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Why big 4 bank shares are on watch

Big 4 banks like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) may want to look over their shoulder. Here's why.

Big 4 banks like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) may want to look over their shoulder when it comes to small business lending.

Why?

Well, there is an army of fintech companies hungry for the big 4 bank’s small business lending market share.

New kids on the block

Small business specialist lenders like OnDeck and global payments giant, Square (NYSE: SQ) are striving to capitalise on delays in the loans approval process.

According to the Australian Financial Review, OnDeck and Square are seeking capital to accelerate their penetration.

OnDeck revealed a new product called Lightning Loans, which uses an algorithm to approve borrowers in 90 minutes and deposit up to $100,000 in their account in less than two hours. It’s a fitting name when you compare this to what the big 4 banks offer.

If we roll over to the other side of the hemisphere, you have Square offering Aussie customers flat-fee micro-loans to ensure customers remain in its ecosystem.

Square customers can apply for unsecured loans up to $75,000 and secured loans of up to $250,000.

It leverages the customer’s existing information to automate the loan process so it only takes three clicks, with a response provided on the same day and the funds deposited the following day.

Is this cause for concern?

Given the immense competition in the small lending space, innovation remains key.

So, it’s no surprise that CommBank is focused on developing new products and forming strategic partnerships. Most notably, CommBank’s BizExpress Online tool promises to approve and provide as much as $100,000 to customers in 12 minutes.

In such an environment, I would monitor the return on capital of technological developments and the rate of customer churn.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned
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