A new Boston startup spun out of Massachusetts' largest community bank has a tall order: helping banks survive the continuing onslaught of online lending startups that have become pervasive in the fintech world.
To get started, Numerated Growth Technologies has come out of stealth mode with some strong allies. As part of its Wednesday unveiling, the startup announced it has raised a $9 million Series A round led by Venrock, the venture capital arm of the Rockefeller family, and Cultivation Capital FindTech Fund. Multiple banks, including Eastern, as well as Boston VC firm Hyperplane and FIS, a publicly traded fintech company, also participated.
"This is one of the very rare examples of the banking and VC industries getting together in partnership to create a company," CEO and founder Dan O'Malley told me. O'Malley was brought on by Eastern Bank in 2014 to startup Eastern Labs, the fintech incubator where he helped build Numerated. He was previously CEO and co-founder of PerkStreet Financial, an online banking startup that shut down in 2013. Before that, he was at Capital One, where he helped start its payments division.
Numerated says its software can process bank loans in under five minutes, from application to funding, without having to visit a branch. This "real-time lending" is accomplished through the use of data science models to digitize a bank's lending startups, O'Malley said. While the startup is getting its start in small business loans, the founder and CEO said Numerated eventually plans to expand to personal loans.
Numerated's software relies on a number of data sources to assess business loan applications, O'Malley said, and the startup has found that its findings are more accurate than when a banker manually assesses an application's various aspects, such as the kind of risk associated with the industry the business is operating in. If a business disputes Numerated's decision on a loan application, bankers are able to conduct a review of the data sources.
The startup's software also provides banks with marketing automation tools that allow them to reach customers and prospects through email, direct mail, website and mobile banking. For instance, O'Malley said, the software can automatically email every customer who's eligible for a loan every week. It can also target businesses by industry within a certain radius of a bank. "It's incredible targeting," he added.
"This is the time for banks to have the same tools that startups do."
O'Malley said Numerated already has four customers, including Eastern and First Federal Lakewood, and nearly 100 banks have made inquiries about the software before the company made any public announcements. Before the startup officially spun out, the loan processing software had been used by Eastern Bank to facilitate nearly $100 million in loans.
Numerated's launch comes at an opportune time for banks as they face greater competition from online lenders focusing on small- to medium-sized business loans. While online lenders currently constitute a small fraction of business loans, Morgan Stanley estimates their market share will grow 47 percent annually through 2020, Harvard Business Review recently wrote. Online lenders include like Lending Club, which went public in 2014, to Kabbage, which has raised hundreds of millions of dollars.
"This is the time for banks to have the same tools that startups do," O'Malley said.
