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Here’s one fintech that’s still going head-to-head against banks

By Bryan Yurcan for American Banker,

While there seems to be something of a detente between banks and fintechs as they start to partner more, especially on general consumer financial products, some fintech companies are still looking to beat banks in serving specific types of customers.

The latest example is a partnership announced last week between Lyric Financial, a firm that provides financing services to musicians, and TuneCore, a digital music publishing and distribution provider for independent musicians. The two companies are offering a product, TuneCore Direct Advance, that allows TuneCore artists to take advances against their future distribution sales revenue.

If musicians who use TuneCore needs money to fund a tour or new album, they can fill out some basic information using the service online or on a mobile device. Since TuneCore already has that musician’s sales history, there’s no need for them to input any financial information. Based on that sales history, an algorithm created by Lyric Financial determines whether the musician qualifies for the advance and, if so, the terms. He can then receive the money within 24 hours via PayPal or the ACH network into his bank account.

TuneCore Direct Advance is part of a larger trend of tech solutions that bring innovation to a previously cumbersome, niche market. Last month the fintech firm Exactuals partnered with City National Bank on a service to automate residuals payments to employees in the entertainment business. While that service featured a partnership with a bank, TuneCore Direct Advance does not, and that’s by design, said Lyric Financial founder and CEO Eli Ball.

Typically, musicians not signed to a major record label (which makes up the vast majority of independent artists) would use credit cards or a personal loan from a bank to fund things like tours or new projects, he said.

“We wanted to offer them something different,” Ball said. “Credit cards and bank loans can be dangerous; they can get upside-down with those real quick. But this is not a loan; it’s an advance based on forecasted earnings. So for example we’ll buy $100 of their future sales for $95 today, so the creative gets the $95 and we’ll collect the $100 directly from their distributor” — in this case TuneCore — “at a later date. We priced it competitively because we hope it can replace credit cards and bank loans for” independent artists.

Musicians who use the service would pay 3% to 5% on the advance, based on the length of the payback period. Such a rate should make the service an attractive alternative to traditional credit cards and loans, said Craig Focardi, an executive adviser for retail banking at the research and consulting firm CEB.

“If it is 3-5%, and they’re also not looking to force other products on them, then that’s a good rate and I can see it being appealing for an independent musician looking to finance a project,” he said.

Focardi said such customers, who may have been difficult and not cost-effective for banks to serve in the past, can start to become more profitable thanks to technology.

“If banks could provide an integrated, turnkey service like this for independent musicians it could be something for them to look at,” he said. “This is one of the attractive things about the development in technology; previously expensive to serve customer segments can be made more profitable.”

But the firms behind TuneCore Direct Advance believe they have an edge over any loan or advance that a traditional financial institution could offer because the musician’s sales data is already integrated. That makes the application process easier.

“The traditional [loan] process involves filling out a lot of paperwork and it’s time-intensive,” said Scott Ackerman, TuneCore’s CEO. “But we already have all the artists’ information. Essentially all they need to do is press a button.”

Lyric Financial plans to roll out this service beyond just indie musicians and to the larger music industry community. In addition to its partnership with TuneCore, Lyric is also working on a deal with “ a major music corporation” to provide a similar service to its artists, Ball said.

“We envision this as being a ‘virtual ATM’ that works with suppliers to help manage cash flow and budgeting for musicians,” he said.

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