B2B Payments

Fed Vice Chair Reflects On Small Business Loan Industry Evolution

Randal K. Quarles, the Federal Reserve’s vice chairman for supervision, recently spoke at the HOPE Global Forums Annual Meeting to reflect on the changes endured by the nation’s small business lending market, according to reports on Friday (March 30) in JD Supra.

Quarles delivered a speech last week at the forum entitled “The Roles of Consumer Protection and Small Business Access to Credit in Financial Inclusion.” While much of the speech highlighted financial inclusion for individual borrowers, he also emphasized the changes brought upon the SMB finance industry due to industry consolidation and emerging FinTechs.

“Some of the large technology firms are providing credit at a rapidly growing pace to their built-in customer base of merchants,” he stated. “Some online lenders obtain access to a prospective borrower’s accounting software, merchant accounts, shipping and payroll data in real time in order to underwrite businesses. Business owners can receive funds in a couple of days or even hours.”

Despite this disruption, Quarles noted that traditional big banks’ share of the small business lending industry has actually increased, especially for smaller loan amounts.

Amid these shifts, he added that the rise in alternative lending players has potential to expand access to credit for SMBs and consumers, though while the industry “has great promise,” it also has “associated risks.”

“For example,” he said, “online origination platforms and more sophisticated algorithms may enable credit to be underwritten and delivered in a manner that is still prudent, but with greater efficiency, convenience and lower processing costs.”

Regulators, understanding this potential, do not want to restrict the ability for alternative and FinTech players to grow, he said.

“At the same time,” he continued, “[regulators’] interest is in ensuring that banks understand and manage their risks when introducing new technologies or partnering with FinTech companies, and that consumers and small businesses remain protected.”

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