Stephen Sheinbaum founded Merchant Cash and Capital (MCC) in 2005. The ensuing decade encompassed the recession, its aftermath and the tremendous growth of the alt-fi industry.
The growing number of small business financing options is good news for the consumer, Mr. Sheinbaum said.
“The environment is getting more and more competitive each day,” Mr. Sheinbaum observed. “And that creates an opportunity for the end user. People are competing directly to the merchant or in a wholesale manner.”
Mr. Sheinbaum said the recent Lending Club and OnDeck IPOs, along with recent securitizations, have validated industry business models.
Another bonus has been the ability of more established companies like MCC, OnDeck, CAN Capital and Kabbage to access capital at lower costs. Those savings are then passed on to the borrower in the form of a wider product array including lower cost and longer term products. Taken together it equals to a wider range of business finding appealing financing options.
The companies that added equity used it to benefit a couple of areas, Mr. Sheinbaum said. The first was to increase overall marketing activity, including the use of social media and other online methods.
The second area was to bring in quality talent to enhance the platform’s technological capability. This enabled some to go more directly to market by quickly developing a more seamless and frictionless user experience.
Mr. Sheinbaum said MCC clients are benefiting from technology that reduces the number of keystrokes they have to enter. As a prospective borrower enters their general information, technology can of course help populate those general fields. Based on address and zip code, the technology can now search for companies that fit the criteria, thereby saving the entrant several keystrokes in that one spot.
Taken together such improvements quickly add up.
Should the process require bank statements, the user gives their name and password to a trusted third party that retrieves their bank statements, tax returns and other financial information online for the requesting platform. This saves the applicant time by eliminating the need to search, scan and upload documents.
Not only does it save time, but it drastically reduces the opportunity for fraud by getting the financial information directly from the source. Given the sophisticated production and editing software on the market, it is not hard for people intent on fraud to create fake documents, Mr. Sheinbaum said.
Other time-saving applications include integrating information from a company’s QuickBooks software and using data from their FedEx or UPS accounts to save keystrokes, Mr. Sheinbaum said.
Increased competition means lenders have to spend more time figuring out how to differentiate themselves. When MCC was developing its online business financing marketplace Bizfi, Mr. Sheinbaum said they wanted to offer a different experience.
Bizfi achieves that by acting as a funding concierge, helping applicants navigate through the application and decision process. Bizfi will eventually be fully integrated with 35 financial companies that will be able to provide businesses with automated quotes side by side. The applicant will be able to easily compare funding options, including quotes from MCC.
“We want to be the Kayak of the industry.”
The ease with which companies can collect and share data is beginning to benefit the larger industry, Mr. Sheinbaum said. Companies will send their partners collection data, which further improves underwriting capability. All companies making offers will be able to track the status of their offers until a funding decision is made, then they can review to see if they are competitive.
In the near future, Mr. Sheinbaum envisions licensing software to bank platforms and community finance associations.
One thing a borrower investigating online financing options has to do for themselves is due diligence on the different platforms, Mr. Sheinbaum said. He recommends performing an internet search on the company, checking to see if it is accredited by the Better Business Bureau, seeing how long it has been in business and seeing how many deals it has done and how much funding it has provided.
The rapid proliferation of technology in the space means it does not take long for competitors to fall well behind in the ability to attract customers and stay relevant in the minds of small business borrowers.
One sector that has suffered in this space are traditional small banks, Mr. Sheinbaum said. Since 2008, the increased regulation has made them averse to lending to businesses. Now their technological capability is so far behind the newer players they could go the way of most travel agents and be rendered extinct.
The other sector in trouble are the high-interest lenders who are simply not differentiated enough to be a viable option, Mr. Sheinbaum said.
Some larger players will search for growth in other countries such as Japan. Before they do Mr. Sheinbaum advises them to link with a strong local partner with a comparable level of automation.
He said MCC is also looking at Vietnam and South Korea.
“Our interest is driven in part by certain characteristics of those economies,” Mr. Sheinbaum explained. “We also have strong relationships with our local partners.”
“Vietnam has pockets of the population growing rapidly and the technology is catching up. Credit card usage and electronic payments are growing well.”
“First market mover advantage is very powerful.”