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FinTech
8 minutes read

4 Lessons from the FinTech PPP Case

By Robert Kazmi
By Robert Kazmi
FinTech
8 minutes read

Financial technology (FinTech) PPP lenders have played a crucial role in helping financial institutions maintain small businesses running throughout the pandemic across the US. This comes as no surprise. For many businesses, FinTech lenders are the easiest and best alternative to access the loans given out by the federal government. 

Financial technology is finally proving not only its business potential but also that it is capable of positioning FinTech companies as online lenders thanks to accessible and easy-to-use digital products. Although it is yet to be seen how FinTech companies will evolve in time, it is an almost safe bet to say that many of them are here to stay. Their potential for growth and helping small businesses address their needs is huge. 

In this post, we analyze what Paycheck Protection Program (PPP) loans are, the role that FinTech lenders have been playing in their distribution, and some important lessons that any FinTech company can apply.

What is a PPP Loan?

To understand the lessons of the FinTech PPP business case, it is important to first understand what Paycheck Protection Program (PPP) loans are. 

Paycheck Protection Program forgivable loans, also known as PPP, are an initiative implemented by the US federal government to help small businesses navigate the crisis triggered by the COVID-19 pandemic. They are backed by the Small Business Administration (SBA) government agency, an independent entity that does not belong to the Federal Reserve.

As a result of the economic downturn induced by the pandemic, the government saw the need to intervene in order to help small businesses survive. This type of loan was conceived as a way to help a small business rehire workers that had been laid off due to the pandemic situation or avoid workers from being laid off in the first place. 

In terms of qualifications, not all small businesses could file PPP loan applications. Certain requirements had to be met, and under some conditions, a small business could even have its loan turned into a grant. Yes, you read that right, forgivable loans.

The PPP funds consisted of $350 billion in government-backed loans. However, the loans were distributed through traditional banks, and small businesses tend to lack banking relationships and do not usually have the same access to credit and financial products like a big company does. Actually, many small businesses operate with a small operational margin, which means that they are highly susceptible to any sudden change in economic conditions. That is why this was a great opportunity for FinTech lenders to facilitate the process.

FinTech PPP Explained

Offering PPP loans seems to have had an important impact on the US economic recovery. They’ve helped many small businesses stay afloat throughout the current economic turmoil thanks to the agility with which they were delivered through nonbank lenders. Part of this success can be attributed to the power of financial technology. More specifically, they can be attributed to the role that FinTech companies played as partner banks throughout the process.

Many small businesses received PPP loans and were thus able to access valuable and timely resources through FinTech PPP, as stated by the Small Business Administration agency. According to the Small Business Administration, a credit union and other actors in the business of lending are not eligible for this type of loan. 

This experiment was a major test for FinTech companies like Funding Circle and Cross River Bank, and they seem to have passed it. FinTech lenders were able to deliver resources efficiently, thanks in part to FinTech apps. Any company that fitted into the requirements established by the Small Business Administration agency, as long as it met the requirements for this loan, could apply easily through an app. 

The success with the initial PPP loans has even resulted in a new round of PPP by the Federal Reserve, and depending on how the current economic situation evolves, another round of PPP could be offered. There is a great opportunity in this for the Small Business Administration agency to provide PPP loans again and establish new banking relationships for small businesses. Only time will tell, but if this is the case, there is a great opportunity for FinTech companies to play an even bigger role.

4 Lessons from FinTech PPP Lenders

The FinTech PPP case is a big deal for all major financial institutions. It not only shows how FinTech companies were able to successfully play the online lender role to hand out PPP loans easily to small businesses across the country. It also shows some important opportunities for the FinTech industry in general.

Although it is still too soon to understand many of the consequences of this Small Business Administration backed loans and its impact on PPP applicants, some conclusions have already become obvious. Other SBA loans might occur in the future, and they might help understand this phenomenon.

For the time being, any FinTech company can consider the following lessons from the PPP loans to help guarantee the success of their digital products:

  • There is a market for FinTech companies
  • Apps are a powerful financial tool
  • The User Experience matters in finance
  • A small business can be a good FinTech client

There Is a Market for FinTech Companies

Like many other new industries that are arising thanks to technological disruption, FinTech is still at a stage where many business models need to be validated.

The case for the Protection Program PPP loans has been a great way for FinTech companies to prove their value firstly to small companies with fewer employees and secondly, and most importantly, to the market and existing customers. Although this specific case had the help of government intervention, it speaks highly of the value that can be created in the future through systematic and carefully thought-out innovation. Having ready capital through FinTech companies for when small businesses need it might be a common trend in the future.

Apps Are a Powerful Financial Tool

One of the most interesting lessons from the FinTech PPP case is that apps have, once again, proven to be a powerful way to connect users with a much-needed solution in an efficient and timely manner. 

Apps have the potential to address user needs directly, helping them navigate through sometimes complex user journeys in an easy way. Accepting applications becomes easier, accelerating loan approval processes and facilitating online lending. As FinTech becomes more consolidated, quality app development will become of greater importance.

The User Experience Matters in Finance

An important advantage that FinTech services have when compared to traditional financial companies is the emphasis given to the User Experience (UX). By using design to focus on reducing pain points, addressing customer needs, and reimagining user journeys, financial technology has the potential to rebuild the foundations of financial services.

Look for example at the above case of SBA loans. FinTech companies were able to deliver PPP funds easily due to a UX focused on facilitating PPP applications.

A Small Business Can Be a Good FinTech Client

A major challenge that companies offering new services face is validating their target market. The FinTech PPP case has shown that a small business can be a good client. Although traditional financial companies like a large bank may not consider them as interesting as the big corporations, for a FinTech, they might be a perfect fit. 

The case for PPP applications has helped validate that the small business market is open to new financial services like the ones offered by FinTech lenders.

Final Thoughts on FinTech PPP

As the Small Business Administration business case for FinTech PPP lenders has shown, there is an interesting growth potential for companies willing to reimagine how finance works. 

Although the Paycheck Protection Program is a very specific case, it helps understand the potential of this growing industry. There are still many things that need to be sorted out, but one thing is for sure: financial technology FinTech is here to stay, and we can expect it to gain ground in the coming years as it can help offer access to any small business left out of traditional banks. There are many elements that come into play when guaranteeing the success of a growing industry like FinTech. One of them is making sure that the best technology is used to deliver smaller firms the solutions they need. To do so, it is important to partner up with an experienced app development company that knows how to succeed in this dynamic and exciting industry.

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