The Early Days of Fintech Lending

Abstract

While digitization and online technologies had long been available, innovation in small business lending was slow. This chapter traces the first wave of fintech lending to small businesses, recounting the rich history of the early disruptors and how they addressed, with technology, some of the longstanding frictions in the traditional small business lending market. This fueled a “wild west” period, featuring hundreds of new entrants. But the expected acceleration of the new markets never occurred; instead, they hit nasty bumps in the road, propelled in part by poor decisions and the fact that incumbent banks possessed important competitive advantages—access to many loyal customers and low-cost capital in the form of deposits. The dinosaurs woke up and new technology companies entered, creating a new landscape of potential market winners.