Launched in 2007 OnDeck works to solve financing issues facing small businesses. “We combined our passion for Main Street with cutting-edge technology to evaluate businesses based on their actual performance, not personal credit” is how the company describes itself on its web site. “That’s enabled us to say “yes” more often and faster than traditional lenders. And that lets owners spend their time where it should be—on growing their business, not seeking financing”.
To date, more than $3 billion in financing has been delivered in 700 different industries leading to the creation of 74,000 jobs and more than $11 billion in economic activity in the US. OnDeck provides loans to SMEs up to $250,000.
On Tuesday in a panel held in New York JP Morgan Chase CEO James Dimon spoke about partnering with a peer to peer lending platform, the same day OnDeck (NYSE:ONDK) issued the an 8-K declaring “On Deck Capital, Inc. today confirms that it is working with JP Morgan Chase Bank in connection with a strategic partnership whereby JPM will use the Company’s small business lending platform and the OnDeck Score to serve its small business customers (the “Strategic Partnership”). The Company is in the process of building out its integration with JPM and finalizing definitive agreements regarding the Strategic Partnership. The Company expects the Strategic Partnership to commence operations in 2016. The Strategic Partnership is the latest example of both the Company’s platform-as-a-service technology and its strategy of partnering with major financial institutions to serve more small business customer”.
The net effect is that JPM will be able to fill a gap in its lending portfolio while OnDeck just boosted its business by having JPM promote its services across the country. Jenn Piepszak, Chief Executive for Business Banking at Chase, was quoted in the Financial Times; “It is not a question of friend or foe. We clearly bring scale and customer acquisition to the table; what they offer is a disruptive customer experience that is very complementary with our existing services.”
With this we see major Banks following the EU lead in SME alternative finance funding. A recent European Union survey showed that a third of SME funding now comes from peer-to-peer lending or crowdfunding. According research from law firm Allen and Overy “an increasing number of European companies are shunning traditional funding in favor of alternative finance”. The report found that peer-to-peer lending and crowdfunding is now responsible for around a third of all EU business funding, with 48% of corporate firms expecting to see an increase in their use of alternative finance over the next five years – as compared to a much smaller percentage that expect use of bank lending or capital markets. The study, which surveyed 360 senior decision makers, revealed that 76% of borrowers are aware of pan-European standardized documentation. Ben Fox, partner at Allen & Overy, added “It’s clear this part of the funding mix is here to stay” which means the EU has gotten this. In the US we have been following the UK in alternative finance growth and development and now we see a very real and substantial trend in the EU as well. But the Banks are coming and when the likes of JP Morgan Chase, Bank of America, Wells Fargo, Citigroup and others dive in head first, the party will have started. The work done over the last three years means that all the components needed to create a thriving market are in place: the US regulatory environment has changed dramatically, we have expanded the investor pool to 200 million from 8.5 and lowered the cost and increased the reach for promoting investment opportunities allowing the use of social media and the internet all which were prohibited the last 30 years.
And certainly the economies’ thirst for SME growth, job creation and economic activity is there and more likely to increase rather than anything else.