J.P. Morgan Chase & Co. recently decided to tap On Deck Capital Inc. to create an online small-business loan for its customers. The move is the clearest sign yet that large banks are choosing the path of embracing up-and-coming lenders rather than facing off against them.
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.
Banks and credit unions are increasingly looking to expand their relationships with small and midsized businesses – including startups – as part of their strategic planning process. And when these plans are put into action, the expanded services can run the gamut from dedicated, in-house products to white-labeled products, to outsourced or managed services, allowing solutions for FIs of all sizes.
Overview by Ed O’Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group
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