[mcaguru]

Its interesting that evrey industry has mergers and takeovers between the top dozen leaders yet almost never in MCA i am wondering if its because almost evrey leader in our space are insiders that built ground up and are not familiar with the takeover game ? or is there simply no opportunity? because how i see it there is some areas of consolidation and perhaps some vulture maneuvers on the table currently that would position someone to get light years ahead of competitors and perhaps corner some of the market.

[CreditGuy]

The biggest lender in the space by far is On Deck. They would be in the best position to capitalize on any opportunities, like acquiring CAN right now, but why would they? CAN is in trouble and they would be buying a distressed book and all the headaches that come with that, not to mention CAN's data, credit IP, etc. is all unattractive since their book blew up on their watch. Given the state of the industry, it would be silly for them to acquire a company in trouble when the overall industry shows real signs of uncertainty not just in terms of credit performance, but economic environment, political environment, and regulatory environment. The remaining actual A paper lenders like Rapid or BFS are too far behind to be of any real value in terms of volume and/or technology.

There might be value in consolidating downmarket for the stacking shops and HR lenders, but If you can't even figure out how to move upmarket and/or fund more than just stacks you probably don't have the managerial acumen to handle a merger.

This industry is really young. It needs to mature and the product offerings need to become more homogeneous before mergers start making sense.

[Natan]

The biggest lender in the space by far is On Deck. They would be in the best position to capitalize on any opportunities, like acquiring CAN right now, but why would they? CAN is in trouble and they would be buying a distressed book and all the headaches that come with that, not to mention CAN's data, credit IP, etc. is all unattractive since their book blew up on their watch. Given the state of the industry, it would be silly for them to acquire a company in trouble when the overall industry shows real signs of uncertainty not just in terms of credit performance, but economic environment, political environment, and regulatory environment. The remaining actual A paper lenders like Rapid or BFS are too far behind to be of any real value in terms of volume and/or technology.

There might be value in consolidating downmarket for the stacking shops and HR lenders, but If you can't even figure out how to move upmarket and/or fund more than just stacks you probably don't have the managerial acumen to handle a merger.

This industry is really young. It needs to mature and the product offerings need to become more homogeneous before mergers start making sense.

Definitely, industry is very young, be patient for mergers and BKs.

As interest rates rise, and capital is less available, HR funders will feel squeeze and it will travel up-market and drive mergers to cut costs and improve ROI.

Time will tell.

[Kevin Henry-Seacoast]

Its interesting that evrey industry has mergers and takeovers between the top dozen leaders yet almost never in MCA i am wondering if its because almost evrey leader in our space are insiders that built ground up and are not familiar with the takeover game ? or is there simply no opportunity? because how i see it there is some areas of consolidation and perhaps some vulture maneuvers on the table currently that would position someone to get light years ahead of competitors and perhaps corner some of the market.

Years ago the fin-tech brokerage firms did well, but there were limited exit strategies. Some of the discount or technology focused firms merged and a handful were acquired by traditional firms because they wanted the technology or the book. The difference with this industry is that many of these fin-tech companies are at risk. Only a handful of the brokerage fin-tech firms were at risk. Example: Schwab acquired Mayer and Schweitzer to gain entry into the risk equity trading business. Chuck did very well over the years with the division, but when regulation and margins changed he quickly sold the division to UBS. Deutch Bank acquired National Discount brokers and Sherwood securities to do the same and quickly jettisoned the business. Herzog was acquired by Merrill and there were less than 6 Herzog people left within a year.

Financial services is a tricky exit strategy... You must understand risk and also understand that your business assets are your people and customers and they can leave at any moment.

[mcaguru]

why would High Risk feel squeezed by higher IR ? ?

[Kevin Henry-Seacoast]

why would High Risk feel squeezed by higher IR ? ?

maybe because most high risk lender's lines with their senior lenders are tied to LIBOR or Prime on a floating basis. If the floor goes up, the high risk lender most raise rates to keep up with margin. Not everyone has the luxury of low cost of funds.

Another note: If senior lenders keep having unpleasant experiences lending to high risk lenders, they will continue to reel back in capital from the industry which will cause prices on those lines to increase because of demand. In efforts to limit losses or retreat from the alternative lender market, it could have adverse effects on other types of alternative lending: factoring, equipment finance, purchase order finance, etc.... Some of the lender providing lines to the MCA/Cash Advance industry are also lending to other types of alternative lenders.

[jcoop]

Any news on can? Are they funding again?

[Sean Cash]

probably not.

[staten]

probably not.

