By Peter Rudegeair, Ruth Simon and Emily Glazer
J.P. Morgan Chase & Co.’s decision to tap On Deck Capital Inc. to create an online small business loan for its customers is the clearest sign yet that large banks are choosing the path of embracing up-and-coming lenders rather than facing off against them.
Other banks are also turning to upstarts to boost small business lending. This fall, Regions Financial Corp. partnered with online lender Fundation Group LLC, in part because of its transparent terms. Annual percentage rates on Fundation loans top out at 30%.
Some of these partnerships have been in place much longer. A Wells Fargo & Co. unit that processes credit-card payments for merchants has had an arrangement with CAN Capital Inc. for the past five years in which customers who were declined a bank loan are referred to the online lender.
“We are in discussions about ways to expand the program” with Wells and in talks with “several others,” said CAN Capital chief executive Daniel DeMeo. “There’s a lot more curiosity over the last six months than there had been previously.”
Small-business lending is a natural place for banks to start collaborating with newcomers from Silicon Valley given the amount of ground that they have lost since the financial crisis. Ten of the largest banks offering small loans to businesses extended $44.7 billion in credit in 2014, down 38% from their 2006 volume.
“Every major bank is working on this,” said John Barlow, president of Barlow Research. “This is really just the beginning of a re-engineering of the entire small-business lending process.”
But not every bank will end up enlisting outside help. For instance, Bank of America Corp has no plans to partner with online or alternative lenders in part because of potential dings to its reputation, chief executive Brian Moynihan has told analysts.
In the case of OnDeck, J.P. Morgan determined that OnDeck’s technology, specifically the coding, and compliance operations were reliable and scalable. Its management also had a longer track record than competitors. The bank’s retail chief Gordon Smith and CEO Jamie Dimon were both involved. Mr. Dimon hastened the announcement of the partnership earlier this month when he referred to it indirectly at a conference hosted by the U.S. Treasury.
Many of the details are still under way. J.P. Morgan is planning to begin the partnership in select cities next year before launching in full, a person familiar with the matter said, adding that markets have not yet been chosen. J.P. Morgan will integrate OnDeck’s technology into its checking-account website in order to offer loans to pre-screened borrowers, but the bank is keeping its partner’s name off of the product.
That contrasts with a similar type of loan that OnDeck developed earlier this year for small businesses that use Intuit Inc.’s accounting software. That product, which synced to businesses’ Quickbooks accounts and provided them with quick access to credit lines, was branded as being “powered by OnDeck.”
Meanwhile, Regions decided to put a link to Fundation’s online application on the bank’s website and co-brand the arrangement.
“The product is very simple and easy to understand,” said Joe DiNicolantonio, head of Regions’s business banking group. “We want to make sure our partner is lending in a very responsible and fair way to our customers.”
More News
Visa boasts of fintech Fast Track success
May 14, 2020
New York City Credit Program Aims to Help Female Entrepreneurs
November 14, 2019
Import/Export SMBs Introduced to Fintech Lending Options
August 7, 2019
Online Loans You Can Take To The Bank
April 23, 2019
Case study: Citizens Bank – fintech friendly
February 19, 2019
2018 Best of FinXTech Awards Finalists Announced
March 29, 2018
Citizens Digitizes SMB Lending Process With Fundation
November 6, 2017
Park Bank Announces Expansion of Small Business Lending Efforts
November 2, 2017
Defining, Adopting and Executing on Fintech
September 5, 2017
Fundation CEO Talks Partnership Strategy
August 4, 2017
Fundation works with, not in place of, banks
April 3, 2017
Fundation Secures Credit Facility from MidCap Financial
March 21, 2017
Where the money is: A small business lending gap
March 3, 2017
Q&A Break with Sam Graziano, CEO of Fundation
January 18, 2017
Fintech Ideas Festival Rapid Fire Emerging Tech Panel
January 17, 2017
Citizens Bank Next To Take The Leap With Alt-Lender
December 21, 2016
Regions Eyes Small Business Loans in Latest Tech Deal
September 22, 2016
Is The Future Of Alt-Lending Playing Well With Others?
August 30, 2016
Best Alternative Small Business Loans 2016
May 27, 2016
Frenemies In the Marketplace
April 29, 2016
Bigger Bang In Small Biz
April 1, 2016
How To Get A Small Business Loan (Webinar)
March 29, 2016
Fundation Expands Small Business Lending
March 4, 2016
Top 25 Financial Blogs for Small Businesses – 2016
February 22, 2016
CEO Sam Graziano on MSNBC’s Your Business
February 18, 2016
Bank Branches Are Still Good for at Least One Thing
February 17, 2016
Fundation Named Finalist In 2016 Stevie® Awards
February 12, 2016
A “Meaningful” Platform-Bank Partnership?
January 6, 2016
Late on a Loan Payment? How To Do Damage Control
October 21, 2015
Regions Inks Unique Deal to Tap Booming Fintech Industry
October 13, 2015
Best Alternative Small Business Loans – 2015
October 6, 2015
Fintech strikes again; Regions partners with start-up
October 5, 2015
Investing in Alternative Lending?
May 1, 2015