7 days. That’s how fast the Federal Government and financial institutions stood up a $349B loan program. It took only an additional 13 days for the money to be exhausted - representing an average of $29B processed per day.
We are of course referring to the Paycheck Protection Program (PPP) created to support America’s 5.5M employer small businesses. Though it has not been without a few glitches (particularly related to the SBA website), the program has overall been a success. In its first 13 days, the program made 1.7M loans across nearly 5,000 lenders(!).
From a technology perspective, the PPP has undoubtedly showcased the huge strides banking technology has made. Many of the 4,975 participating lenders developed digital interfaces, created new processes, and launched a new lending product in a matter of 1-2 weeks. This is a fraction of the typical months- to years-long product development cycle in banking. Such a rapid response portends a financial future where banking technology enables speed, scale, and safety at unprecedented levels.
Here are a few achievements noted by the Small Business Administration:
1.7M loans made - representing 30% of all US employer small businesses
4,975 participating lenders
Average loan size of $206,000 with 74% of loans made for $150,000 or less
7 days to stand up the program
Though PPP showcased the rapid response capable of the financial industry, it also makes clear its limitations: digital capabilities are unevenly distributed, which is exacerbated by our regulatory
Technology inequalities reflect the challenge ahead.
PPP has also, however, exposed technology fissures. For one, digital transformation has not come evenly to the US financial sector. This is particularly true of community banks, commercial banks, and regional banks which play an outsized role in small business lending. Even though community banks represent 14% of industry assets, they represent 46% of small loans to farms and businesses according to the FDIC. This sector has lagged behind both the largest banks with large IT budgets and new, nimble digital-first fintechs.
PPP has also exposed regulatory fissures. Initially, fintechs weren’t participants. This was a shame considering how fintechs are well poised with their technology platforms and relationships with traditionally underserved small businesses to help. Later, larger fintechs like PayPal and Intuit were accepted and were joined by several of their smaller peers thereafter. Overall, the experience lays bare a painful truth: regulatory treatment of different types of lenders that perform the same service results in adverse effects on small businesses and their ability to access finance.
Technology is no silver bullet. Good policy matters.
The PPP experience provides a glimpse into a financial future where technology enables speed, scale, and safety at unprecedented levels.
Great technology, however, is not a substitute for robust policy. As an example, the PPP’s first-come-first-serve nature favored speed over business need. This left many rural, minority-owned, or small businesses operating in poorer communities that rely on lenders with less format IT infrastructure at a disadvantage. Several op-eds have advocated for measures to correct for such issues. A few have been taken up by Congress in its April 16th $320B expansion of the program.
Though most PPP loans will be forgiven after several months, it’s legacy on banking technology will last for far longer.
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