The enterprise and portfolio value of Can decreases exponentially each day they are out of the market. Should have been finished in December. Shocking value destruction. QED's Nigel heads the board...dropped the ball here.

[MCNetwork]

It's smart that CAN decided to retrench and cut back on new fundings so they can determine how their lending portfolio is really doing. Too many funders are concerned with funding as much as possible. The problem is that rapid growth conceals problems. We saw this happen with credit card companies over a decade ago. They experienced hyper growth through aggressive mailings and generous balance transfer programs. After a few years of stellar growth, they cut back on their mailers and this allowed their bad debt to catch up with them and bite them in the ass. Now credit card companies are a lot more selective with customer acquisition.

New accounts take time to build up a payment history, become delinquent, and go to writeoff, and the volume of newer current receivables helps to conceal the true rate of writeoff. To further complicate matters, far too many accounts that normally should be written off or cut off from further funding keep being renewed or are put on a ridiculously low "payment plan" to remain a "good" and active account. This just prolongs their inevitable demise and funders end up throwing good money after bad to make the books look good. I think after CAN gets a good grasp on delinquent accounts and writeoffs, they'll be able to tighten their underwriting standards and get back on track. You probably won't see any more hyper aggressive rates and long terms coming from them though. Too many funders are now realizing that low rates/lengthy terms in this uncollateralized space carries far too much risk for the reward and is not a sustainable business model. I think you'll see the same thing happen to On Deck at some point.

[WestCoastFunding]

It's smart that CAN decided to retrench and cut back on new fundings so they can determine how their lending portfolio is really doing. Too many funders are concerned with funding as much as possible. The problem is that rapid growth conceals problems. We saw this happen with credit card companies over a decade ago. They experienced hyper growth through aggressive mailings and generous balance transfer programs. After a few years of stellar growth, their bad debt caught up with them and caused them to scale back tremendously. Now credit card companies are a lot more selective in customer acquisition.

New accounts take time to build up a payment history, become delinquent, and go to writeoff, and the volume of newer current receivables helps to conceal the true rate of writeoff. To further complicate matters, far too many accounts that normally should be written off or cut off from further funding keep being renewed or are put on a ridiculously low "payment plan" to remain a "good" and active account. This just prolongs their inevitable demise and funders end up throwing good money after bad to make the books look good. I think after CAN gets a good grasp on delinquent accounts and writeoffs, they'll be able to tighten their underwriting standards and get back on track. You probably won't see any more hyper aggressive rates and long terms coming from them though. Too many funders are now realizing that low rates/lengthy terms in this uncollateralized space carries far too much risk for the reward and is not a sustainable business model. I think you'll see the same thing happen to On Deck at some point.

Agree with pretty much everything you said, but I can't knock a funding for putting a merchant on a reduced payment plan. Seems like the best way to recoup as much money as possible. The alternative may be instant default.

[MCNetwork]

Reduced payment plans are fine and necessary but too many funders still label this as a "good" account when it should be a delinquent one and cut off from being renewed.

[CreditGuy]

Reduced payment plans are fine and necessary but too many funders still label this as a "good" account.

If they are only reporting goods and bads as a binary condition using the metric paying or not paying, then it would be classified as a good account. Proper reporting would be to have shades of grey: current, past due - paying, past due - not paying.

Beyond all the issue around stacking and general shadiness, regulation would go a long way in standardizing reporting metrics like the above and delinquency reporting in general. There's some guidance if accounting is using GAAP, but beyond that it gets pretty creative some places I'd imagine.

[MCNetwork]

If they are only reporting goods and bads as a binary condition using the metric paying or not paying, then it would be classified as a good account. Proper reporting would be to have shades of grey: current, past due - paying, past due - not paying.

Precisely. The lack of grey reporting is what keeps outside investors in the dark. They only see "good" versus "bad" which is woefully inadequate. It's hard to do a deep dive into a funder's books if these are the metrics you rely on.

[staten]

It's smart that CAN decided to retrench and cut back on new fundings so they can determine how their lending portfolio is really doing. Too many funders are concerned with funding as much as possible. The problem is that rapid growth conceals problems. We saw this happen with credit card companies over a decade ago. They experienced hyper growth through aggressive mailings and generous balance transfer programs. After a few years of stellar growth, they cut back on their mailers and this allowed their bad debt to catch up with them and bite them in the ass. Now credit card companies are a lot more selective with customer acquisition.

