Technological innovations have played an important role in disrupting sometimes complacent industries and markets. Transportation innovators like Uber and Lyft have used new technologies to revolutionize the way individuals travel from location to location, while others like Plated and Blue Apron have begun to change individuals' food consumption habits.
Market entrants who have been able to successfully disrupt existing industries share at least one thing in common: their innovations allow them to provide the consumer with superior goods, products, or services beyond existing industry norms. Many times, such innovators are entering a heavily regulated market and often the smaller, more nimble size of new companies allows for them to incorporate new technologies faster than larger, long-term market participants.
Currently, one of the industries facing the most exciting disruptive innovation is financial services. From facilitating mobile and online payments and transactions, providing financial planning and advisory, to helping consumers and businesses receive loans and financing, Financial Technology (Fintech) has the potential to revolutionize the way consumers undertake financial transactions.
The size of the Fintech market is staggering. In the U.S. alone there are over 20,000 Fintech startups which are responsible for creating 500,000 jobs. According to a recent report, more than $50 billion have been invested globally since 2010 to fund new Fintech ventures. Recent figures point towards a continuing trend in investment, with 1st Quarter 2016 investment totals topping $5 billion.
One Fintech company helping to revolutionize how businesses access capital is The Credit Junction. Based in New York City, The Credit Junction is a data-driven lending platform that helps small to medium sized enterprises access capital to fund their operations. By incorporating new technologies and data-analysis methods, The Credit Junction seeks to provide customers with an efficient, transparent, and streamlined process for accessing loans.
I had the opportunity to sit down with The Credit Junction Founder and CEO Michael Finkelstein to discuss his business, the Fintech sector, and entrepreneurship. Hope you enjoy!
CG: Tell me about The Credit Junction. How did you conceive the idea for the company and what does The Credit Junction do?
MF: The Credit Junction is a data-driven lending platform that helps owners of small and mid-sized businesses grow their companies by providing fast, flexible and efficient access to as much as $5M in capital. We combine traditional credit metrics with data intelligence to create a more holistic view of the health of a small business. The financing that The Credit Junction provides not only helps small businesses grow, but also bolsters job creation and community development in towns and cities across the country. I think we can agree that the world changed post the 2008 financial crises. Due to the increased compliance costs and regulatory overhang, banks were forced to reevaluate their business and one result of that was shifting to larger size loan products. As such, many small businesses' access to traditional financial sources of capital began to shrink and they were forced to look elsewhere. Having been a small business owner much of my professional life, I knew the importance of capital and what it meant to the livelihood of the small business owner. The ability to use platform technologies to breakdown geographic boundaries and create a direct connection between borrower and capital provider started the conception. From there, the vision of focusing on suppliers, distributors and manufacturers and offering them an ABL style product is the foundation of which The Credit Junction is built upon.
CG: How does your business differ from that of other lending platforms?
MF: Many ways. First, many of the other platforms focus on main street - restaurants, retailers, service providers that generate up to a few million dollars in revenue. The Credit Junction focuses on a whole other set of small businesses -- suppliers, distributors, manufacturers that typically have revenues from $2M to $25M. Next is loan products -- most of the other platforms offer term products, with principal and interest amortizing over a set time period, either months or years. The Credit Junction's primary product is a line of credit, which is interest only payments. We are able to do this because we are the first platform to employ an asset based lending credit process (the others are typically cash flow focused). Our loan sizes are from $500K to $5M (where as the others go up to a $500K ceiling) and TCJ is a first lien, fully secured provider of credit. So as you can see there are a multitude of differences
CG: As a part of the thriving Fintech sector, how do you see financial technology advances impacting not only commercial lending, but also the broader financial sector?
MF: Because of the financial crisis of 2008, every part of the bank's product suite is under attack by digital disruptors and Fintech upstarts. Lending, wealth advisors, payments to name a few.
Are banks going away? Of course not. They have the lowest cost of capital given their depository borrowing base and are going to be an integral part of the financial sector. Is every Fintech company going to survive and succeed? Of course not. I anticipate you will see the smart Fintech companies collaborate with the banks, and the innovative banks embrace FinTech companies to help enhance their service offering.
CG: You are based out of New York City, which is considered by many to be the financial capital of the world. Are there benefits to being an NYC based Fintech startup and how would you rate the NYC startup scene as a whole?
MF: Absolutely. The core of what we do relies on extensive credit expertise, augmented with elegant data intelligence. People who have been in financial services, on both the traditional credit and technology side, add not only functional abilities, but an experiential heuristic that cannot be underestimated. Those individuals reside in and around NY and I think this is the main reason that NYC has become the nexus of the Fintech boom
CG: The process of building a successful startup is rife with challenges. What advice do you have for other entrepreneurs seeking to launch a startup in a highly competitive and cutting edge industry such as yours?
MF: I think building a business of any kind, whether it be in Fintech or not, is hard work. Really hard work. For every owner it is more than just potential financial success...it has to be about working with a group of colleagues to create something special. I wrote a blog piece on this for our site and would refer you to my personal tribute.
CG: Any parting words?
MF: Small businesses are the lifeblood of our nation's economy. That lifeblood needs capital to flourish, and for our economy to get back on track, we need to open up those avenues of credit. The Credit Junction is a part of the larger developing ecosystem focused on providing these small business' owners access to capital in ways heretofore unavailable. That capital not only affects the individual businesses, but has a far reaching impact across local, regional and state communities. That is what drives me to go to work each and every day.