Small Business Prefers Suits to Hoodies . . . Mostly

Small businesses prefer to deal with banks instead of fintech companies according to a survey conducted by the Federal Reserve Bank of New York, which is summarized in a recent Financial Times article.

There appear to be two main reasons for the dislike:

One is that online lenders typically have a higher cost of capital than banks, and so they also charge higher interest rates, which is what drives the dissatisfaction. The second is that online lenders are targeting riskier businesses, who wouldn’t be able to borrow from a bank. That would suggest the higher level of dissatisfaction about repayment terms and interest rates arises from the fact they are lending to businesses that generally encounter high borrowing costs, no matter who they are borrowing from.

It’s not all bad news for fintechs, however:

They score better in terms of speed — ‘Long wait for credit decision’ — and also in terms of ease of borrowing — ‘Difficult application process’. So, the hype about streamlining processes and building better customer experiences is not all hype, though they do just slightly worse in terms of transparency.

Good charts and interesting reading. A must read for anyone in fintech and consumer banking.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s