New accounts take time to build up a payment history, become delinquent, and go to writeoff, and the volume of newer current receivables helps to conceal the true rate of writeoff. To further complicate matters, far too many accounts that normally should be written off or cut off from further funding keep being renewed or are put on a ridiculously low "payment plan" to remain a "good" and active account. This just prolongs their inevitable demise and funders end up throwing good money after bad to make the books look good. I think after CAN gets a good grasp on delinquent accounts and writeoffs, they'll be able to tighten their underwriting standards and get back on track. You probably won't see any more hyper aggressive rates and long terms coming from them though. Too many funders are now realizing that low rates/lengthy terms in this uncollateralized space carries far too much risk for the reward and is not a sustainable business model. I think you'll see the same thing happen to On Deck at some point.

Yes-this is 101 how an MCA business should be run. Disagree vigorously on time. This is daily cash business. Payments are for the most part fixed. You know $ you should be getting in. You look at your bank accounts to see what you received. The difference is what takes up 90% of the your day when you run a large MCA company. It's called work.

[MCNetwork]

I think you need time for the account to season because for the first 30-45 days, the money you're receiving back in remittances is essentially from the initial advance. You don't know if the merchant is actually credit worthy or not (unless the bank statements show his performance with another funder). After 60 days, you can probably determine that.

[Davincinc]

Most have been called and or leaked. A lot of employees are taking them...

Paul Greco from luxlend has been taking them for 2 years and was bragging bout it...

[Vfunding]

I think you need time for the account to season because for the first 30-45 days, the money you're receiving back in remittances is essentially from the initial advance. You don't know if the merchant is actually credit worthy or not (unless the bank statements show his performance with another funder). After 60 days, you can probably determine that.

This is true in theory but how often do you look at a bank statement and see a $30k cash withdrawal the day after a $30k funding... An interesting stat is the % of defaults that occur in the first 30 days. We call these hit and runs.

[Funder Mark]

An interesting stat is the % of defaults that occur in the first 30 days. We call these hit and runs.

I had an $85k car dealer default in the first week.

[MCNetwork]

I had an $85k car dealer default in the first week.

These big hit and run guys are the reason you can't offer low rates. Just a handful of these scam artists can really screw a funder's portfolio.

[staten]

Most have been called and or leaked. A lot of employees are taking them...

Paul Greco from luxlend has been taking them for 2 years and was bragging bout it...

Wow.

[CreditGuy]

Greco pled guilty to securities fraud from when he was at Stratton Oakmont. No surprise he's still out there being a **** heel.

[tgabcmca]

I heard that rumor as well. However, it is a rumor.

[Sean Cash]

http://www.wsj.com/articles/how-a-gr...ses-1484587393

Key info from this breaking story:

The errors were significant enough, the people said, to cause the company to breach covenants with its big-bank creditors such as Wells Fargo & Co. and push out three top executives.

But as the firm shifted to compete with online lenders, CAN’s loan systems allowed some employees to grant borrowers a few extra days to get payments made beyond what was stated in loan agreements, people familiar with the situation said. Such “grace days” were more common in cash advances, and typically don’t happen in the loan business unless there is a formal modification. Otherwise, the loans need to be declared delinquent.

Last summer, top CAN executives learned the issue was widespread enough to cause the firm to misstate delinquencies to investors and creditors. In November, the board of directors put Mr. DeMeo, along with the company’s chief financial officer and chief risk officer, on leave. They aren’t expected to return, the people say

CAN is looking to sell more than $100 million in loans and assets to strengthen its financial position and has laid off about 250 staffers in Georgia and Costa Rica, or 55% of its overall workforce, according to people familiar with the matter.

[jcoop]

http://www.wsj.com/articles/how-a-gr...ses-1484587393

Key info from this breaking story:

The errors were significant enough, the people said, to cause the company to breach covenants with its big-bank creditors such as Wells Fargo & Co. and push out three top executives.

But as the firm shifted to compete with online lenders, CAN’s loan systems allowed some employees to grant borrowers a few extra days to get payments made beyond what was stated in loan agreements, people familiar with the situation said. Such “grace days” were more common in cash advances, and typically don’t happen in the loan business unless there is a formal modification. Otherwise, the loans need to be declared delinquent.

Last summer, top CAN executives learned the issue was widespread enough to cause the firm to misstate delinquencies to investors and creditors. In November, the board of directors put Mr. DeMeo, along with the company’s chief financial officer and chief risk officer, on leave. They aren’t expected to return, the people say

CAN is looking to sell more than $100 million in loans and assets to strengthen its financial position and has laid off about 250 staffers in Georgia and Costa Rica, or 55% of its overall workforce, according to people familiar with the matter.

Can you possibly post the entire article, I am not subscribed to the WSJ.