Well, speaking from my experience of working with people on the "bottom of the pyramid" across the world, I can attest that there are various regulations which has led to the traditional banking system to not provide credit or opportunity to these entrepreneurs.
Prior to fintechs getting into the remittance space, fees were as much as 20% on average of transactions.
Prior to microfinance institutions and then true fintechs such as Tala, Branch, GoPay, Ant, etc. there were 10 of millions of merchants who could get no access to credit.
Prior to fintechs, you needed to physically go to a bank to become eligible for a loan and fill out paper forms. This may not seem like a high barrier to you.
Short of it is, heavy regulation leads to:
* High compliance costs
* Low appetite for risk
* Slow to little innovation
There are regulations that don't make sense for small merchants: Anti-money laundering laws for instance which are generally good, but impose a completely undue burden on merchants that want to borrow $500.
Or a risk modeling team at a bank that has dozens of staff may make sense cost-wise for loans of $100k+, but they don't make sense for < $10k loans and their risk models also don't work at those levels.
This also isn't just Silicon Valley. It's a common problem in most countries of the world, speaking from experience.
Prior to fintechs getting into the remittance space, fees were as much as 20% on average of transactions.
Prior to microfinance institutions and then true fintechs such as Tala, Branch, GoPay, Ant, etc. there were 10 of millions of merchants who could get no access to credit.
Prior to fintechs, you needed to physically go to a bank to become eligible for a loan and fill out paper forms. This may not seem like a high barrier to you.
Short of it is, heavy regulation leads to: * High compliance costs * Low appetite for risk * Slow to little innovation
There are regulations that don't make sense for small merchants: Anti-money laundering laws for instance which are generally good, but impose a completely undue burden on merchants that want to borrow $500.
Or a risk modeling team at a bank that has dozens of staff may make sense cost-wise for loans of $100k+, but they don't make sense for < $10k loans and their risk models also don't work at those levels.
This also isn't just Silicon Valley. It's a common problem in most countries of the world, speaking from experience.