The Paycheck Protection Program is one week into its second round of small business funding during the coronavirus outbreak. Some financial technology companies, also known as fintechs, have obtained permission from Congress to offer these loans. They include PayPal, Square, Intuit, Kabbage and others.
The hope is that they can get money for people and businesses that haven’t worked with traditional banks in the past. Fintechs say their technology is an advantage. Is it true? I dig deeper into this in QA, where I take a second look at a great tech story. I spoke with Felix Salmon, chief financial correspondent at tech site Axios. The following is an edited version of our conversation.
Felix Salmon: Banks have been a little slow in setting up websites. Their clients found it impossible to reach a human being or know where they stood, if their applications went through. There was a general feeling that since this was all done on the internet, internet companies might be better than banks at doing it. So pretty quickly this program was opened up so that eligible lenders included not only banks but also internet companies like PayPal and Quicken and Square.
Molly Wood: I feel like one of the issues with these lenders, and fintech companies and neobanks in particular, is that they’re kind of replacing that idea of community banking. Do we have evidence that they are, or could be, more inclusive than established lenders?
Salmon: I think they are in [that] if you apply for a PPP loan from PayPal, your chances of getting it are probably the same no matter who you are. Since many of the people who apply, if not most of the companies that apply, initially have no special relationship with these fintechs. This does not mean that they will get their loan. It is far from clear that PayPal’s ability to obtain loans through the [Small Business Administration] system and getting funds for people is more important than any other bank. But at least you can feel like you’re on an equal footing, if that’s any consolation, which it probably isn’t, to be honest.
Wood: Who applies through, say, PayPal or Square or Intuit? Who are these small businesses?
Salmon: As a first approximation, all those who did not obtain a loan or who could not get out of it when they applied to their bank. Whatever the reason, if you don’t have your money, it’s not that you’re giving up on your bank entirely, but you’re saying, “Well, maybe I can’t get a loan through through my bank. I should try to get a loan through someone else. Since it’s not difficult to apply through PayPal or Quicken or Intuit, you might as well give it a try. If they come back to you and say, “Hey, you got funded,” that’s great, and you can take the money. And if they don’t, it’s neither wrong nor wrong.
Wood: Is there evidence, or will there ever be a way to say, do you think, that these tech-driven platforms are more nimble and better able to push your app than a big bank?
Salmon: The banks and fintechs have all been extremely unhelpful when people like you and me have asked them for details on how many people tried to apply, how many people who tried to apply actually got their money. These ratios are not public information. This is not even information that the SBA has. You would need to get this information directly from everyone. I don’t think any of them will release that data on some sort of apples-for-apples basis that we’ll be able to make that decision.
Wood: Is it an opportunity for these companies if they are able to impose themselves as this type of lender or simply to benefit certain small companies? Is this an opportunity for them to build up a clientele later?
Salmon: I think for about 24 hours it was an opportunity to get some goodwill. I think if small business owners went to those places, applied, and didn’t get any money, some of that goodwill evaporated. Moreover, many of these companies are not really lenders at heart. Companies like PayPal and Square are much more payment-based than lending-based. It’s not clear that even if it gave them a foot in the door when it comes to small business lending, it’s something they would really want to strengthen.
Wood: It looks like some of them have certainly provided loans, like Kabbage or Intuit, but the others who haven’t, do you think they’re likely to find out that actually it’s a terrible quagmire they would like to slowly emerge from?
Salmon: Small business loans are a horrible thing to do, in general, because [in] small businesses, so many things can go wrong. It’s so hard to really get under the hood and know how creditworthy they are. For PPP it’s different because everything is backed by the government, so you don’t need to spend too much time taking out the loan and understanding the business before giving them the credit. If you really want to lend money to small businesses as part of your business, especially if you’re doing it without collateral and you don’t have access to cash flow, which you can just grab to repay the loan , so it’s really a gnarly business where many lenders have fallen off the hook. It is not clear that very many investors want these companies to enter this line of business.
Related links: More information from Molly Wood
Other fintechs and so-called neobanks are also trying to attract new customers or serve the ones they have in different ways during this pandemic. The neobank Carillon gave all of its customers a $200 advance on their government assistance payments because many of those checks were slow to arrive. He said he saw 200,000 new signups after that, according to Business Insider. Although, according to Felix Salmon, Chime has said he has no interest in getting into lending.
Crunchbase has an article this week on how fintech companies are continuing to thrive during the recession – hiring, fundraising and, in some cases, acquisition. An analyst told Crunchbase that the approval as small business lenders was actually an additional “stamp of approval” for the industry.
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On the fintech side, venture capital firm Andreessen Horowitz says it has raised $515 million to invest in cryptocurrency and blockchain technology, and will even buy crypto assets just to hold on in case regular money crashes I guess. Crypto and blockchain are still a thing, even if no one is watching. In fact, just this month, Facebook released an updated white paper on its digital currency initiative, Balance, which he hopes is more favorable to regulators. “Watered downwas a phrase applied to Libra 2.0.
On Tuesday, the British payment operator Checkout has joined the Libra Association. Additional note on cryptocurrency: Forbes reported a few weeks ago on how Coinbase data this month shows a sudden surge in bitcoin purchases amounting to exactly $1,200 – equivalent to a stimulus check.
Finally, we end earnings week with “Will the tech giants save the economy?” Amazon, while making a ton of revenue from all of our additional online purchases, has been missing out on revenue because it spends a lot trying to hire, revamp supply chains, and maybe occasionally get equipment from protection for warehouse workers – hopefully. The company said that normally it would have expected a profit of $4 billion in the next quarter, but would instead spend that amount on coronavirus-related expenses. In its letter to shareholders, Amazon said, “If you’re an Amazon shareholder, you might want to sit down, because we don’t think small.”
In other earnings news, Twitter actually exceeded expectations, but analysts didn’t like the part of the earnings call where executives said they, like the rest of us, literally had no idea what the next quarter is in store for us.