Last week, our own Chris Friedman had the opportunity to attend the Online Lenders Alliance’s annual LEND360 trade show in Nashville. During the show, Chris was honored to interview the CEO of Thread-Bank—a Nashville-based fintech bank focused on small to medium-sized businesses (SMB)—during the show’s opening fireside chat and led a panel discussing the role of artificial intelligence (AI) in SMB lending.
Over the course of the week, there was tremendous energy and enthusiasm about the role of fintech solutions, such as bank/fintech partnerships, in the SMB and alternative commercial finance space. Here are some highlights and “things overheard” during the event:
- Fintech and modern technological solutions continue to have a leg-up on the competition when it comes to the SMB market. Starting during the COVID crisis, fintechs went above and beyond in order to help facilitate access to PPP loans for businesses that might have otherwise gone unserved by bigger players in the space. Specialty lenders’ ability to deploy capital during a crisis was proven with flying colors, and lenders and other finance companies are eager to ride that momentum.
- Similarly, and as confirmed by studies, fintechs and specialty lenders in the SMB space have tended to increase the flow of commercial capital to businesses owned by minorities and other underrepresented groups. According to a study by the National Bureau of Economic Research, “FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and a larger minority share of the population.” Notably, according to this report, “FinTech mostly expands the overall supply of financial services, rather than redistributing it.”
- AI and machine learning will almost certainly be applied differently in the SMB lending space than it is in the consumer space. Consumer lending tends to be more standardized and uniform than SMB lending. Everything from application documents and underwriting criteria to servicing practices in the consumer space are relatively uniform. There really is no such uniformity in the SMB space. Businesses are unique, finance companies are oftentimes underwriting the business and the ownership, there are a multitude of credit and non-credit finance products, and oftentimes relationships are paramount. The best AI and machine learning (ML) tools will be the ones that can navigate this complexity—simply attempting to port consumer AI and ML solutions to the commercial space won’t work.
- AI and machine learning likely won’t reduce headcount (yet), but it will allow your employees to use their time and talent more efficiently and for higher order tasks.
- SMB customers want these solutions. There is demand in the market for alternative credit products, fast capital, flexible terms, and convenience so that owners can focus on what they do best: running their respective businesses. The SMB finance companies and alternative lenders that succeed will almost certainly be the ones who figure out how to deliver fast, convenient capital while leveraging new technologies in a way that identifies untapped, and underbanked markets.
News and views
Earlier this week, the FDIC released its Deposit Insurance Recordkeeping Rule for Banks’ Third-Party Accounts. The new proposed rule will require that FDIC-insured banks holding custodial accounts be required to take additional steps in order to identify the individual owners of funds held in the accounts. This includes performing daily reconciliations. This rule was driven, in part, by the collapse of BaaS provider Synapse. FDIC Chairman Martin Gruenberg announced that the proposed rule “is an important step to ensure that banks know the actual owner of deposits placed in a bank by a third party such as Synapse, whether the deposit has actually been placed in the banks, and that the banks are able to provide the depositor their funds even if the third party fails.”
Maggie Arvedlund, co-founder and CEO of Turning Rock Partners, authored an insightful article in the ABF Journal cleverly using a Stephen Sondheim lyric: “Into The Woods but Not Too Long: The Skies Are Strange, The Winds Are Strong” in which she discusses the effect of rate cuts on capital markets. According to Arvedlund, she is seeing a strong “focus on capital to support growth, primarily in the form of acquisitions, fixed asset purchases and team expansion.”
Doing business in Colorado? A lot has been happening in the Rocky Mountain state. Our law partner David Stauss discusses recent proposed changes to Colorado’s Privacy Act:
Key point: The proposed draft amendments modify the Colorado Privacy Act Rules to create a process for issuing opinion letters and interpretative guidance and to address the biometric and children’s privacy amendments passed by the Colorado legislature this year.
And on Husch Blackwell’s Cannabis Law Now Blog, our colleagues Donna Pryor and Daniel Zimmer discuss a recent OSHA Local Emphasis Program (LEP) targeted at identifying and reducing workplace hazards associated with cannabis processing, growing, cultivation, and product manufacturing. If you are doing business in Colorado or are providing services to players in the cannabis space you should definitely check it out.
Finally, Husch Blackwell partner David Stauss and Kier Lamont, Senior Director of the U.S. Legislation Team at the Future of Privacy Forum, recently prepared a 2024 Retrospective on state data privacy laws for IAPP. This article provides a comprehensive summary of everything that has happened in the fast-moving world of data privacy and security over the past year.
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