We contributed an article to Banking.com discussing how non-traditional small business lenders - including folks like Wal-Mart, Office Depot, Google and others - are starting to provide small business credit services.
Most of these non-traditional lenders are targeting very small businesses - individuals and micro-businesses - with loans ranging from $5000 to $25,000.
This is a market segment traditionally ignored by the financial services sector because they are hard to reach and serve profitably. But the new lenders believe through the use of technology and online banking methods they can be successful serving this group.
It's not only big companies entering this market. A number of startups are also targeting this group.
Disruptive innovation is a term coined by Harvard Business School professor Clayton Christensen. It describes a process by which a product or service creates a new market or reshapes an existing market by delivering simple, low-cost innovations to a set of customers who are ignored or underserved by industry leaders.
After establishing themselves in the low end of the market, disruptive innovators often move up, challenging traditional competitors for their best and most profitable customers.
We think we're seeing signs of disruptive innovation occurring in the small business credit space - and in particular credit services for the self-employed and micro-businesses (less than 5 employees).
We hope we're right on this. This underserved segment needs better access to credit services.