Last Week in Lending: 18 March 2024

1?? Simon Taylor 's thoughts on fintech disruption in the banking world

I really enjoyed Simon Taylor’s latest rant: Debate over. Fintech has disrupted banking.

In it, Simon talks about how consumer Fintech is shaking up traditional banking, with players like Nubank and Monzo making significant strides. According to Simon, these digital-only banks are challenging the status quo with profitable models and expanded product offerings, while legacy banks face pressures from regulatory changes and market shifts. The cultural divide between finance and innovation inhibits growth in traditional institutions, leading to complacency and eroding market share.

Simon says big banks are grappling with branch networks and customer satisfaction, while Fintech companies aim to maximize utility and profitability.

But one point I couldn't agree more with is that the competitive landscape is evolving, with opportunities for both incumbents and disruptors to carve out their positions.

Check out Simon’s insights ??

2?? CFPB Director Rohit Chopra 's insights & concerns around open banking

Last week at the Financial Data Exchange's annual summit, Rohit Chopra shed interesting light on the state of US open banking – with a special focus on the role of standard setters and standard-setting.?

Chopra stressed the importance of fair standards-setting organizations in open banking, emphasizing that there must be diversity and balance in any decision-making. Alex Johnson, in a recent newsletter, highlighted how Chopra advocated for competitive standards-setting to prevent monopolies and hinted at broadening data coverage beyond traditional accounts.?

Chopra apparently also expressed concerns about gatekeeping in open banking regulation and the slow progress of U.S. payment systems, suggesting resistance from major banks.

You can read Chopra’s prepared remarks here ??

3?? KMPG’s H2’23 Pulse of Fintech

KPMG’s latest Pulse of Fintech report is out, and according to the report, some key trends emerged (or persisted) over the past 6 months for the fintech sector:

• There’s more scrutiny over potential fintech deals, with a strong emphasis on profitability.
• Interest in B2B fintech solutions continues to grow, geared towards empowerment rather than consumer-focused models.
• There’s an increased focus on forging partnerships and forming alliances.
• The rising interest in potential uses of AI and generative AI is prevalent throughout the fintech industry.
• There’s growing attention on integrating financial products into various services, especially payments and lending, as part of the shift towards open banking.

Check out the report below ??

4?? Van Spina ’s Definitive History of Private Credit

I highly recommend taking a read of Van Spina’s (incredibly) deep dive into the history of private credit. According to Van, private credit has emerged as a dominant force in global finance, experiencing exponential growth to $1.6 trillion in assets under management since 2015.?

Private credit, like direct lending, means that companies borrow money from sources other than traditional banks. These lenders look at how much money the company makes rather than just its assets. This type of lending has become more popular because rules have made it harder for banks to lend to medium-sized businesses. Also, big banks have merged into even bigger ones. Plus, more companies are choosing to stay private instead of going public.

This shift to private credit started a while ago, especially when Drexel Burnham Lambert and Michael Milken made it big in the 1970s by creating a market for risky loans to medium-sized companies. New rules, like Basel I, also changed things by making it tougher for banks to lend to smaller businesses. This pushed banks to focus more on lending to big companies. It created a gap for non-bank lenders to step in, especially for medium-sized businesses. As big banks keep merging and companies keep staying private, private credit is becoming a big player in helping medium-sized businesses grow.

Read the full deep dive! ??

5?? UK banks warn Treasury over impact of new rules on SME lending

The Treasury has been cautioned about new Bank of England regulations that could impact challenger banks' ability to lend and hinder the UK's economic recovery from recession. Bim Afolami, the economic secretary to the Treasury, held discussions with executives, including leaders from Monzo, OneSavings Bank, Metro Bank, and TSB, regarding regulatory hurdles that could limit their lending capacity.?

Concerns were raised about the potential impact of the Prudential Regulation Authority's (PRA) proposed implementation of Basel 3.1, especially the removal of the 'SME support factor,' which currently allows banks to hold less capital against loans to small and medium-sized enterprises (SMEs).

Read more here ??