WHY THIS MATTERS IN BRIEF
The borders between previously distinct industries are eroding and blurring, and now companies would be wise to re-evaluate the competitive landscape before they find themselves on the wrong end of disruption.
It used to be that a tech company was a tech company and a bank was a bank, but now it seems every company is a tech company and every tech company is trying to be everything else, and now, according to Karen Mills, one of former President Barack Obama’s cabinet members for small business, two tech behemoths in particular, namely Google and Amazon, are poised to put competitive pressure on traditional banks in the small business lending arena as they up the ante and push to disrupt the market, dealing a blow to established lenders.
“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?”
Earlier this year, Amazon said it had lent more than $1 billion in small business loans to merchants looking to expand their businesses, via its website.
Online business loans have increasingly become the priority of a number of fintech lenders with US digital lender Lending Club, for instance, allowing investors to loan money directly to small and medium-sized enterprises (SMEs).
“When I look at it from a US 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,” said Mills, “Amazon has clearly signalled 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.”
Mills’ comments come amid rumblings of financial regulation for fintech firms.
In the U.S., a debate has erupted over whether the federal government should grant technology companies special banking charters that allow them to compete with banks nationwide.
“I think this is one of the as-yet-untold stories of fintech,” Mills said.
The Office of the Comptroller of the Currency (OCC), one of many regulators in the U.S., sparked opposition from state regulators and banks when it published guidance last year about the possibility of a national bank charter for fintech companies.
Mills said there is currently a “spaghetti soup” of multiple financial authorities, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the US Securities and Exchange Commission (SEC). But she added that there is currently little oversight over small business lenders.
She claimed there is a present fear among both traditional lenders and fintech companies that established internet giants may step up to the plate.
“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.”
