BlueVine’s Allocca: SMB Growth Demands New Vision For Loan Underwriting

When small business lending FinTech BlueVine took the wraps off its bank offering last October, the solution emerged as a natural extension of the company’s existing offering. After all, lending and banking are intrinsically connected — in theory.

In reality, however, various financial services have historically been siloed and disjointed for many SMB end users, according to Steve Allocca, who joined the company as COO earlier this month, taking along his experiences at LendingClub, PayPal, Wells Fargo and other heavyweights in the finance and technology arena.

BlueVine’s introduction of its Business Banking offering came at a time of urgency and desperation for many smaller firms in the U.S., which were eager for greater access to robust financial services. Availability of credit was certainly key to filling that need, as Allocca told Karen Webster in a recent interview. Yet to truly address SMBs’ needs, financial service providers must rethink the way that lending, banking and payments can work together — and not just provide firms with money, but actually foster long-term growth.

Shifting With The Tides

As a veteran in the financial services space, Allocca has witnessed the industry shifts that continue to reshape the way providers connect small businesses to financing. Among the workflows particularly affected by innovation is the underwriting process.

“Historically, credit assessment has not been very sophisticated, yet technology changes that,” he said, pointing to his experiences at PayPal Credit at a time when the company explored alternative ways to wield data to finance SMBs. FinTech disruption has challenged the notion that underwriting must rely on a relatively narrow scope of traditional small business financial data in order to be successful.

But the small business lending space has sometimes struggled with this area of focus, with the rise and fall of alternative FinTech lenders that considered newer data strategies reflecting an experimental approach to driving progress.

Today, said Allocca, there is an opportunity to deepen the connection between banking and lending in a way that enables financiers to access more robust, rich information about a small business borrower.

“There are so many other signals that we could use as we continue to digitize our lives, to be able to dramatically, exponentially improve the credit assessment and management of small businesses,” he said, adding that “helping businesses at that intersection of banking and credit makes the possibilities for that data even greater.” Fostering that intersection requires a rethink of the relationship between banks and small businesses, however.

Pointing to his time at Wells Fargo, Allocca acknowledged the understanding of the so-called “invisible middle.” That is, the small business customer base is too small for enterprise-grade services, yet too large to fit within the consumer profile. As a result, SMBs have been forced to work with legacy providers that not only lack the resources to adequately finance them but can often lack the understanding of that particular business in order to support that client’s growth.

Long-Term Support

Within the intersection of banking and credit, there is an opportunity for financial service providers to take a new approach to supporting small businesses. According to Allocca, this could mean fostering a more trusting relationship with SMBs among bankers that take the time to understand the business and its needs. That trust can yield avenues for a business owner to unlock valuable data from other sources to strengthen underwriting operations.

“The future is going to be more and more based on permission and credential-based access to data,” noted Allocca. “As rich as bank account, transaction and behavior data is, what’s even richer is if you’re in the position of trusted advisor … That trust enables a business owner to be able to provide credential- or permission-based access to all kinds of other data sources.”

It’s an open banking trajectory that allows financiers to not only strengthen the ability to connect small businesses to funding, but also to fuel that company’s overall long-term growth — a win-win scenario for financial service providers and SMB customers alike. After all, said Allocca, when credit scoring is done correctly, it considers the context of the nuances and needs of the individual business borrower. Only then will credit scoring, and the financing it facilitates, be the most successful.

With BlueVine’s Business Banking launching at such a vulnerable time in history for many small businesses, the company took the opportunity to dive headfirst into initiatives like facilitating Paycheck Protection Program (PPP) loans. With a bit more stability in the market today, Allocca is stepping into his role at BlueVine with a focus on cultivating this concept of interlocking banking with credit. It will be key to getting more capital into the hands of the SMB owners who need it, and to cultivating an ecosystem in which small businesses have greater visibility into and understanding of their finances, underpinned by support from their service providers.

“Small business owners should have a very clear idea of what they need to do in order to improve the health, stability, growth and ultimately the creditworthiness of their business,” noted Allocca. “Making that path more transparent will continue to give us access to all kinds of signals that help small businesses be more successful.”