Competitive pressure on traditional banks in the small business lending arena are poised to be put by tech behemoths Google and Amazon, believes one of former President Barack Obama’s cabinet member.
The tech giants would probably push to disrupt the market and deal a blow to established lenders, said Karen Mills, who served as Obama’s administrator for small businesses.
“I think they are going to dominate the market, and that is the next phase that’s coming,” she told the LendIt Europe fintech conference in London.
“But the question is, in what form would that come, and… under what regulatory authority?”
For companies looking to expand their businesses, via its website, Amazon had lent more than $1 billion in small business loans to merchants, the company said earlier this year.
For a number of financial technology (fintech) lenders, online business loans have increasingly become the priority. For example, investors are allowed to loan money directly to small and medium-sized enterprises (SMEs) by U.S. digital lender Lending Club.
“When I look at it from a U.S. view and a global view, the banks are going to come back in full force, including Barclays and others, and then on top of that you’re going to have definite presence of Amazon players,” Mills said in a TV interview.
“Amazon has clearly signaled they’re going to provide at least financing for their merchants that they know. And that’s very smart.”
The former politician, who is now a fellow at Harvard Business School, said “information aggregators in the days of artificial intelligence” — like Google — would also have a competitive advantage.
“If you think about what Amazon already knows about its merchants, and then you think what Google knows about everybody who is buying and selling through its platform, one can imagine a world where they have much more information about both on the credit side but also on the small business itself.”
There are rumblings of financial regulation for fintech firms and Mills’ comments come amid such rumblings.
Whether special banking charters that allow them to compete with banks nationwide could be granted to technology companies is a debate has erupted in the U.S.
“I think this is one of the as-yet-untold stories of fintech,” Mills said.
Guidance about the possibility of a national bank charter for fintech companies was published last year by the Office of the Comptroller of the Currency (OCC) which sparked opposition from state regulators and banks. The OCC is one of many regulators in the U.S.
including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the U.S. Securities and Exchange Commission (SEC), there is currently a “spaghetti soup” of multiple financial authorities, Mills said.
Fears that established internet giants may step up to the plate, is present among both traditional lenders and fintech companies, she claimed.
“If you look at the small business hierarchy needs, they need access to cash, funds, they need time, and they need more sales,” she said.
“And what if you were able to provide an efficient system that gave them more time to do all their work, access to capital and something that boosts their sales line? You could see how that player could win over a traditional player or even a new fintech.”
(Adapted from CNBC)