Web-Based Money Companies

This is bonus coverage from “Beware the Box” in the August 2015 issue of Credit Union Management magazine.

Web-based companies that offer businesses and individuals access to funds run the gamut. Some are dedicated to these transactions, while others are in different fields but have seen the opportunities offered by leveraging the information they have on their customers.  Most dodge the cost and red tape of government regulations by avoiding traditional loan structures.  One thing they all seem to have in common is that they’re growing with astonishing speed.

Here’s a summary of some Web-based “money companies” that your credit union might want to watch as you formulate strategy.

• Lending Club connects borrowers and investors, with more than $9 billion in loans funded. The company stresses that it doesn’t offer loans, but is simply a platform – it doesn’t have lenders, it has investors. Thus, loan regs don’t apply.
• Similarly, Prosper is a peer-to-peer lending marketplace, with more than 2 million members and over $2 billion in funded loans.
• Since the launch last September of PayPal Working Capital business loans (through lending partner WebBank), more than 20,000 U.S. businesses have collectively borrowed more than $150 million. Merchants can borrow up to 8 percent of their yearly revenue, up to $20,000, through the program. Borrowers choose what percentage of daily PayPal sales they'll use to repay the loan. Loans have flat fees based on the amount borrowed, the repayment plan and a company's PayPal sales history, according to CNN.
• Kabbage, which advances online merchants money almost instantly, uses their PayPal histories, among other things, as part of its credit profiling and screening process. Kabbage leverages data generated through business activity, such as accounting data, online sales, shipping and dozens of other sources, to understand performance and deliver fast, flexible funding in real time. Through its Karrot brand, Kabbage offers simple consumer loans through its automated platform.
• In June, UPS Capital, a subsidiary of UPS that provides supply-chain financial, insurance and payment services, announced a partnership with Kabbage to offer its small-business customers real-time access to capital.
• Square started as a credit card processor, offering both innovative and inexpensive hardware and processing. Then it began offering cash advances–not traditional loans—to businesses in its network. Square Capital collects a percentage of the borrowing company’s credit card sales to Square every day. There’s a flat fee, but no interest, and no time limit on how long it takes to repay. For example, Square may advance a company $10,000 in exchange for $11,000 in future sales. Square could take 10 percent of the company's daily credit card sales until the money is paid back.
• Last February, office supply chain Staples teamed with up with online loan brokerage Lendio to offer loans through its Web site. A would-be borrower’s online buying history tells Staples a lot about the business and its ability to repay. By late May, $1.5 million in loans had been made.

Charlene Komar Storey is a veteran credit union writer based in New Jersey.