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Starling Struggles, Small Banks Squeezed, SBA Evolves (Future of Finance | Week in Review)

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
future of finance

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation. 

SBA Changes Thrill Fintechs, Worry Consumer Advocates

What happened: “The federal program for small-business lending is undergoing its biggest makeover in decades. The Small Business Administration is simplifying loan requirements, automating more of the process and expanding the pool of nonbank lenders licensed to issue SBA loans. The moves, many of which take effect Aug. 1, will make it easier for financial-technology firms to participate.” 

Why it matters: Tightening lending standards at big banks hurt small businesses. Relaxing requirements may encourage entrepreneurs to tap into the more than $8 billion in SBA money that went unutilized last year. It will also allow for more fintechs and non-banks to become licensed to provide SBA funds.

What’s next: A universal focus on defaults. If they rise, it’ll be a confirmation of what worried activists say will come with fintech lenders. If they don’t, it’ll validate the attempt by the SBA to provide more money, more quickly, and more hassle-free. (By Ruth Simon, The Wall Street Journal)

Is the U.S. Finally On Its Way to Real-Time Payments?

What happened: The Fed’s recent attempt to wade into the waters of real-time payments is encouraging others to speak out about why the U.S. still doesn’t have a financial feature available to much of the developed world.

Why it matters: Some estimates suggest there’s up to $1 trillion locked up in employer payroll accounts. The two-week pay period may be a thing of the past, but only if the U.S. can come up with a system that incentivizes it, rather than encouraging competition that is handcuffed by legacy systems.

What’s next: More of the same, unfortunately. Fraud concerns drive much of the real-time inaction. But hey, at least we’re not the U.K., where 70% of workers get paid monthly. (By Liz Hoffman, Semafor)

The Apocalyptic Prediction for Small Bank Survival

What happened: Even prior to the SVB collapse, small banking was hard and getting harder. Now one expert predicts that within the next decade the U.S. will go from roughly 4,000 banks to a number in the hundreds. 

Why it matters: Because the path to this concentration, at least according to this expert, is further collaboration between fintechs and small banks with good balance sheets. In a world of fewer competitors chasing the same customers, fintech’s consumer focus is going to be key.

What’s next: If the experts are right, an epic bank die-off. (By Odd Lots Podcast, Bloomberg)

Britain’s Biggest Digital Bank Faces Breaking Point

What happened: The recent departure of its CEO and a host of other competitors, including ones it developed itself, is putting pressure on the Starling, the British digital bank with the most customers.

Why it matters: Starling provided a blueprint for recent competitors like Monzo and Revolut, along with deep-pocketed efforts from incumbents like Goldan Sach’s Marcus and JPMorgan’s Chase UK. It proved the market was ready for software-driven banking but now may be a victim of its own success.

What’s next: The desperate hope for an IPO, so that public investors can pump up valuations hurt by private investors choosing to dump their holdings. (By Emma Dunkley, The Financial Times)

AI Hype Finds its Way to American Banks

What happened: “North American banks are winning a global race to transform banking into an AI-first industry, according to a new report from banking data provider Evident. North American banks published 80% of all bank AI research and made 60% of all bank AI-related investments in 2022, while filing 99% of all the AI-related bank patents in 2021.”

Why it matters: The surveyed banks hired more than 650 AI researchers in 2022 alone. As the divide between the haves and have-nots of banking widens, increasing edge advantages like those made possible by AI could accelerate the broader industry trend of further consolidation.

What’s next: The most obvious, hardest to pin down result: does hype lead to additional profit? (By Ryan Heath, Axios)

Of course, I couldn’t envision the extent to which AI would take off when I initially urged you to buy Nvidia.