28 June 2017
Visit cib.db.com

Big banks more popular than fintechs with US SMEs - survey

13 April 2017  |  8822 views  |  0 cash

A survey of small business credit published by the Federal Reserve Bank of New York has revealed that online lenders are less popular with small and medium enterprises (SMEs) than big banks.

The survey, which was reported in the Financial Times, asked successful loan applicants among US SME's to rank their satisfaction with various lenders. Small banks proved most popular at 80% satisfaction rate, followed by credit unions (78%), CDFs (77%) and big banks (61%). Trailing last with a satisfaction rate of just 46% were online lenders.

Similarly, 19% of respondents were dissatisfied with online lenders, compared to 15% of big banks and 5% of small banks.

On first glance the results contravene the perception that customer dissatisfaction with incumbent financial services providers, and big banks especially, has been a big factor in the success of fintechs.They also cast doubt on the idea that fintechs excel at customer service.

However other aspects of the survey make better reading for new online lenders, defined by the survey as "non-bank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital and PayPal Working Capital".

When asked for reasons for their dissatisfaction with respective groups of lenders, 33% respondents cited high interest rates in respect of online lenders, in comparison to just 6% for big banks and 3% for small banks.

Meanwhile, online lenders scored much better in terms of dissatisfaction with the difficulty of the application process (26% compared to 44% for large banks) and the wait for credit decisions (7% to 44%). Such a result will be succour for fintechs who will cite it as evidence that their technology is superior in terms of creating a better user experience.

The survey also shows respective approval rates for credit applicants and online lenders outscore big banks by 62% to 54%. This result supports the idea that although small businesses are most likely to first apply to traditional lenders, many will have more success with online lenders. In addition many of these online lenders are targeting riskier businesses than the incumbents.

However, the high cost of capital and customer acquisition is still clearly an issue for online lenders and the main reason for both high interest rates and a growing trend for fintechs to seek collaborations with traditional incumbents, not least in the corporate banking sector where a number of banks have already teamed up with online lenders.

For example, Spanish bank Santander has been working with Funding Circle for more than two years.

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

NatWest unveils online lending platform for SMEs

NatWest unveils online lending platform for SMEs

15 February 2017  |  7487 views  |  0 comments | 7 tweets | 4 linkedin
New lending platform targets underserved communities

New lending platform targets underserved communities

11 November 2016  |  6368 views  |  0 comments | 66 tweets | 7 linkedin
Goldman to take on online lenders with launch of Marcus

Goldman to take on online lenders with launch of Marcus

13 October 2016  |  7523 views  |  3 comments | 15 tweets | 11 linkedin
Commerzbank launches marketplace lending platforms for SMEs

Commerzbank launches marketplace lending platforms for SMEs

23 June 2016  |  8152 views  |  1 comments | 10 tweets | 13 linkedin
Prosper slashes workforce as online lenders feel the heat

Prosper slashes workforce as online lenders feel the heat

04 May 2016  |  5835 views  |  2 comments | 11 tweets | 8 linkedin
UK SMEs pick banks as preferred payment service providers

UK SMEs pick banks as preferred payment service providers

18 April 2016  |  8608 views  |  0 comments | 12 tweets | 10 linkedin

Related company news

 

Related blogs

Create a blog about this story (membership required)
download the report nowvisit www.www.fisglobal.comvisit www.response.ncr.com

Top topics

Most viewed Most shared
Live: EBAday 2017, day twoLive: EBAday 2017, day two
11420 views comments | 4 tweets | 5 linkedin
ECB preps eurozone-wide instant payments serviceECB preps eurozone-wide instant payments s...
8907 views comments | 19 tweets | 34 linkedin
ABN Amro tests wearable tech for contactless paymentsABN Amro tests wearable tech for contactle...
8407 views comments | 9 tweets | 6 linkedin
hands typing furiouslyArtificial Intelligence- Computer to IOT
8339 views 0 | 4 tweets | 2 linkedin

Featured job

Six Figure Base + Commission + Stock Options
London

Find your next job