Earlier this week, Bryan Yurcan, reporting for Bank Systems & Technology, wrote that Facebook is seeking regulatory approval to store money on its site for remittances for online purchases in Ireland.
Would you deposit funds in a Facebook bank?
Of course, Ireland is only the beginning. If Facebook finds success there, it doesn’t take too vivid an imagination to expect to see other countries in Europe following suit — and eventually even the U.S.?
This isn’t the only out-of-the-ordinary banking idea either. Suggestions that the U.S. Post Office allowing consumers to deposit money in a Post Office bank have been bandied about of late. Although many in the U.S. have never contemplated the idea of depositing their savings at the Post Office, that was where my savings account was over 30 years ago when I lived in Japan.
What other financial services could we expect to find in what would have been considered unlikely places only a few years (or even months) ago? Small business loans?
Additionally, Amazon.com offers small business financing to many of the vendors on its platform. Of course, they require the funds to be used promoting the Amazon channel, but the specialized financing makes it possible for small Amazon vendors to increase their inventories and compete with the big boys. Because Amazon has a vested interest in the success of the merchants on their platform, their loan program makes sense.
If social media powerhouse companies like Facebook are contemplating specialized deposit relationships for online remittance, how long will it be before other social media companies do the same? Would the ability to pay for your meal via Yelp or Four Square make them more relevant social media channels in the market place? Will other platforms like Amazon make small business lending to their participating merchants a part of their programs?
It would seem the biggest challenge to the traditional place small business owners go looking for financial services, the local community bank, is not only facing competition from their bigger siblings, but from outside the industry. Bankers who want to remain relevant in an ever-changing financial services climate need to start thinking less like bankers and more like entrepreneurs. This could likely change the way consumers and small business owners look at those relationships.
At the risk of admitting to geezer-hood, I’d be a lot less likely to trust a social media platform with my money than a 17- or 18-year-old might. Although I am a citizen of a number of social media communities, I’m not sure I share that level of trust.
Saying that, I am a huge fan of what Amazon is doing to help the merchants on its platform.
What does all this mean for Main Street? I think there are a couple of important takeaways:
Main Street business owners shouldn’t shy away from looking for financial services in non-traditional places. I’m not advocating that small business owners abandon the bank — I’m a big fan of the community bank and the community banker. I am suggesting that non-bank lenders and other financial service providers aren’t married to old paradigms that don’t encourage innovation. For example, bankers should be asking themselves why it takes them weeks or even months to approve and underwrite a small business loan when their non-bank counterparts are able to do it in a few days and sometimes even hours. I know non-bank lenders don’t face the same regulatory burden banks do, but I recently spoke with Evan Singer of SmartBiz, who, working with Golden Pacific Bank, has reduced the time it takes to underwrite a Small Business Administration-backed loan for $150,000 or less down to as little as five days. This is unheard of in SBA lending. I have to wonder why more banks aren’t doing this — or at least partnering with companies like SmartBiz to leverage similar technology.
Main Street business owners need to look for “best-fit” rather than relying on traditional sources. Most non-traditional or non-bank lenders offer specialized financing that allows Main Street business owners to capitalize on opportunities quickly. I think everyone would agree a low-interest, fixed-term small business loan is a first choice option, unless the time to funding costs more than a little higher interest rate. Is it unreasonable to expect the local bank could do the same? Yes, some of these borrowers are higher-risk borrowers with less-than-ideal credit, but isn’t the bank in a position to provide the same services to a small business owner as non-bank lenders — after all, they often have long-standing relationships with the business owners that bank with them, their cost of capital is significantly lower than non-bank lenders and they are members of the same local community. Maybe small business owners should be asking the banker that says “no” to the low-interest loan, “What other options can you provide?” or “Who do you partner with that can help me?”
Main Street should expect more. Most community banks tout the relationships they maintain with their customers as one of the reasons we should bank there. If I never get a visit from my banker, and he doesn’t seem engaged in my business and can’t help me with my financial needs, why shouldn’t I take my business online to someone who will — even if it does feel more “transactional?”
Let me be the first to admit these are complicated issues that don’t have simple solutions. I am, however, convinced there are solutions. I’ll admit I question why all the innovation in financial services and small business lending seems to be taking place outside of the industry. I’d like to see more innovation coming from within the bank. Small business plays such an important role in our economy and the partnership with community bankers has been a big part of Main Street success for a very long time. I’m afraid we are reaching a tipping point where the industry needs to innovate or become irrelevant.
A Main Street business evangelist and marketing veteran with 25 years in the trenches, Ty Kiisel writes about small business finance issues for lendio.com and is author of "Getting a Business Loan: Financing Your Main Street Business."