5 fintech war stories from the front lines of PPP lending

April 28, 2020 11:08 AM

Fintechs in the payments industry saw problems coming when the CARES Act’s SBA Paycheck Protection Program opened the floodgates for millions of coronavirus-stricken small businesses to apply for loans via largely unprepared financial institutions.

When lender requirements were announced on March 30, fintechs raced to develop streamlined digital solutions as alternatives to time-consuming, manual loan-application steps.

Four days later, when the SBA’s E-Tran underwriting platform went live for the first round of $349 billion in PPP loans, payments technology firms played a key role in helping small businesses speedily verify details and documents.

But it became apparent that large banks with ready-made, streamlined loan application engines had an advantage. When the first round of funds ran out April 16, many big-bank applicants received multimillion-dollar loans while tens of thousands of others' applications were sidelined in the underwriting queue.

“The biggest banks have teams that could stand up a mobile app for PPP applications in a matter of days, but lots of smaller banks don’t have the most modern systems or that level of personnel, so they’re at an extreme disadvantage trying to stay competitive in processing these loans,” said Sam Maule, managing partner for North America at 11FS, which creates digital banking technology.

CORONAVIRUS IMPACT: ADDITIONAL COVERAGE

Only 38% of small businesses who applied were approved during the first phase of PPP loans, according to a survey Shift4 Payments conducted in the aftermath. Just over half of applicants, or 56%, actually received any funds in the first round.

The second phase of PPP loans that began April 27 is supposed to direct another $320 billion to SMBs, possibly expanding participation for more community banks. The role fintechs play could be critical for the neediest small businesses.

“Supposedly they’ve set aside $60 billion for PPP loans through community banks to reach smaller businesses, mom-and-pop operations that need $20,000 or $30,000 to keep going, and most of them will need technical help in the loan-application process,” 11FS's Maule said.

The challenge for smaller banks is to rapidly and accurately input the details and documentation needed for SMBs applying for loans, he said.

The following are lessons learned from the payments fintechs that rushed to help banks and small businesses speed up the PPP loan application process during the first phase:

Temenos

Temenos — a banking software provider that supports cloud-based banking, payments and funds administration software — got its first query for help processing PPP loan apps almost immediately after the SBA released requirements for the first round of funding.

“Within a couple of hours we began putting software designs together,” said Derek Corcoran, chief experience officer at Temenos.

Temenos teamed with Atlantic Union Bank to rapidly process PPP loan applications for small businesses, and within days the software firm also began working with global financial services firm Wolters Kluwer. “We had an existing relationship with Wolters Kluwer and they already had a lot of banks as clients and an established integration to the SBA’s E-Tran system,” Corcoran said.

Temenos created a web-based, streamlined approach for banks’ clients to upload supporting documents with electronic signatures, with a digital workflow and case management service for banks that connects to the SBA’s E-Tran system through existing integration points like LaserPro and TSoftPlus, he said.

Corcoran likened the situation to “a war room,” as Temenos staffers raced to create solutions.

The goal was to come up with a practical solution fast.

“Everyone aligned behind the idea of a product that wouldn’t be perfect, with subsequent releases to add more capability,” Corcoran said.

On the first day the SBA began accepting loans, April 3, a team of 400 bank employees using Temenos’ tools went to work at 7 a.m. — each in their individual home offices — processing more than 2,300 applications by midnight.

As of last week, Atlantic Union had processed more than 6,500 SBA-approved applications totaling $1.4 billion, before the program ended April 16.

Fattmerchant

Fattmerchant began exploring its opportunities to help its merchant-processing clients the moment the CARES Act was approved.

“We knew many small businesses didn’t have the clout or resources needed to gain access to funding and we wanted to give them help,” said Suneera Madhani, Fattmerchant’s CEO and co-founder.

It didn’t happen as quickly as they’d hoped.

Initial discussions with Fattmerchant’s own bank suggested it would take weeks to create the process Fattmerchant hoped to develop for its clients seeking PPP loans.

Then Womply, which specializes in small-business data and software, offered Fattmerchant assistance in streamlining PPP applications. The two companies rapidly developed a quick, customized loan application integrated directly Fattmerchant’s client dashboard.

But they almost didn’t make it. When Fattmerchant was close to finishing its solution, the first found of available PPP loans dried up with no certainty of whether or when Congress would replenish funds.

“We were halfway through when the funding ran out and now we had to decide what to do within this uncertainty. Do we stop? Should we keep going?” Madhani said.

Fattmerchant decided to take a gamble and pressed on, completing its solution in time for merchants to apply for the second round of PPP loans beginning April 27.

Madhani said the company is enabling merchants that aren't yet customers to access PPP loan applications through its portal.

PayNet

PayNet provides credit risk information to online and alternative lenders, and the Skokie, Ill.-based company immediately saw opportunities to help lenders verify details of small businesses seeking PPP applications.

Many lenders spent hours printing, scanning and saving details from loan applicants’ files, but PayNet already had most of that data.

“Our database has the credit data and records of more than 30 million small businesses,” said Bill Phelan, PayNet’s CEO.

To help banks, PayNet created a PPP Data Pack that integrates directly with lenders’ existing loan origination systems to automate and verify businesses on PPP loan applications, populating borrower data.

“It seamlessly connects to small-business accounting platforms, enabling rapid transfers of critical data and financial information,” Phelan said.

Bottomline Technologies

Bottomline Technologies quickly recognized that its core service of streamlining payments data between banks and corporations aligned with the SBA's PPP loan application process.

“There was direct overlap between what the PPP application asks for and what our platform provides, so in about 48 hours we created an approach to automatically capture all the small-business details a bank needs to complete a PPP application,” said Brian Drozdowicz, general manager at the Portsmouth, N.H.-based firm.

To set itself apart from other companies also rushing to create streamlined application processes, Bottomline made its service free and accessible to banks of any size, and threw in a free risk-management and monitoring service for PPP loans. That service isn’t required for processing a PPP loan, but Bottomline figured it could be useful for participating lenders.

“We opened this up to any bank interested in offering PPP loans — existing or new customers — and we’ve had about a dozen takers,” Drozdowicz said.

Banks that adopted Bottomline’s free application solution range from larger to smaller institutions.

The company expects to see a surge of fresh users in the second round of PPP loans.

“We heard from a lot of banks that fumbled on the first round — lots of stories of difficulties around manually inputting data and uploading files. We’ve created a system with prepopulated forms so banks can package up a loan application in 10 to 15 minutes if the applicant has all the necessary information ready,” he said.

Finsync

Atlanta-based accounting and payroll system provider Finsync immediately spotted problems in the SBA’s PPP loan-application process that could hobble smaller banks and credit unions trying to process customers’ loan applications.

“The volume of information needed about each applicant exceeded the available man-hours for a lot of banks,” said Eddie Davis, Finsync’s senior vice president of sales and operations.

The PDF form the SBA supplied for PPP applications presented specific issues.

“Everyone could see the form used in that way would be a major bottleneck that would cause confusion and lead to incomplete, inaccurate applications,” Davis said.

Finsync created a simplified electronic process to guide small businesses through the application, prompting them for specific information and documentation, then feeding it to the lender through Finsync’s portal, which allowed a back-and-forth to clarify details and check on missing documents.

“Many lenders we helped had been unable to get enough user seats for the application process, so they had whole teams of bank employees trying to submit applications to the SBA through one or two users, requiring people to be transcribing data into SBA'S E-Tran engine all night,” Davis said.