan Stanley said it expects the U.S. number to grow to $122 billion by 2020 and the global number to surpass $280 billion in the same time period. "Online marketplace lenders are still very small players relative to the overall market, but they’re growing fast. They could be very disruptive or an entirely new [source] of capital for both small businesses and consumers that aren’t necessarily serviced by larger banks.” James Francis Executive Vice President, Consumer Lending Group MUFG Union Bank N.A Participation — Exponential growth likely will be fueled by the growing acceptance of online lending by small businesses, especially those run by millennials comfortable with virtual transactions. As the customer base grows, look for competition to increase as both new and established lenders fight for the attention of this attractive market segment. "Small-business owners in general are increasingly turning to online options to seek capital. According to a recent study by the Fed, 20 percent of small-business owners sought a business loan online during the first half of 2014. Small businesses are using new technologies to manage their customers, process payments, handle point-of-sale — it makes sense they’d turn online for capital as well.” James Hobson Chief Operating Officer OnDeck   Innovation — New, even more, efficient ways for borrowers to secure business loans — not to mention the nature of the financial products themselves — will continue to appear as competition drives innovation. Look for lenders to develop: Faster, more user-friendly interfaces along with algorithms that further accelerate the review and approval process Frictionless access Improved customer engagement and experience Platform and product innovation "Certainly there are more players in the space today, which is great because it pushes not only us but the category as a whole to generate more awareness, more credibility and better platforms to help small businesses. The category as a whole has been built on this idea of making things a little bit more simple and easy. We’re always asking, ‘How can we provide our offerings in a frictionless way and time-sensitive manner?” Jason Rockman Vice President, Brand Marketing CAN Capital   "There are a lot of lenders offering similar products to the same customers. There will be more competition to offer more products, which is better for borrowers.” Meredith Wood Editor-in-Chief Fundera   Consolidation — Industries often go through a period of hyper expansion followed by a period of consolidation as larger, better-financed players acquire smaller competitors and underperformers go out of business. One hundred years ago, more than 100 companies were making automobiles in the United States alone. Today, there are fewer than a half dozen. Twenty-five years ago, scores of companies were making personal computers. Today, a handful of brands dominate 90 percent of the market. We can expect the online marketplace lending sector to experience similar consolidation. Spillover — As online lending becomes increasingly mainstream, look for traditional lenders — particularly commercial banks — to enter the fray. Some forward-looking banks already are working directly with online marketplace lenders, referring customers based on their needs and qualifications or re-creating the frictionless look and feel of online lenders. Look for the dramatic differences between “traditional” and “alternative” lenders to blur in the coming years. "There are several key reasons why banks would want to partner with online lenders. The first is to drive customer retention. A bank says yes to small-business borrowers roughly 20 percent of the time based on their lending criteria. What happens to the other 80 percent? Banks don’t want to lose those customers. Partnering with marketplace lenders is one way to retain those customers and create a good user experience. “Customer loyalty is another driver. Access to capital does more to build loyalty than any other product or service. Finally, the biggest motivator is access to new technology and data, especially for institutions forward-thinking enough to recognize that there are opportunities for them to monetize their existing data as well as learn from the data analysis and data science that some of the more sophisticated marketplace players are executing.” Glenn Goldman CEO, Credibly Regulation — Regulation is on the horizon for the online lending industry. While the absence of regulation has facilitated rapid growth and innovation, this lack of oversight also has led to an environment in which some borrowers have complained of unfair lending practices and a lack of transparency. Most leading online lenders believe some kind of regulation is good for the industry. A set of rules and standards defines the playing field and provides the confidence and consistency the industry needs to grow sustainably. “Some government oversight is going to happen. It’s just a matter of time,” said Levi King, Founder and CEO of Nav (formerly Creditera), which was founded in 2012. “Small businesses are not sophisticated. There’s a lot of predatory lending extended to small-business owners, who are, as a rule, not sophisticated enough to know what’s happening.” “We believe it’s important to foster greater transparency in business lending marketing,” said Rebecca Shapiro, Director, Brand & Strategy, Funding Circle. Along with Fundera, Lending Club, Opportunity Fund and Accion, Funding Circle recently helped craft the Online Borrowers Bill of Rights, which attempts to establish ethical standards the industry can use to police itself. “We don’t assume the bill can replace government regulations. We do believe that, by encouraging responsible regulations, we’ll have a model for what the government should do,” said Shapiro. The Future Is Bright Customer engagement, access, frictionless applications, and a wide range of product choices are at the heart of the online marketplace lending industry. The mainstream banking industry is starting to take note, looking externally at possibilities for collaboration and internally at ways of updating systems and processes to improve the customer experience. Ethical standards and regulations will increase transparency, accountability, and consistency. If these trends continue, both the small-business owner and the economy will reap the benefits. The State of Marketplace Lending In 2008, a short two years after the first online marketplace lenders opened for business, the Great Recession began to wreak havoc on worldwide financial markets. Small businesses struggled to survive, banks failed and access to capital was limited. More online lenders saw an opportunity and opend for business. These technology-driven newcomers hired an army of data scientists, coders and digital marketers. In the fall of 2015 the innovation, industry disruption and regulatory uncertainty that characterize this dynamic sector led Experian to produce a series of articles focusing on different aspects of online marketplace lending. This report contains those articles.   Download eBook Related articles Just how alternative are today’s online marketplace lenders? How online marketplace lenders are changing the rules of small-business finance Self-Regulatory Program for Nonbank Small Business Lenders Top regulatory priorities for commercial lenders Playing to Your Strength - Opportunities for Regional Banks to Build Better Lending Portfolios Game Changer - How Marketplace Platforms Are Bringing Financial Institutions Back to Small-Business Lending Marketplace Matchmakers - How Loan Aggregators Bring Borrowers and Lenders Together New Frontiers - What's Next For Marketplace Lending?

