Seems like the following same thing-"major banks pulling back"- has been said since after the great recession of 2009ish.
From Fintech Nexus:
CEO Corbett: “One of the reasons behind the opportunity to move into small business lending is the major banks pulling back.”
Empty seaports and other haunting synecdoches (downward-sloping GDP charts, and so on) suggest the specter of trade wars are beginning to batter American commerce. How does this affect the lenders underwriting and bolstering trade?
According to Aidan Corbett, CEO of Ireland-based capital platform Wayflyer, most e-commerce companies saw the writing on the wall during the first tariff-happy Trump administration. Having diversified the markets in which they operate, e-commerce players are more hampered by downticks in consumer sentiment and spending than they are affected by protectionism per se.
In the midst of this volatility, Wayflyer announced yesterday that it’s deployed more than $5 billion to over 5,000 small businesses worldwide. In a conversation covering growth and diversification strategies, bear-market implications, and the unique needs of embedded lending, Corbett tells Fintech Nexus about debt-related opportunities in the coming years — partially caused by the retreat of bracket bulge banks from SMB lending.
You’re currently moving beyond e-commerce into new verticals. What’s the logic behind that expansion?
I think one of the reasons behind the opportunity to move into small business lending is the major banks pulling back. That’s something that we didn’t actually see coming as aggressively as it happened, both in the US and the UK. When we launched Wayflyer back in 2020 our view was, We’re staying in e-commerce, we’re building connectors to datasets like Shopify [NSDQ: SHOP] and Facebook [NSDQ: META] so we can pull in vertical-specific data that a bank is never going to do. Now, what you’re seeing across the board is that banks are actually not that interested in lending to small businesses at all compared to what they would have done historically. That’s for a number of different reasons. Some of them are regulatory, whereby they’re looking to see if they can actually lend to less risky assets, or what the regulators perceive to be less risky assets, and some of it is just more general: Is it actually worth the hassle for them to go and lend to small businesses?
So one interesting data point would be Chase [NYSE: JPM]. I think in Q1 last year, they originated about $1.2 billion in small business loans. Square did about $1.3 billion, Wayflyer about $400 million. I don’t think we should be within two orders of magnitude of Chase, but that’s the nature of what’s happening in small business lending. Now you have companies like ourselves and Square attacking very specific verticals, and suddenly the volumes are actually beginning to appear on par with some of the larger banks. And I think JPMorgan Chase is probably a lot bigger than Wells Fargo [NYSE: WFC] or Bank of America [NYSE: BAC] or Citi [NYSE: C]. The whole way in which small businesses are actually being funded is going to have to change, because the larger banks are not really interested until a company needs $20 million plus.
You work with JPMorgan, is that correct?
Well, they fund us. The interesting thing is, of the $400 million we deploy, they probably gave us over half that. It’s easier for them to give us lots of money, and we deploy it, and they submit their return, rather than pursuing those companies individually.
Are they doing that in different spaces too? Because obviously e-commerce isn’t the full “small business” umbrella.
They’ll do it in other places as well. And all of the banks will. If you think about our business model, if I were to advance you $100,000 tomorrow for your e-commerce business, it would be one of the bulge bracket banks in their structured finance function that will give us between 80 and 85 percent of the money. We will have a mezzanine structure that will take on the next 10 to 15 percent, and then Wayflyer or a Wayflyer equivalent will commit between five and 10 percent. So you will always have a structured finance bank contributing the majority of your money today in the form of a warehouse or in the form of a securitization that they would structure. The mezzanine funding typically comes from smaller credit funds that require a higher rate of return, and they’re taking more risk as a result.
How are you reacting to that market gap, or that retreat by banks, from small business?
So we started off in e-commerce, and if you look at our business today, we’ve also now expanded into wholesale. So if you’re selling physical goods into Walmart, Kroger, Target, we’ll also finance those businesses, and that’s probably 10% of our book, up from 0% about a year and a half ago, and it’s growing faster than our current book. So we’ll look to add additional verticals over time, but we’re going to go vertical by vertical, because we think there’s a huge advantage in having a specific team focus on a specific vertical, because you understand the nuances, and you understand the type of product that will suit them.
So for example, our merchant cash advance product that’s very suited for e-commerce would not be suited for a restaurant or a barber shop. They would need a totally different structure, a totally different quantum of money, a different repayment frequency. So you have to tailor the product to the vertical, and when you do that, then you’re much more likely to serve the customer with a better offer and to deploy more as well.
