Bill Phelan PayNet, Inc. #LEND360 LEND360.org

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Bartholomew Fisher
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2 Bill Phelan PayNet, Inc. #LEND360 LEND360.org

3 A Ground Floor Opportunity taking the risk out of small business lending Lend360 October 2015 Atlanta, GA PayNet and PayNet AbsolutePD are registered trademarks of PayNet, Inc. PayNet AbsolutePD Outlook is a service mark of PayNet, Inc PayNet, Inc.

PayNet AbsolutePD are registered trademarks of PayNet, Inc.

4 SMALL BUSINESS CREDIT MARKET ($ in billions) Source: Federal Reserve Board Financial Accounts of the U.S. March 12, 2015 CONFIDENTIAL

5 Thomson Reuters/PayNet Small Business Lending Index

6 SMALL BUSINESS CREDIT GAP Business credit applicacons remain unfulfilled from tradiconal channels Borrower Credit Quality Avg. Probability of Default ApplicaDon Approval Rate Prime 0.4% 94% Near Prime 1.1% 85% Average Risk 2.5% 73% Source: PayNet Research Sub- Prime 11.0% 57%

Probability of Default ApplicaDon Approval Rate Prime 0.

7 SMALL BUSINESS CREDIT RISK MISUNDERSTOOD Peak Defaults During Recession High Yield 15% 15% 10% PayNet Small Business Default Rate High Yield Company Default Rate Small Business 6.2% 5% SOURCE: WALL STREET JOURNAL 9/25/14 0%

Rate High Yield Company Default Rate Small Business 6.

8 BANK LENDING PROBLEM Many community and regional banks lose money from small business loans $100,000 $100,000 Loan Loan Example Example Loan origination Loan origination$1,000 $1,000 - $1,500 - $1,500 Underwriting Underwriting $1,000 $1,000 Loan review Loan review $100 $100 Operations Operations $250 $250 Monitoring Monitoring $500 $500 Compliance Compliance$250 - $250 $500- $500 Total Total $3,100 $3,100 - $3,850 - $3,850 Interest Interest Income Income (assume (assume 6.25% 6.25% loan) loan) $6,250 $6,250 Loan cost Loan to cost bank to (3%) bank (3%) $3,000 $3,000 Total non-interest Total non-interest costs to costs generate to generate loan loan $3,100 $3,100 - $3,850 - $3,850 Net Income Net Income ($600) to +$150 ($600) to +$150

$250 $500- $500 Total Total $3,100 $3,100 - $3,850 - $3,850 Interest Interest Income Income (assume (assume 6.25% 6.

9 ` FIN tech (noun) Companies that use software, algorithms and data to lower the cost of delivering financial products to markets. - Wharton FinTech Club

10 ONLINE CREDIT PROCESS Online origination platform Direct Platform Broker Data Sources Credit Bureau Scores Bank Account Information Financial Statements Borrower Demographics Access to Borrower Internal Systems Social Media Personal: FICO Business: PayNet Experian Equifax SBFE Balances Deposits Cash Flow Revenue Profit Size Age Industry Geography Accounting Software - QuickBooks Inventory Management Software UPS/Fedex transactions Facebook Twitter Yelp Data Aggregation Proprietary credit scoring model Yes Predictive Modeling No

Equifax SBFE Balances Deposits Cash Flow Revenue Profit Size Age Industry Geography Accounting Software - QuickBooks Inventory

11 BANKABLE CREDITS Banks vs. Online 100% 90% 80% Already 70% Up Market 60% 46% 50% Higher Credit Quality 80% 50% 92% 40% 30% 20% 10% 0% 10% Bank Online BANKS MCA 22% Borrowers 96% 21% 58% 36% 35% 25% 17% 17% 7% 12% 4% 3% 4% 3% % 9% ONLINE 25% 35% 52% 61% 87% 80% 54% 49% A 720+ B C D F <600

92% 40% 30% 20% 10% 0% 10% Bank Online BANKS MCA 22% Borrowers 96% 21% 58% 36% 35%

12 ONLINE LENDERS Credit Quality Moving Up Market Higher Credit Scores

13 ONLINE LENDERS $ in thousands, Moving Up Market Larger Loan FaciliCes

14 ONLINE LENDERS In months, Moving Up Market Longer Average TransacCon Terms

15 BANKS vs. ONLINE Borrower Tenure Already Up Market Borrower 10+ Years in Business

16 ONLINE LENDERS 2009 vs Moving Up Market From Retail Restaurants To ConstrucCon Prof. Services Health Care Wholesalers

17 FORECASTED DEFAULTS BY INDUSTRY - ABSOLUTEPD Outlook is for Above Average Credit Quality through

18 BANKS LOSING LOAN SHARE AT ALARMING PACE Market share of lending -11% last 7 years. Even 20 YIB going elsewhere. 0-5 YIB Cratering for banks. Market Share 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-5yr 5-10yr 10-20yr 20+ yr Grand Total % 53% 58% 72% 65% % 52% 58% 75% 68% % 52% 53% 69% 63% % 63% 51% 70% 64% % 48% 49% 69% 61% % 49% 47% 67% 60% % 45% 46% 66% 58% 2015 YTD 41% 43% 44% 66% 57%

Market Share 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-5yr 5-10yr 10-20yr 20+ yr Grand Total 2008 61% 53% 58% 72%

19 MARKET VALUE CompeCtor Comparison ONDK LC ZION CMA Industry Market Cap: M 5.38B 5.87B 7.60B M P/S (bm):

20 STOCKS & BONDS CAPITAL MARKET MAP 2014 Capital Markets issuance $2.2 trillion. $35 billion in revenues to the providers. ~$300 billion in value to issuers.

21 SMALL BUSINESS CREDIT MARKET MAP FUTURE Annual issuance $4.4 trillion. Market Data Investors $54 billion in revenues to the providers. Trustees/ Custodians U.S. Credit Market Broker/ Dealers ~$600 billion in value to issuers. Marketplaces Lenders

22 THERE IS NO PROBLEM THAT I CAN T MAKE WORSE Lemon found defeccve only aher bought. Adverse seleccon "the bad driving out the good. Adverse seleccon leads to a market collapse.

23 THANK YOU Bill Phelan PayNet, Inc. Password: Lend360

THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING

THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING taking the risk out of small business lending The RMA National Conference November 2015 THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING Reports