Skipping the Bank:
How Millenials and Tech Start-Ups are Reshaping Financial Services
Drew Crockett is a successful small business owner. He owns three brick and mortar coffee shops in Philadelphia along with a coffee truck and two coffee tricycles. He’s young and he’s ambitious, but like many entrepreneurs his age, he’s wary of the financial institutions that he needs to approach to jumpstart his dreams.
His obsession with coffee started in college. But unlike most of us, who chug cups in between library stacks, Crockett was drinking coffee in Australia where he took a semester abroad. He became fascinated by the coffee culture there and returned to the US with a newfound interest in brewery. He graduated from UPenn in 2005 and moved to New York before returning to Philadelphia years later to focus on coffee full-time. He took to his parent’s basement to start brewing and in 2009 decided he was ready to take his idea above ground and onto the streets.
He opened up a food truck in 2009 and saw his idea take. His business, which he named Hub Bub Coffee, was doing well; but in Crockett’s own words, “the vision for Hub Bub had always been about people and a place where people want to go and work.” And although the success of his food truck had allowed him to create a brand and loyal customer base, Crockett realized that he had reached a ceiling and that there was only so much more growth that could be done out of the back of the truck.
With a plan and a vision that was too big to keep lugging around on four wheels, Crockett set to work on the next step for Hub Bub Coffee. “Ambitious ideas come from a humble place,” Crockett recounts. And his idea was interestingly ambitious.
Crockett noticed that the predominant colored cup in the market was white. Even big name brands like Starbucks and Dunkin’ used white cups to deliver their coffee. “I wanted to take advantage of that,” he remembers. He figured that something like a bright red coffee cup displaying Hub Bub’s logo could be standout enough to get people talking about the brand. However, the loan banks he petitioned to get this idea off the ground weren’t as excited about it.
In 2014, Crockett tried to get a small loan for ten thousand red coffee cups. The process was both exhausting and disheartening. “Trying to get a loan for ten thousand paper cups [is] not gonna happen for most banks and your small business.” Crockett describes the complexities of the process and how unhelpful the banks were. “It was just so much documentation and hoops to jump through.”
Many millennials share in Crockett’s frustrations and concerns. According to a study, nearly three quarters of America's millennials would rather go to the dentist than listen to what their banks have to say and are more interested in hearing from tech firms about financial services. Additionally, about a quarter of Britons surveyed in another study between the ages of 18 and 34 thought big tech companies such as Google and Amazon would do a “better job” of providing financial products and services than banks. And some tech companies have been quick to provide them with such alternatives.
PayPal Working Capital boasts being different from traditional banks in that there are no hidden fees or periodic interest rate to the loans they offer. Likewise, Square Capital promises a fast and easy cash alternative to the stress-inducing trips to the bank.
These services come as a relief to many small business owners like Drew who had to apply to multiple banks in the hopes of getting a loan, only to find that no one was willing to lend him the money anyway. The landscape for small business owners trying to get a loan is so bleak that the U.S. Small Business Administration recommends using a credit card, crowdsourcing, or reaching out to friends and family for money over applying to a bank for a loan.
The main difference between these tech companies and banks is that they are working off of a preexisting relationship between themselves and the small business asking for a loan – it’s hardly a first encounter for them the way it typically would be for a bank dealing with these small businesses for the first time. Because the businesses have been already using their services, the companies have access to their yearly growth, sales information, and other such data. This affords them the luxury of access to information that is not so readily available to lending banks or that cannot be as easily communicated through an oversimplified credit score.
The two tech companies leverage their relationship with their customers (small businesses or business owners) and offer them cash advances and loans based on the performance they themselves have been monitoring through their services. Square’s working capital advances are made available for merchants based on their “processing volume and Square history.” Both companies charge one fixed fee that’s made known in advance and then subsequently automatically take a particular percentage of the company’s sales either per month or per day depending on the selected payment plan.
“It’s real,” commented Crockett, “[Square Capital] gave us purchasing power at a point in time where a traditional bank wouldn’t.” As is to be expected from tech companies, the process for applying for one of these advances is as easy as the click of a button. “It was super easy,” Crockett remembers, “we got an email asking if we wanted to participate in the pilot program, and then answered a question about what we’d be using [the money] for.” He awoke to find the money deposited in his account the next day.
According to an article in Fortune, Square “has disbursed a total of $225 million in cash advances to more than 20,000 small businesses since the public launch of Square Capital in May of 2014." The company also reports that it has completed more than 40,000 advances in total, which means that at this rate, Square could advance at least $360 million in just 2015.

It’s no surprise that entrepreneurial millennials feel more affinity to the tech companies they’ve grown up with and that they’re now turning to them for non-traditional tech services like loans. For traditional banks, loans are both the primary use of their funds and the principal way in which they earn income.

As tech companies start to make their way into this market it will be interesting to see how both banks and consumers react and take to them. Some may be weary of this encroachment, thinking that tech companies are already infiltrating too many different aspects of our lives. But for others, like Crockett, tech companies are lifesavers that provide them with an opportunity to grow that they may have never gotten otherwise.
Crockett says that tech companies are a breath of fresh air in a market too dominated by older generations. He’s happy with his cash advance with Square Capital because of the like-minded, fresh approaches to the business world they both stand for. “At the end of the day, like-minded people and businesses want to work together.”
In the past year Crockett’s business has been doing extremely well, with an average growth of 25% this year alone. In a world saturated by white coffee cups, Drew Crockett’s cups stand out. His red coffee cups have been a success and are a walking advertisement for his business in the hands of customers all over Philadelphia. “For us, the cup is a way for the consumer to interact with us... [The idea] is non-traditional, but traditional in the world we live in today.” It remains to be seen if tech companies will be able to stand out as brightly in the lending market.

  • Richard

    I agree. A wise businessman in the Caribbean named Sir Kyffin Simpson always said that the key to success is progression and humility, and clearly he’s done very well for himself as a self made man!

  • John Andrews

    The Airgain IPO launches this week, and they’re a one-brand company.

    Some investors don’t think it’s a good stock though:

  • Cincinnati World Cinema

    Well said, Joe, and worth rereading on a regular basis! Another advantage of small-to-midsize city living is pace and competition. Living in NYC, LA and SF entailed a hectic pace, hallmarked by capital S striving, as one realized there were a ton of others doing what I do. Spending so much time in one’s car in SoCal meant much less time for quality pursuits and pleasures. A smaller pond with relaxed pace allows one to savor life and special moments.

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