Wall Street embraces Los Angeles businesses turning the financial system upside down



Sean Salas, Managing Director of Camino Financial

Local FinTech companies are making payments and transacting financial transactions at lightning speed. They are turning credit score models upside down and loaning money to small business owners from underrepresented backgrounds.

But Wall Street and the traditional big money houses don’t look suspicious. Instead, they’re funneling billions of dollars into fintech. In a September report, S&P Global Market Intelligence estimated that fintech companies in the United States attracted nearly $ 7.5 billion in venture capital funding in the second quarter of 2021 in 194 deals, or an increase of almost 70% year over year.

Much of those deals have been seized by Los Angeles-based companies.
In LA, some fintechs have gone public, such as Dave Inc., based in West Hollywood and Aspiration Partners Inc, based in Marina del Rey. end of the year.

Others are in a build-up phase with hundreds of millions of dollars in support and gearing up for their next growth spurts.
These heavily funded firms include Altruist Corp., a Venice-based fintech start-up that is building a digital investment platform for registered investment advisers, and BSD Capital Inc., which does business as Lendistry, a downtown-based fintech company providing billions of dollars in Covid-19 relief. financing of small minority-owned businesses.

There’s also Welcome Tech Inc., a Brentwood-based digital platform designed to give Latino immigrants access to banking, health care and other daily services without paying foreclosure fees. Burbank-based Zest-Finance Inc. is focusing on credit underwriting standards and software to improve credit scoring methods for financial institutions wishing to eliminate loan bias.

These four companies alone – Altruist, Lendistry, Welcome Tech and ZestFinance – have received $ 238 million in venture capital over the past two or three years.
And investors are ready to pour more bags of cash into LA fintechs.

Last week, Santa Monica-based Grow Credit Inc., a black-owned fintech lender that helps consumers leverage their subscription payments to create free credit with Equifax Inc., TransUnion, and Experian, aligned $ 106.3 million in equity and debt financing. OK. Investors include Jason Robins, managing director of sports betting operator DraftKings Inc .; Baron Davis, National Basketball Association All-Star; and New York-based investment firm Arena Investors.

Over the next few weeks, Camino Financial Inc., a downtown fintech lender, plans to double the size of its $ 100 million lending platform to underfunded small businesses in the Latin American community, according to Sean Salas, Co-Founder and Head of Camino Financial. executive.

In July, the company passed the milestone of lending $ 100 million to more than 5,500 underserved small businesses. The fintech is now planning to enter into a debt deal to take its line of credit to a level well above that of its current lending platform before the end of the year. It also closes a significantly larger capital increase than its $ 8 million Series A, according to Salas.

Old money
In February, private auto lender Westlake Financial Corp., formed in 1978 by billionaire Don Hankey, decided to join the fintech action.

In April, the Mid-Wilshire-based lender – with last year’s profit of $ 755 million on revenues of $ 2.3 billion – reorganized into a fintech. Its new name is NowLake Technology, which is the entity that oversees Westlake, its auto loan business and all other lines of business.

NowLake has companies that develop software for the automotive finance, technology, real estate, and insurance industries. He also plans to use the software to help him lend for jewelry purchases, consumer loans, credit cards, cell phones, solar equipment, and elective medical procedures.

Big commercial banks and credit unions are also paying attention to the fintech world, in large part because the pandemic has placed a new emphasis on digital banking services due to office closures and limitations on in-person shopping.

Last month, Santa Ana-based Banc of California Inc., which established its dual headquarters in the Westside of Los Angeles this summer, invested $ 8 million in fintech OneNetworks Inc., which operates as from Finexio, an Orlando, Florida-based business payment service provider. Banc of California wants an exclusive right to use Finexio’s payment service to expand its product offering to its business customers and to use fintech software to develop associated payment and loan and deposit services, said Ernest Rolfson, founder and CEO of Finexio.

“They are truly a major player in the Southern California business economy and are growing statewide,” Rolfson said. “I think they’re trying to grow.”
The downtown-based City National Bank is investing in the fintech space, as are some local credit unions through a start-up venture capital group aimed at investing in fintechs.

Nearly two dozen credit unions across the country have banded together to form their own venture capital fund, called Curql Collective, to invest heavily in fintechs like Zest.
Based in Des Moines, Iowa, Curql Collective unveiled its $ 150 million war chest in April. Local members include the Torrance-based Unify Financial Credit Union and the Santa Ana-based SchoolsFirst Federal Credit Union.

As for City National, it has bought two Silicon Beach-based companies, Filmtrack and Exactuals, in the past two years, said Verna Grayce Chao, City National Bank’s executive vice president in charge of its fintech subsidiaries.

Filmtrack modernized City National’s entertainment payments space, and Exactuals is a cloud-based platform that enables the bank’s entertainment customers to calculate, track and analyze billions of dollars in distribution and revenue revenue. participation payments.

The most recent agreements are based on the acquisition in 2010 by City National of Datafaction, an El Segundo-based company, a developer of accounting solutions software.
“It deepens our relationship with our customers and expands that engagement, which all businesses are looking for,” said Chao.

New rules
As the popularity of the fintech industry has gained in California, so has its regulation.

Of particular interest are peer-to-peers, which manage Internet money between parties without the help of a bank. They operate in a gray area in the banking world without having to provide much in terms of registration or licensing by state and federal regulators, as they technically don’t charge interest or fees for their services.

In May, the new Office of Financial Technology Innovation, which is the leading government agency focused on all things fintech in California, appointed consumer technology lawyer Christina Tetreault to head the agency. .

His office emerged from a revamp of California’s new consumer financial protection law. The office is not a regulator, but will play a pivotal role in setting new rules for fintech. This will set off red flags about how new technology could harm consumers.
“We’re here to help entrepreneurs understand our expectations and support responsible innovation and job creation in California,” said Tetreault.

“The office itself allows us to better coordinate efforts so that we can pay more attention to how the department tracks the arrival of new financial products and services,” she added. “Technology is at the heart of all of these developments. This office’s engagement with these entrepreneurs is key to helping us understand how these new products may or may not pose unique legal questions.

Jason Wilk, Managing Director of Digital Banking Application Dave, is delighted with the dialogue with Tetreault.

“It’s still relatively the beginning, and we’re seeing more conversations happening; people are generally interested in learning more about (fintech) companies because of the number of clients we all acquire. It is natural that there is some interest in monitoring the industry to ensure that the good players are actually good and kick out the bad, ”he said.

“On the contrary, we are in favor of surveillance to make sure people don’t try to spoil the party for everyone.”

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