It’s an interesting time for fintech providers, said Russell Walraven, particularly those that provide lending for consumers and small businesses.
Walraven is vice president of marketing for Funding Stream, which provides small businesses with loans between $5,000 and $100,000 through Marlin Business Bank. It launched in July 2015 and has issued about $20 million in loans, he said.
Technology has created new opportunities to connect consumers with service providers, but those new providers sometimes encounter growing pains. Non-bank companies saw an opportunity after the financial downturn for small businesses looking for capital they weren’t getting from traditional banks, Walraven told ThinkAdvisor Friday.
Those new entrants have “done very well. They’ve grown, they’ve originated a lot of loans, but what we’re seeing now is they have not gone through credit cycles, so when a little bit of a downturn hits—which it really hasn’t yet, but if it does—a lot of these loans are going to start defaulting.”
That risk is converging with non-bank lenders’ high costs of customer acquisition, as they try to find new ways to build a base of customers while balancing growing regulations meant to protect consumers.
Over the last five or six years, Walraven said, “especially on the small-business side, it was essentially the Wild West. There wasn’t a lot of regulation.”
He added, “There’s a lot more regulatory scrutiny on small-business lending as compared to the last few years, so these companies that haven’t had to focus on regulation are [now] under the thumb of regulators to some extent,” he said.