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Google and Amazon are ready to disrupt small business lending, former Obama advisor says

  • Google and Amazon are well poised to enter the small business lending arena, Karen Mills, former U.S. small business administrator, told CNBC
  • Earlier this year, Amazon said it had lent more than $1 billion in small business loans

Tech behemoths Google and Amazon are poised to put competitive pressure on traditional banks in the small business lending arena, one of former President Barack Obama's cabinet members said Tuesday.

Karen Mills, who served as Obama's administrator for small businesses, told CNBC that the tech giants would probably push to disrupt the market and deal a blow to established lenders.

"I think they are going to dominate the market, and that is the next phase that's coming," she told the LendIt Europe fintech conference in London.

"But the question is, in what form would that come, and... under what regulatory authority?"

Earlier this year, Amazon said it had lent more than $1 billion in small business loans to merchants looking to expand their businesses, via its website.

Online business loans have increasingly become the priority of a number of financial technology (fintech) lenders. U.S. digital lender Lending Club, for instance, allows investors to loan money directly to small and medium-sized enterprises (SMEs).

"When I look at it from a U.S. view and a global view, the banks are going to come back in full force, including Barclays and others, and then on top of that you're going to have definite presence of Amazon players," Mills told CNBC in an interview after the conference.

Karen Mills, small business administrator (SBA), speaks during a House Small Business Committee hearing on Capitol Hill on June 6, 2012 in Washington, DC.
Mark Wilson | Staff | Getty Images
Karen Mills, small business administrator (SBA), speaks during a House Small Business Committee hearing on Capitol Hill on June 6, 2012 in Washington, DC.

"Amazon has clearly signaled they're going to provide at least financing for their merchants that they know. And that's very smart."

The former politician, who is now a fellow at Harvard Business School, said "information aggregators in the days of artificial intelligence" — like Google — would also have a competitive advantage.

"If you think about what Amazon already knows about its merchants, and then you think what Google knows about everybody who is buying and selling through its platform, one can imagine a world where they have much more information about both on the credit side but also on the small business itself."

Regulatory backdrop

Mills' comments come amid rumblings of financial regulation for fintech firms.

In the U.S., a debate has erupted over whether the federal government should grant technology companies special banking charters that allow them to compete with banks nationwide.

"I think this is one of the as-yet-untold stories of fintech," Mills said.

The Office of the Comptroller of the Currency (OCC), one of many regulators in the U.S., sparked opposition from state regulators and banks when it published guidance last year about the possibility of a national bank charter for fintech companies.

Mills said there is currently a "spaghetti soup" of multiple financial authorities, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the U.S. Securities and Exchange Commission (SEC). But she added that there is currently little oversight over small business lenders.

She claimed there is a present fear among both traditional lenders and fintech companies that established internet giants may step up to the plate.

"If you look at the small business hierarchy needs, they need access to cash, funds, they need time, and they need more sales," she said.

"And what if you were able to provide an efficient system that gave them more time to do all their work, access to capital and something that boosts their sales line? You could see how that player could win over a traditional player or even a new fintech."