JPMorgan Chase & Co., the biggest U.S. bank, is collaborating with On Deck Capital Inc. to dramatically speed up the process of providing small business loans to some of the lender’s 4 million customers. The product will be offered under the Chase brand and is expected to be piloted next year with small dollar loans under $250,000. The news pumped OnDeck`s share price by 33% on Wednesday reaching $12.45 per share on NYSE.
Jennifer Piepszak, JPMorgan’s head of business banking, shared on Tuesday with Bloomberg, “We’re working with OnDeck to build a new Chase lending product that will be launching in 2016 for small-dollar loans to our small-business clients. By combining Chase’s relationships and lending experience with OnDeck’s technology platform, we’ll be able to offer almost real-time approvals and same- or next-day funding.”
According to Piepszak, the decision was made after weighing the opportunities for building a similar solution in-house against collaboration with the lending startup. The question of the relationships between industry giants and disruptive FinTech has been discussed for a while now and companies are solving it in a variety of ways.
Big banks have been threatened by FinTechs offering better lending options, transforming the service into a matching platform for borrowers and those willing to lend. The reasons for collaboration vary among banks, with some of them looking to speed up and simplify the process, and others trying to make the ventures’ products available for their customers.
JPMorgan Chief Executive Officer Jamie Dimon mentioned to Bloomberg that the new ventures offer “the kind of stuff we don’t want to do or can’t do, but there’s somebody else who can do it and do it probably well. Online lenders use a broad amount of non-traditional data to “determine whether someone has a good credit or not.”
OnDeck has loaned over $2 billion to small businesses across 700 industries in all 50 states and Canada. The company’s proprietary small business credit scoring system, the “OnDeck Score”, evaluates thousands of data points to deliver a fast and accurate credit decision. Restaurants, medical professionals and retailers, among other small businesses, choose OnDeck for its convenience, speed, and direct access to growth and working capital. Earlier this year, Ondeck partnered with Prosper to develop new solutions to address their customers’ needs that expand upon their current referral arrangement.
JPMorgan’s collaboration with FinTech is an indicator of a broader trend in financial services as banks are looking to collaborate and, as relevant to this story, also buying loans originated through matching platforms.
Sharing insights on JPMorgan’s move with OnDeck, Sam Hodges, co-founder of Funding Circle, commented in the interview with Bloomberg that for smaller businesses there are service providers in a much better position than banks. What is being witnessed with JP Morgan and OnDeck and other banks looking at the partnerships with startups, is all about taking the best from the both worlds, as Sam explained.
It may seem like JPMorgan and other banks are opening doors to alternative lenders. However, Sam mentioned an interesting detail in the same interview. Despite the newly realized necessity to collaborate, JPMorgan several weeks ago decided to restrict the data access for alternative lenders like Yodlee so that aggregators wouldn’t be able to collect the relevant data on the offerings to facilitate loans.