Greenbox CEO Jordan Fein Talks Fintech, Part 3 of 8: The Impact of Tech Giants Entering the Small Business Funding Game

Greenbox Capital CEO Jordan Fein recently joined Smarter Loans to talk tech growth in alternative business funding. In this video, Jordan discusses the impact of tech giants like PayPal and Square entering the small business financing space, and offers his advice for what alternative alternative business funders need to compete against these major players.

Watch the video, or keep reading below for a full transcript.

SL: There’s the Canadian reliance, perhaps some would say over-reliance on big financial institutions, like big banks, and then you also mentioned earlier PayPal and Square entering the alternative financing market. Where does that situate the current players in the business financing industry, specifically in the alternative lending space? Because now you’re having these big players like PayPal and Square entering that have captive customers that have access to large throws of customer data. Is that cause for concern, is it an area of renovation? What are your thoughts?

JORDAN: As this industry matures, it’s going to be even more difficult to enter. Just like any emerging industry, as the industry develops, the inefficiencies are taken out. The players achieve scale and it’s difficult because what’s happening right now is you’re seeing a major shift in technology. Three, four years ago, to get a decision on a submission was maybe three, four or five hours, depending on what kind of shop it was. Now, it’s down to under an hour.

What do you think it’s going to be in two or three years? I think that it’s super important to recognize that if you don’t have technology in your business, to achieve scale will be just about impossible. And I think at this point it is impossible. It already is impossible, right? But if you’re doing things without using technology to make decisions…you can make a couple of shekels at a small level, but I think that you’ll be outplayed by the competition because of speed.

Speed drives our industry, we all know that. Everybody is competing—“I can get you this offer, I can get you this offer”—and a lot of times speed wins the deal. This offer may come in, it’s better and it’s just 20 or 30 minutes behind, but the other one already has contracts out. And that’s because the customer got the offer that they needed, like “I want the 50”, and they’re ready to go. This was 50 at a slightly cheaper cost, but you know what, you were slow and you lost it. Going back to what you were saying, companies like Square and PayPal, the larger companies with technology, are going to have an edge up simply because of that.

The other area where Square and PayPal have a great edge is in customer acquisition. If they have these large databases of customers that they’re constantly marketing, their cost to acquire is lower and they’re able to give a much lower cost. And they already have information on these people because they’re doing business with them. So now maybe their bad debt expense is lower on these customers. These are the drivers of the business. You know, you’ve got your bad debt expense, your customer acquisition, your operating expense and your cost of capital—that’s it, and those are the main drivers, and if you’re able to reduce that then you could be extremely competitive. It’s a branding thing that they get as well.

I think it is all of concern, but I’m not concerned for Greenbox Capital. I’m not going to say I have zero concern—there’s definitely a level of concern—but we’re doing our thing. We have a strategy. We’ve been in the space for awhile. But if I was telling that to newer players, I think they need to figure out how to get technology. If they want to come into the industry right now, they have to figure out right out the gate how to get some kind of technology. Without the data and the ability to make those decisions, they’re just going to have to do trial and error and learn about either what they know or what their intuition tells them. But data is king. The more data you have, the better positioning you’ll have on the pricing and credit side.

I think that there is a concern in general, that everyone has to be somewhat concerned about these large behemoths of businesses. But remember, these companies, they don’t need their capital arm. They’ve made billions of dollars. The capital arm is probably a breakeven for them. When Square is putting out 9, 10, 11% interest and PayPal is doing the same, they’re barely making money. They’re doing this to create their ecosystem around their clients and say, look, we can offer you capital. We can do this. We can do that. You don’t need to ever go over to Square—you got PayPal. They’re playing a different game.

For us, the companies in this industry that are just offering capital, we need to make money for our existing products. So yeah, that would be a concern in and of itself. Ecosystem is huge right now. It doesn’t matter where you are or what industry you’re in. Ecosystem is a big deal because it revolves around software and making things easy and seamless.

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