Established over ten years ago in the United States, OnDeck Capital provides fast and reliable funding to small businesses powered by its digital platform. Although, well engrained into the US eco-system, OnDeck only entered the Canadian market in 2014, and sits within the fast growing Canadian fintech landscape. Sarah Hollinshead sat down with Country Manager, Gary Fearnall, to understand the path of this ‘alternative’ lender and the opportunities and challenges that lie ahead.
Fearnall describes himself as an avid list-maker, rewarding himself for the small tasks to ensure he does not take the big achievements for granted. There are a lot of items ticked off Fearnall’s list already in the short time they have been active in the Canadian market. Since making its first loan in July 2014, OnDeck has lent over $100 million as of the end of 2016.
To progress further however, Fearnall believes that regulation needs to mature in order to stimulate wider innovation within financial services. Looking at the progression in other developed markets, Fearnall points to more open data as a tool to develop Canada’s fintech eco-system.
“What I would like to see is a more open data approach to the Canadian FinTech universe. This would be the biggest enabler of growth in the market. From a holistic and altruistic paradigm, I also think it is important that certain companies do not own customer data simply because they acquire it, it is the customer’s data, they should decide who can see or apply it.”
Fearnall admits that there are a lot of movements towards opening up the system from the federal government and industry association, with the introduction of fintech sandboxes, yet there needs to be quicker development to avoid Canada being left behind in a global context.
“If the mandate does not support freeing data, there is a chance the Canadian fintech industry will get choked off a little bit. As other countries progress, our global economic standpoint could be reduced. Our small businesses that have the potential to grow, will not.”
Having the power to make wider impacts on the economic situation in Canada is what drives Fearnall in his position at OnDeck.
“A study we did in the US showed a 3 to 1 impact of the capital we had lent in terms of job growth and economic growth. Giving small businesses access to capital results in growth, where otherwise businesses would stand still or fail. Neither are a good outcome as I believe there some amazing companies being built in Canada and we have to collectively help them to grow.”
Prior to OnDeck, Fearnall worked for some of Canada’s largest companies, including the Globe and Mail, Bell Media and most recently LinkedIn. Having witnessed the digitization of the media, and as a master in market development, Fearnall approaches the OnDeck challenge with a unique perspective.
“I come to the OnDeck role with the sense of team building, how to think about application, and how to solve a problem. In this case, it is small business lending and access to capital. Our product is appealing to a niche segment, we are still trying to figure out how to offer more relevant products and build our awareness.”
One of the surprising factors involved in growing a fintech company in Canada is that, Canadian banks are quite well-liked. In stark contrast to the United States, Fearnall has had to think about particular ways to penetrate a market where trust and love is invested in the big bank brands.
I would like to see a more open data approach to the Canadian fintech universe.
One of the strategies is through partnerships, which has worked well with JP Morgan in the United States and Commonwealth Bank in Australia. They recently announced partnerships with Wave and Lightspeed in Canada, and are actively seeking further opportunities with Canadian companies.
“Banks may not want to lend money at this end of the market as it is costly and risky, and that is where we can come in. We can also act as finance partner for companies selling products of larger value.”
The OnDeck model includes thousands of data points and evaluates them algorithmically, from cash flow and bank statements, as well as an understanding of the industry, the seasonality of the business, annual revenue etc. Whilst their evaluation model is automated, OnDeck insists on an agent interaction with every loan, to advise upon the business and how much money they really need to borrow.
“The previous experience has been so slow and difficult that consumers are used to thinking ‘if I am to get a loan, I may as well get as much as I can.’ It is far better to advise on a lower figure, but this is only possible with a fast experience like OnDeck.”
To apply for a loan from OnDeck, small business owners must have a 600-personal credit score, over $100,000 in annual revenue and have been operational for over a year.
With lots of momentum in this industry, and with more and more players within the eco-system, education for small business owners is more pertinent than ever. OnDeck Canada is one of the founding members of the Canadian Lenders Association (CLA), which hopes to guide the industry along this journey.
“The CLA will help to create a narrative around a variety of offers and a consolidated view of that. We are doing lots of research into how to support small business growth. Price comparison options are coming into place and more useful tools are on their way.”
As the industry evolves, the term “alternative lenders” should hopefully become obsolete. Fearnall looks back on his experience in the media world to assess the future.
“For a long time, anything outside of broadcast, print or radio was known as ‘new media.’ It seems crazy now, but it lasted for a while. The same thing will happen with lending. My sense is that there is an acceleration of change on all fronts in our world. In the next 5 to 10 years we will see that shift as people become more informed.”
At the forefront of this revolution, OnDeck is in a great position to better the experiences of small business owners. However, it seems the whole industry, including regulators, need to come together to make real change happen.