When Banks and Fintech Collaborate, Everybody Wins
How Do You Make Small Business Capital More Accessible? For Fintech and Banks, You Stop Competing
Everyone has moments from early in the pandemic that they’ll likely remember for years. For me, it was a virtual meeting with the Lendio leadership team in March 2020. As regulations closed the economy down, our customers’ small businesses were struggling to stay alive. We could see first-hand that long-standing family owned shops, new entrepreneurs, and community businesses were suffering.
The big question for us was: What could we at Lendio do to help? As the Small Business Administration (SBA) was developing the Paycheck Protection Program (PPP) program, we pivoted our processes and infrastructure, and evolved our online loan application to facilitate these PPP loans. With our technology, we had an opportunity to power banks to fund their own customers which also allowed us to negotiate PPP funding capacity for our own small business customers.
We got to see first-hand how powerful and beneficial it was when financial technology (fintech) and banks worked together. It was a light-bulb moment for us at Lendio and showed us that fintechs and banks had to stop competing and start collaborating. We could see and imagine what meaningful things these two industries could do together.
The case for collaborating with your competition
As the fintech industry advances, we’re finding that collaboration with banks is necessary to reach underserved businesses and expand access to capital. Initially, fintech roared into the industry on the notion that conventional banking was broken and that the creativity, technology, and agility of fintech would allow them to fix it. Of course, we all wanted to win over market share in the process.
Traditional lenders watched us upstarts with a mix of skepticism and fear, hoping the fintechs would struggle or even fail. But it’s hard to size up the competition and not see its benefits.
While the pandemic wasn’t the first time these two industry players worked together, it did reveal how we could work together quickly and at scale. Lendio alone partnered with 320 financial institutions — everyone from big banks to CDFIs to regional lenders — which allowed us to distribute $10 billion in PPP funds and facilitate more than 200,000 PPP loans. The partnerships were case studies in playing to each organization’s strengths and building something greater than the sum of its parts. The result was a win for banks, fintechs, and, most importantly, the small businesses that depended on PPP funding to survive.
How fintech and banks got better when they worked together
The pandemic partnerships showed how we can collaborate to move fast and make a real difference. They also showed that together we can improve access to capital for underserved communities.
For example, a study by New York University showed that Black-owned businesses struggled to obtain PPP loans from traditional banks. However, they were 12 percent more likely to be approved for a PPP loan by a fintech lender than a community bank. A February 2021 SBA report noted that industry-wide, only 4.8 percent of first-round PPP borrowers were Black. But at Lendio, 24 percent of our first-draw PPP borrowers were Black business owners. Women, too, were more successful at securing first-round PPP funding through fintech. Women comprised only 13 percent of approved PPP applications. At Lendio, 37 percent of approved first-round PPP loans went to women-owned businesses.
Technology made the difference.
When banks collaborate with fintech, they gain agility, speed to market, and technology that enhances the digital customer experience and expands banks’ reach. When fintech collaborates with banks, there’s greater access to customers, capital, and long-term industry expertise. All of this improves access to capital for underserved entrepreneurs. When we work together on a unifying mission, the small business customer sits at the center of every decision and every step we make.
Working together builds a bigger pie
The days of simply winning or losing against banking or fintech competitors are over. Small business customers don’t see their banking options as an all-or-nothing decision, and neither should anyone who serves them. No one really wins when we all compete for the same small slices of pie. Together, we actually make the pie bigger.
Fintechs and banks that recognize how collaboration can improve service to small business customers will grow their own business and emerge as the industry’s next-generation leaders. It’s an exciting shift and a necessary one if we want to expand access to capital — and collectively reap the rewards small businesses provide to their communities, families, and economy.
