[CO1]

http://mobile.bloomberg.com/video/ne...nGoP6HIhQ.html

[admin]

video is embedded here. Thanks CO1

[cashguy]

Algorithms and automation will lead this industry soon.

[isaacdstern]

While I feel technology is extremely important I strongly disagree with cashguy's statement...u can not let an algorithm decide which merchants are approved and which merchants are not...sure you can use automation for a system generated pre-approval... But once you take the human touch, common sense up and down decision making away from an actual underwriter and out it in the hands of a computer or system default rates will skyrocket. A computer can't decide if a merchant sounds shady on the merchant interview. A computer can't tell if a merchant got his cousin to do the landlord verification...

[JayBallentine]

This post has been redacted.

[Capital Stack]

I disagree with Isaac and Jay. The machine can be taught to UW better than a human and after it does so a human can still do the interview and sale.

[mfs01]

I agree with you as well, Isaac. An algorithm is great for pre-approvals. But a head underwriter must look over the entire file in order to really assess the risk of lending money to a business (or person).

[JayBallentine]

This post has been redacted.

[BarbaraF]

I agree with Isaac. There are so many fraud files that a computer can not detect some of these deals, in my experience. It sometimes can be detected by a merchant interview and an underwriters experience not a computer

[Sean Cash]

I agree with Isaac. There are so many fraud files that a computer can not detect some of these deals, in my experience. It sometimes can be detected by a merchant interview and an underwriters experience not a computer

Some companies wrongly classify the merchant interview as as "funding call". I've never been on an interview where I already got the job and just had to show up to confirm my name and to say that I agree to the work terms. Why would a merchant interview be any different?

The interview is an opportunity to grill the merchant albeit in a nice way and decide afterwards if everything lines up with the docs and background check. I'm all for algorithms and I think that's the future but once there's a standalone mathematical formula for approvals, merchants will learn to game the system. Wonga, the UK payday lender has suffered through 40% bad debt because people started applying for loans in other people's names and all sorts of things. The system couldn't tell the difference.

If you think merchants are brazen now with fraud (and they are) just wait until they learn that humans aren't even underwriting anymore. It will become a game of beat the computer.

[JayBallentine]

If you think merchants are brazen now with fraud (and they are) just wait until they learn that humans aren't even underwriting anymore. It will become a game of beat the computer.

There are API's out there that will pull bank records. The merchant enters his deets; "bank log in" and "bank password."

The bank and API's verify your token and your server receives data to parse, analyze, underwrite.

Mint.com used these API's before they were bought for mega millions, then they switched over to another provider who would prefer these API's not exist at all.

We are talking about bank grade security - merchants stand no chance.

[Sean Cash]

people are way more creative than you give them credit for. Proving that you have a bank account with deposits is something that anyone can do whether they have a legit business or not. I can put money in a paypal account, withdraw it to my bank account, transfer it to another account, put it back into paypal and repeat everyday. I can have 100k in deposits every month for my "business" and validate the credentials with yodlee or mint. Ok, beat the bank check, what else you got?

[JayBallentine]

people are way more creative than you give them credit for. Proving that you have a bank account with deposits is something that anyone can do whether they have a legit business or not. I can put money in a paypal account, withdraw it to my bank account, transfer it to another account, put it back into paypal and repeat everyday. I can have 100k in deposits every month for my "business" and validate the credentials with yodlee or mint. Ok, beat the bank check, what else you got?

Simple.

Run an API call to verify age and ownership of the bank account. This is what I did when I tried a consumer facing alt lending product. Plug in "Buynance.com" into the wayback machine.

I'll do two things. I'll create a video that explains these API's and security concerns here. I'll also get an expert. The guy who aggregated 1,400 banks under his API to chime in.

EDIT: Changed my mind about the video, but I have invited the expert to join the forum. Hopefully he does that way we can keep the discussion focused on

"what can these API's do?" Or, "what they cannot do?" from an unbiased expert.

You don't get 1,400 banks to give the keys to their accounts unless you are a security genius.

[JayBallentine]

Sorry - I am pretty passionate about this stuff, so I am compelled to expound here.

To be clear, we are not talking about PayPal and using their API's to underwrite deals.

Now regarding security. Let's say you have Joe Merchant who just issued a paperless submission. On his application it asks; "how many years have you been in business?"

Joe Merchant says; 3. However, when you ask the API this question; "How many years has Joe had this bank account?" and the API says; "his oldest transaction is 3 months old."

Now you know Joe Merchant should be blacklisted and never allowed to apply with you as clearly he is a credit risk.


EDIT: You can ask the API all sorts of questions like:

"How much time elapses before Joe withdraws each big deposit on average?"

"How many times per month does his credit card company deposit to his account?"

"How much is the sum of the total deposits from his processor to his account?"

"API, break Joe's year into quarters. Tell me the average number of daily deposits per quarter?"

Just be nosy you can ask...

"How much does Joe withdraw from ATM's?"

"How much does Joe spend at the liquor store?" And so on.

The bank will pass back raw data - dating back three years. The more questions you think to ask the API's the more fun you'll have!

[Sean Cash]

merchants change bank accounts all the time. time in business and age of bank account are unrelated. Also many funders only require 2 or 3 months in business to fund.

[JayBallentine]

merchants change bank accounts all the time. time in business and age of bank account are unrelated. Also many funders only require 2 or 3 months in business to fund.

I think this augments their value to a premium guy. Take Rapid. Do they fund anybody in business 2 and 3 months? Do they fund you if you change your bank accounts like your underwear?

So, while this may be valuable to Rapid. It may not be as valuable to the guy who underwrites 2 and 3 month old merchants.

There's also more value to be derived from using those API's to help package stories to tell relevant consumers.

"Weird Fact! According to a study conducted by "Amazing Funding" auto repair shops tend to keep more money in the bank than any other business type."

Package the story. Sell it to anyone talking to auto repair shops, and get traffic. Trap traffic (get them on your e-mail list) and push value, value, offer, value, value, offer, and so on.

It get's levels deeper... 2 or 3 levels deeper.

Can't wait to finish this entire book.

[Chambo]

video is embedded here. Thanks CO1

Too much talk about LOANS...Lending here, lending there. All this press will catch up to the industry one day

[Capital Stack]

Your right chambo. Although most of those lenders have loan products , but that is not to be mistaken by the future receivables sale product out there which is a true factoring product.