- An automated approval process reduces the time it takes for the borrower to get the capital he or she needs ASAP.
- Fintech company Velocity Group USA has a same day approval process and funds deals within 24-48 hours.
2. Simplicity For Lenders
- It takes banks 2-to-3 weeks and sometimes up to 8 weeks to complete the loan approval process. In fact, the corporate credit underwriting itself requires 28 separate tasks to arrive at a decision
- Lenders such as Velocity Group USA can get deals approved the same day and be funded within 24-48 hours.
3. Hard for Banks to Make a Profit
- Banks incur $4,000-$6,000 in underwriting expenses for each credit application and are therefore unable to turn a profit unless the loan size exceeds $500,000
4. Banks Are on Their Way Out of the Space
- Some of the country’s very biggest banks including Bank of America and J.P. Morgan Chase are the most likely to shut down lending to small businesses.
- Small business lending is down across all banks but the “Top Four” cut back significantly relative to the rest of the banking sector.
5. High Growth Trajectory
- The five most prominent fintech lenders to small businesses are on track to grow by an estimated 21.5 percent annually through 2021.
- If Fintech Lenders were given regulatory access countrywide, they would bring financial inclusion to underbanked areas in the U.S thus democratizing access to capital. This would in turn, re-energize the country’s small businesses which create the majority of net new jobs in the U.S.
- Lastly, given the high underwriting costs, banks have just chosen not to make loans under $250,000 and have created a vacuum for fintech direct-lenders like Velocity Group USA.
6. The Downfall of the Banks
- Sixty-three banks have failed since 2013 through June while only 14 de novo banks have been launched.
- In Texas, which is known for having the most banks of any state in the country, only one newly minted bank debuted since 2009.
7. New Status Quo
- “While bank regulators are moving sluggishly compared to the rest of the world in adapting to the fintech revolution, there are numerous signs that the status quo may be in for a surprising jolt.” -Kenneth Singleton, Professor, Stanford Graduate School of Business
- OCC releasing fintech bank charter applications (read more here)
8.Fintech Companies and Banks Coming Together
- The Conference of State Bank Supervisors has extended an olive branch to the fintech community in the form of “Vision 2020.”
- CSBS formed a 21-member “Fintech Industry Advisory Panel” with a recognizable roster of industry stalwarts: small business lenders Kabbage and OnDeck Capital are on board, as are consumer lenders like Funding Circle, LendUp and SoFi Lending Corp. The panel also boasts such heavyweights in payments as Amazon and Microsoft.
- CSBS and the Fintech Industry are “having a dialogue… we’re asking the industry to work together (with us) and bring us a handful of top recommendations on what states can do to improve regulation of nonbanks in licensing, regulations, and examinations.” says Margaret Liu, Deputy General Counsel, CSBS