With Tech Craze, CAN Capital Be The Way?

Last week in Las Vegas, First Data unveiled Clover, a wireless, tablet-based Point-of-Sale system. Fully equipped, forward thinking, and ultra durable, it was a signal that the 45-year old payment processor is still number one for a reason. Unveiled in private the night before the official release, CEO Frank Bisignano oohed and aahed the crowd with the new gadgetry. First Data might not be the most talked about company in payment processing circles, but they’re probably the most respected.

In the 21st century rush to marketplace domination, the modern entrepreneurial slogan is adapt or die. But the aggressive tech crowd often misunderstands who that applies to. In the case of Square, a payments industry newcomer and First Data competitor, their company is less a business than it is a cultural movement. In 2012, Square CEO Jack Dorsey communicated Square as being something even bigger, a revolution.

Adapt or die has been a cornerstone of the Square revolution, but the question remains, is it everyone else that needs to adapt or is it Square? Earlier this year, The Wall Street Journal reported that Square recorded a loss of $100 million in 2013. Revolution it seems is very expensive.

And over in the business lending world, a similar movement is under way. Newer, tech-driven startups are kicking ass, taking names and funding all of them. In June, Fortune named OnDeck alongside Square in the sphere of tech disruption. And while its great to be cutting edge, OnDeck seems to be in a similar position to Square, disrupting at large costs. In their IPO filing, OnDeck reported losses of $14.4 million for the first three quarters of 2014. The familiar story begs the question as to whether or not certain markets can be remade profitably.

While OnDeck will likely experience success in the end, outsiders wonder if there are other business models to replicate, particularly something that is safer, stronger, and at least on the surface, profitable. It’s known as the CAN model in inner circles, named after industry pioneer CAN Capital. The CAN model is a strategy to achieve both growth and profitability, rather than just one or the other. Ironically, because CAN is not public, their actual bottom line is unknown, but the combination of their size, experience, and ability to stay in the game or ahead of it communicates to others that to win the game, you don’t need to bleed red in a wild game of investor chicken.

That’s not directed at OnDeck in particular, especially given that the most recent quarter was the first profitable one for them. The point is that like First Data, CAN Capital, a company that formed all the way back in 1998 is still playing division 1 level lending. Bear in mind that when they first started, there was no Google and the greybeard social network Facebook would not be invented until another six years later. Though they don’t exactly pre-date the Internet altogether, CAN is a perfect example of a company that adapted instead of dying.

In an interview DailyFunder had with CEO Dan DeMeo, we didn’t ask if they have plans to go public. We didn’t need to. CAN operates on their own wavelength and while an IPO would be exciting, they don’t project the image that it’s necessary to carry out their objectives.

Some background about CAN:
Has funded more than $4 billion since inception
Is generally against the practice of stacking
Offers both loans and merchant cash advances
Is an avid supporter of the daily payment methodology

While others in the industry are attempting to conquer unchartered territory with weekly and monthly payments, DeMeo told DF that from their perspective it makes sense to “hold the business to the purity of that [daily payment] model”. It seems when it comes to payment frequency, they’re confident they got it right the first time. And earlier in a Money20/20 SMB lending panel, DeMeo referred to the risk aspect of monthly payments as a “wait and hope” approach, meaning from a risk perspective it takes 30 days to find out if their client is struggling or something has gone wrong. Arguably from an SMB perspective, it’s the same issue, waiting and hoping that on payment day, a large single bank debit will clear.

As comfortable as they are with sticking to what they know, other companies like Kabbage, PayPal, and even Square are being talked up as fierce rivals, competitors that could potentially beat them through technology. And while perhaps at times perceived as the less hip player in nonbank lending, CAN continues to impress.

Chief Marketing Officer James Mendelsohn and DeMeo together explained their recent integration with Yodlee goes beyond analyzing merchant bank data for soft and hard approvals, which DF believed it had announced on November 4th. Rather CAN has actually integrated with Yodlee Small Business Solution, an “innovative suite of tools” banks can provide to their small business customers.

Yodlee provides the service to banks who can then offer it to their small business customers. Within the banks white labeled portal interface or hub, small businesses can not only manage their finances, but apply for a loan right through the system. And…. CAN is the primary lender on the small business hub. So when customers apply for a loan through their own bank’s software, CAN is potentially the lender on the other side.

Although the arrangement with banks here is indirect, the connection between banking customers with nonbank lenders proves a statement that AmeriMerchant’s David Goldin said recently at Lend360. “We don’t really consider banks as a competitor,” he said. To describe them then as partners may seem cliché but that is the direction CAN is moving in with the traditional banking world.

Admittedly CAN is not without bruises. They lost a crucial patent lawsuit 6 years ago that they waged against their competitors, have had to settle lawsuits in California and have watched media darlings like OnDeck steal the spotlight. To the outside world, OnDeck may be more famous than CAN, the company that basically invented the industry back in 1998.

And still, CAN has not been deterred, nor have they fallen. If anything, a company that has weathered both the dot com bust and the Great Recession has inspired everyone else that there’s opportunity, longevity, and yes even profitability to be had as a nonbank business lender.

Some like Square’s Dorsey may believe revolution is the only way, at high cost or possibly even at all cost. That philosophy has caught on like wildfire in many sectors of finance including business lending. It is seen as the only way to the top.

But when asking one of DeMeo’s panel attendees what he thought about CAN Capital, he said, “I hear they make money.”

Touché.

Much like First Data’s Clover, CAN is fully equipped, forward thinking, and ultra durable. CAN might not be the most talked about company in business lending circles, but they’re probably the most respected. Will they stand the test of time?