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Payment Fintechs Leave Their Mark On Small Business Lending


Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Every Industry Is Now A Technology Industry

Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Payment Fintechs Leave Their Mark On Small Business Lending

Aug. 28 2018 — Funding day-to-day operations is a persistent challenge for U.S. small businesses. A recent S&P Global Market Intelligence survey found that, over the past two years, small businesses in the U.S. sought lending primarily to finance working capital needs. Fintech companies are stepping up, and using innovative methods, to meet the demand.

Several fintech companies are using data from non-lending relationships to become larger providers of working capital. As these lenders integrate further into their customers' businesses, they will use their position to issue fast approvals and provide non-conventional loan products, chipping away at market share held by longstanding players, including banks.

Evolution of an old industry

Fintech companies in the payment space have become active lenders in recent years, using their access to clients' real-time cash flow data to provide them financing. While their offerings vary, a number of these newer lenders provide merchant cash advances, or MCAs, which establish a fixed total repayment amount and allow borrowers to determine what percentage of their card transaction volume to put toward their balance. The payment company deducts this percentage from every card transaction until the full amount is paid.

This effectively turns debt servicing into a variable cost that fluctuates based on the level of sales activity, though most lenders require some form of minimum payment amount.

PayPal Holdings Inc. and Square Inc., two of the largest companies in this sector, have used customer data to underwrite loans and make a splash in the marketplace, originating more than $5 billion in loans since 2015. In 2015, Bryant Park Capital LLC estimated the total annual origination volume for the MCA industry, which is composed of hundreds of lenders, at $10.7 billion.

This kind of practice is not new. Merchant cash advances blossomed in the early 2000s but the entrance of fintech companies arguably marks an evolution, in terms of company scale and technological sophistication, in an industry previously dominated by private specialty lenders. Incumbents such as Rapid Financial Services LLC and Strategic Funding Source, Inc. are sizeable competitors, but they do not offer the same range of services as payment companies, nor do they integrate into their customers' business processes in the same way.

Merchant cash advances have received negative attention in the past due to the high effective rates charged by lenders, with annual percentage rates often coming in the high double digits. Moreover, a period of better-than-expected revenue could actually increase the annualized yield paid by the borrower since the total payment amount is fixed. Given the onerous terms, most MCA providers targeted borrowers who could not obtain traditional financing or who simply needed cash very quickly.

Fintech companies will try to combat this narrative with the convenience of their service and, possibly, lower pricing. Paypal Working Capital, for instance, bases fees on an annual percentage rate that is significantly lower than many other legacy players in this sector.

Fintechs continue customer integration, but banks retain advantages

Integrations with small business software are not restricted to payment terminals. Several digital lenders link to borrowers' bookkeeping software, like Xero or Freshbooks, to ensconce themselves in the real-time flow of their customers' businesses. And just like in the payments space, some service providers are leveraging their existing relationships and data access to offer financing themselves. Intuit Inc.'s QuickBooks and competitor Zipbooks, two bookkeeping software providers, both offer working capital financing to eligible customers.

A number of national banks have taken notice of fintech companies moving into small-business lending and many have already launched projects to ease the process of funding working capital. Fundation Group LLC, a digital lending platform that offers customers fully automated online lending applications, has partnerships with regional institutions including Citizens Financial Group Inc. and Regions Financial Corp.

Banks still have some fundamental advantages, including access to cheaper funding than digital lenders. Any small business with the ability to qualify for a traditional bank loan would likely benefit from lower rates.

Trust also remains important to borrowers, and banks still seem to have the advantage there. Our survey shows 42.1% of respondents citing an existing relationship with another lender as a reason for not applying for a loan from a digital lender.

However, nearly 50% of borrowers cited unfamiliarity with digital lenders as a cause of their aversion, suggesting that marketing and customer education may be just as large a hurdle as bank loyalty.

As part of their marketing, many fintech lenders extol their ability to service customers through digital channels without using physical bank branches. Using their proximity to customer data, these fintechs have already become large players in niche lending markets. This trend toward integration will likely continue as new players enter the market and current ones look to expand further.


S&P Global Market Intelligence's 2018 Small Business Borrowing Survey was conducted between Feb. 7 and Feb. 18 across a nationwide sample of individuals who make borrowing decisions for a small business. Small businesses were defined as any business with 2017 revenues of $10 million or less. Survey results have a margin of error of +/- 4.7% at the 95% confidence level based on the sample size of 449.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.

Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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Every Industry Is Now A Technology Industry


And every company is now a technology company.

Sep. 28 2018 — As machine learning (ML), artificial intelligence (AI), and robotics become commonplace and enter the operations of mainstream organizations, leadership teams are finding that failure to harness and leverage AI puts them behind the competition. Repeatable tasks are carried out by bots in a fraction of the time and employees are more focused on adding value, which means companies on the forefront of technology can be more reliable, more user-friendly, and faster to market.

In this highly disruptive environment, one traditional truth of business has withstood, or has perhaps even guided, these technological advances: above all, the customer experience is king. More than ever before, businesses have effective technologies at their fingertips to quickly and effectively address customer pain points, while at the same time dramatically improving their internal operations.

At S&P Global Market Intelligence, we strive to get beyond the buzzwords and truly deliver essential insight. And second to this, we strive to adopt real operational efficiencies into our delivery that are paralleled by the workflow efficiencies we promise to our customers. To that end, we are committed to remaining on the cutting edge of emerging technologies, first through optimization, then automation.

Download a recent analysis of how we’re applying new technology like natural language processing to structure data, robotic process automation to deliver insights faster, and predictive analytics to stay ahead of the market.

You can also view this analysis in Spanish, Portuguese, Mandarin, and Japanese.

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Natural Language Processing – Part II: Stock Selection

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Natural Language Processing, Part I: Primer

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Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming


The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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US Online Video Outlook To Eclipse $15B In 2018

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DVD, Blu-ray Spending Down $1B-plus For 11th Year In A Row

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