Those who spend time thinking about marketplace lending know an important test is on its way in the form of a down period in the markets.
Because the industry is so new, many argue, novice investors have a harder time navigating through a crowded field yet to experience the cull that often comes with that first down period. Those who survive, especially who excel while doing so, are more worthy of investment and patronage.
It makes sense then to look at companies who have been through a down period or two to see what success looks like.
CAN Capital has been around since 1998, which is eons for a marketplace lender. They have been profitable for the last eight. They developed the Daily Remittance Platform, which in combination with their proprietary risk models generate insight into the strengths and daily operations of small businesses. Using those strengths, CAN Capital generates forecasts which are highly predictive of actual risk.
In those 17 years, CAN Capital has funded more than 156,000 small businesses in 540 separate industries. Its digital business increased six-fold last year.
In April, they secured a record $650 Million credit facility from a dozen firms, including Wells Fargo, JP Morgan Chase, UBS and Barclays.
That gives CAN Capital CEO Dan DeMeo a unique perspective on the recent marketplace lending boom.
CAN Capital has been able to scale operations over nearly two decades by evolving their technology while also broadening both their distribution and their product array, Mr. De Meo said, but the key is information and how you use it.
“The real advantage we’ve had is our ability to collect information that has been used to make future and current decisions,” Mr. DeMeo explained. “We collect it, structure it and turn it into information to help make decisions as to who are the right customers to provide working capital to.”
Mr. DeMeo said the healthy money flow into the space is the most important development in the past few years as access to capital had narrowed.
A strong second is the pace data is analyzed with solid lending decisions. Many processes, whether they are remittances or account monitoring, were performed manually, but now can be incorporated into a company’s API.
“The API links the ability to directly connect to amass information so we can make decisions faster and better while interacting with the customer,” Mr. DeMeo said. “When you are exchanging these kinds of information you need to verify the customer’s capacity for the kind of working capital we have access to.”
Like many in the industry, Mr. DeMeo believes increasing awareness is key to future growth. While admittedly a challenge, Mr. DeMeo said it is achievable by engaging the customer and through the provision of simple products with simple descriptions.
“Loans are a: the amount and b: the term,” Mr. DeMeo said. “It’s straightforward once you are in selling mode.”
In the digital age it is crucial to meet the customer where they make their purchase decisions, Mr. DeMeo said. Most borrowers receive either same-day or next-day funding, which can in ideal conditions take minutes, not hours or days.
Combine quick decisions with a broad product line and you’re onto something. Make sure you constantly assess the market for areas which are under penetrated given current preferences and product sets.
“Good marketers are studying this every day,” Mr. DeMeo said. “How to inspire attitudes and patronage.”
Flexibility is important as some partners want to co-brand while others opt for white label solutions.
Mr. DeMeo said the $650 Million credit facility gives CAN Capital great capacity to increase financing, and that the participation of so many established institutions is confirmation of the CAN Capital business model, which has survived a down period or two, unlike many new players whose future has yet to be truly tested.
“Warren Buffet once said that only when the tide goes out do you see who has been swimming naked,” Mr. DeMeo said.