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Two week ago, the U.S. government rolled out a $350 billion small business loan program as part of a $2 trillion stimulus package aimed at keeping the economy afloat through the coronavirus.
But the rollout was frustrating and messy, to say the least: It was unclear which banks would take PPP applications while small businesses struggled to pull together payroll documents required for the application for the banks. Online, applicants complained of waiting days for a response from banks. Now, there are questions as to which companies are actually real as banks try to cycle through applications as quickly as possible.
The problem, says Alex Rampell, a general partner at Andreessen Horowitz who focuses on financial technology, is a fintech issue. Why can’t the government directly decide who needs the SBA loan, and disburse it as such without a bank?
“I would be shocked if there is not billions of dollars worth of fraud,” Rampell says. “Right now, the most profitable possible heist is not robbing the Wynn—it’s going and robbing the U.S. government of the PPP loans.”
Rampell led the firm’s investment in Plaid (which Visa recently agreed to acquire), and has ample experience also leading fintech companies. Rampell co-founded TrialPay, a payments company that sold to Visa in 2015, and co-founded point-of-sale lender Affirm, alongside PayPal co-founder Max Levchin.
Recently, Rampell has been speaking with officials in the Treasury Department and Small Business Administration about how fintech could speed up the process.
So we hopped on the phone to talk about why he thinks the government’s financial infrastructure needs an upgrade.
Here is our conversation, edited for clarity:
I think most generally agree the PPP disbursement has been messy. How are you approaching the problem from a fintech perspective?
You used to buy airline tickets from a travel agent 20 or 30 years ago. You would call the agent, who would then type your information into a little green screen, and that would go into a computer system known as Sabre.
Then Kayak and Expedia came and said we don’t need that person in the middle who might spell your name wrong. Let’s directly connect you to the computer system.
One problem this overall PPP process has exposed is that there’s no way to just have the government directly send a check. So it’s been so, so complicated because the government doesn’t really have a means of sending money to small businesses as it can’t identify them, it can’t adjudicate who deserves what, and it can’t really disburse funds. Banks are the only organs that can [do it.]
As a result, you also have this really Byzantine, Rube Goldberg-like apparatus. Instead of directly applying to the government, it’s “let’s have you apply to the bank, then the bank vets you, and then the bank goes into the SBA, and then sells the loan back to the federal government. Oh, and the government is going to spend billions of dollars [to banks] to process the PPP. (Term Sheet note: As part of the program, lenders are encouraged to participate with between 1% to 5% in fees to process PPP loans).
Wouldn’t it be cool in a future state of America if your Social Security actually represents a bank account? So say the government wants to send $1,200 to every American. Easy. We just put it in every social security account number directly. But that doesn’t exist. Instead, banks exist as an intermediary.
It’s so complicated, but it comes down to the fintech question of why can’t this be done in a better manner?
And you think this isn’t the end of the PPP’s problems because we lack the technology.
I would be shocked if there is not billions of dollars worth of fraud. Right now, the most profitable possible heist is not robbing the Wynn—it’s going and robbing the U.S. government of the PPP loans. How many times in history, has $350 billion been given away with no face-to-face verification and a few PDFs in two weeks?
Because you want to make this process as easy as possible to get loans out ASAP, there’s a small amount of information that is being required and high throughput. It’s a bad situation for fraud and for adjudicating the process in general for legitimate businesses. The bank gets a PDF of your payroll statement, they get a copy of your paychecks, and then they have to make the fast decision because Marco Rubio is telling them “go make more loans”—though as he should be since the U.S. economy is relying on this happening quickly.
What do you think is the long-term fix?
Hopefully there’s a lesson from this. When there’s an earthquake, you change the building codes. When you have a flood, you change your flood codes. We have an economic calamity right now—and if there is an economic calamity again, the way to make the building more resilient in future downturns is to say we need to have a way [for the government to] instantly see payroll data, see all [the information needed to issue a loan].
This is not a splitting of the atoms, but it is a checklist of what we need to do to get our financial services infrastructure into the 21st century on the government side so that we identify, adjudicate, and disburse funds as quickly as possible.
That also has other ramifications for simplifying the [tax process]. I have to gather all these documents], for example, I get my 1099 that the IRS also gets a copy of [from the employer], and then I have to send that same information back to the IRS. It doesn’t make any sense! They should just know how much you earned, as opposed to me re-reporting income and how much I owe. And that’s where an API-based approach would solve that.
Right now, getting the funds out as quickly as possible is a defcon one situation, so I think people are focused on that. But eventually, I think the infrastructure overhaul will happen. I can’t imagine a world in 2100 where the U.S. doesn’t have this.
But I can imagine a U.S. in 2025 that does not have this.
How are you talking to your portfolio companies about going through a downturn?
I’d say I have some examples of companies where demand is higher, like Propel that helps people manage food stamps. It’s a sad fact for the American people but there has been a surge there. Then there are the neutral cases and then the negative cases where your business is really impacted by the coronavirus—and they have to make some really hard decisions. Sometimes those hard decisions are unfortunately layoffs or go under.
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