A Quick Look at Big Tech Lending to SMEs

In the last decade, big techs have moved increasingly toward providing financial services and have been particularly active in offering credit products and services to small- and medium-sized enterprises (SMEs) active on their platforms. In way sense, this has been a benefit for many SMEs as it has increased competition with traditional financial service providers and offered them a chance to obtain credit under often easier conditions and through simpler processes. On the other hand, there are three main concerns with big tech credit solutions as compared to those offered by a traditional financial service provider:

  1. Retaliation for defaults – defaulting on loan with a big tech can lead to limited access to ecommerce or even complete exclusion from a platform. Not only does this harm a business, it also neglects to consider the possibility of a solvent business strategically defaulting.
  2. Data privacy concerns – understandably, business may be wary of using the credit products and services of big techs over concerns about their data being used in a way they believe in appropriate. To overcome this, big techs must credibly commit to data privacy in a way that limits them possibly exploiting business data.
  3. Lack a real benefit to businesses – under ideal market conditions, big tech lending frameworks show that there is no real advantage for borrowing from a big tech than a traditional financial service provider.