Jeff Judy

Jeff's Thoughts - June 3, 2015

Regulation: The Uneven Playing Field

In the last issue, Competing with Nontraditional Competitors, I wrote another in a series of articles about alternative sources of basic financial services. For instance, crowdfunding and peer lending schemes are now being used by some small businesses -- and some not so small, as we'll see in a moment -- that formerly depended on banks and credit unions to finance their needs.

Alert reader Jessica Piatt of AnchorBank wrote me to ask my views on the impact of regulation, or the lack thereof for alternative services. She pointed out that regulation is a " true additional cost and service-level hurdle for banks".

More broadly, Jessica raises the point that the regulatory environments of various credit sectors are anything but equal. Certainly, many of these new alternative services may have little formal oversight other than the usual commercial code.

But, of course, the lobbyists representing banks and credit unions spend a lot of time (and association money) working to "level" what they perceive as unfair advantages or disadvantages on either side. And we can expect these organizations to take on some of these alternative sources of financial services as they become more noticeable in the marketplace.

Can you wait for legislative and regulatory change to "level" things? Not likely. Besides, effecting such change is not a task for your local community financial institution.

So we're faced with different regulatory "niches" as we compete for credit business. Some institutions will do better than others, level playing field or not. How will they edge their competition?

Regulatory differences can be frustrating. But recognizing the challenge they present to credit business is the first step in compensating for those differences.

Let your trade association battle to level the playing field. Meanwhile, focus on your best niche and leverage your strengths to make the most of your opportunities.