Marketplace lending has become a dynamic source of small-business financing. In 2013, marketplace lenders funded customers to the tune of about $3 billion, twice the volume from the previous year. These numbers are expected to continue to rise steeply throughout the rest of the decade as customers become increasingly comfortable with the concept. Operating almost exclusively via the Internet, thesefintech companies can be particularly helpful to newer, less-established retailers, such as restaurants and B2B service companies that don’t have the documented track record that most traditional banks prefer. These alternate financing sources also can be an excellent resource for smaller loans in the $5,000 to $200,000 range. Larger banks often are reluctant to consider smaller business loans. Business owners looking for quick access to capital have a wide variety of sources to choose from: Nonprofit lenders Invoice financing Online business loans Loan aggregators Peer-to-peer financing Crowdfunding But how can potential borrowers locate these new lenders? When it comes to matching small-business borrowers to the most appropriate lenders, a new breed of marketplace matchmaker or loan aggregator is finding success bringing the two parties together. Aggregators compare the needs and qualifications of borrowers with lenders in their network matching their target criteria. Think of it as speed dating for business financing. Organic Online Searches Not surprisingly, many online lenders rely on technology to find potential customers. Common online marketing tactics include pay per click and search engine optimization (SEO). “Most of our customers come from the Internet itself,” confirmed Meredith Wood, Editor in Chief of Fundera, an aggregator for about 30 individual marketplace lenders. Founded in early 2014, Fundera has helped more than 1,200 small businesses acquire loans totaling more than $60 million this year. “We do paid acquisition and also use content to generate organic searches. We rank well for competitive terms like ‘business loans.’” Nav (formerly Creditera), founded in 2012, is another successful fintech company, offering an array of commercial financial services, including credit cards, credit card processing and small-business loans. Like Fundera, Nav relies on SEO for many of its leads. “Of all the lead channels we have, SEO organic is the most difficult to get going,” said Levi King, Founder and CEO of Nav. “You’re competing for attention with millions of other people. But while it’s the slowest channel, it also tends to yield leads of super high quality. The people who find us organically are looking for what we offer.” Social Media Social media is one tool being used more frequently in Web-based marketing. Using advanced algorithms, marketplace lenders can target ads directly at businesses that fit a specific profile. “We use Facebook, Twitter, LinkedIn — anywhere small businesses are showing up and you can target them effectively,” King explained. “Small-business owners behave a lot like consumers. Their business and personal communications are almost identical. While social media is a great way to connect with this market, it’s definitely not the way you’d market to enterprises.” Referrals Referrals are another significant and valuable source of customer leads and tend to come from one of two principal sources: Other funding sources — Often, a lender, such as a bank, that is unable or unwilling to write a loan for a small business will refer that business to an alternative lender with more flexible requirements. Banks generally refer customers only to companies they have worked with before and have established credibility in terms of reputation, integrity and professionalism. Lenders that make referrals under these circumstances usually do so as a courtesy and receive no fee or other consideration for their efforts. Their intent is to cultivate good relationships with customers who may someday migrate to more traditional banking services. Satisfied customers — Perhaps the most valuable referrals are those that come from other business owners who already have received loans from a particular marketplace lender. Getting referrals from friends, relatives and business acquaintances sets a customer’s mind at ease and helps the customer overcome the hesitation and anxiety sometimes associated with dealing with a new company. Partnerships and Aggregators Many marketplace lenders have developed formal partnerships with companies or with other lenders that provide them with customer referrals. Unlike the casual referrals discussed above, these often involve fees or other consideration as part of a contracted business arrangement. For example, Fundera works with FTD® to help their florists find financing. “Borrowers complete one aggregated application that we send off to various lenders,” said Wood. “We present the offers we receive to the borrowers and work through them together so they understand what each offer means, what they really cost, etc.” The Future of Online Lending Not surprisingly, both Wood and King are bullish on the future of marketplace lending. Wood in particular sees the option as being very attractive to young people who have some experience in the business world and now are ready to start companies of their own. The online marketplace lending industry is growing by leaps and bounds. Fintech companies continue to rapidly innovate, developing niche products and efficient data-driven marketing approaches. At the same time, the banking sector remains the dominant source of funding for small businesses, with close community ties and deep customer relationships. Fintechs and banks are beginning to explore ways to work together to make the most of what each brings to the small-business funding market. Regulators are engaging with the online marketplace lending industry and considering factors related to disclosure, transparency and lending practices. The outcome for small businesses is increased choice, information and access. That is good news for them and for the economy. The State of Marketplace Lending In 2008, a short two years after the first online marketplace lenders opened for business, the Great Recession began to wreak havoc on worldwide financial markets. Small businesses struggled to survive, banks failed and access to capital was limited. More online lenders saw an opportunity and opend for business. These technology-driven newcomers hired an army of data scientists, coders and digital marketers. In the fall of 2015 the innovation, industry disruption and regulatory uncertainty that characterize this dynamic sector led Experian to produce a series of articles focusing on different aspects of online marketplace lending. This report contains those articles.   Download eBook   Related articles Just how alternative are today’s online marketplace lenders? How online marketplace lenders are changing the rules of small-business finance Self-Regulatory Program for Nonbank Small Business Lenders Top regulatory priorities for commercial lenders Playing to Your Strength - Opportunities for Regional Banks to Build Better Lending Portfolios Game Changer - How Marketplace Platforms Are Bringing Financial Institutions Back to Small-Business Lending Marketplace Matchmakers - How Loan Aggregators Bring Borrowers and Lenders Together New Frontiers - What's Next For Marketplace Lending?