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JPMorgan Chase’s online lending platform for small business clients, which is offered in partnership with alternative lender OnDeck, launched on a “limited basis” last week, according to American Banker.
Chase is pre-screening a selection of its existing 4 million small business customers and inviting them to apply for loans of up to $250,000. Though the software is being offered by OnDeck, the loan underwriting criteria will be set by Chase, and the loans themselves will be Chase-branded and held on the bank’s balance sheet. The bank did not specify when the platform will be broadly launched or how many clients have been invited to apply. The partnership between Chase and OnDeck was announced last December.
The platform was designed to ease friction associated with sm
- Chase’s new platform is convenient for small businesses. The loan application process is fully digitized with same- or next-day approval. And though the businesses could, in theory, apply for the same loans directly through OnDeck or another online lender, Chase’s platform is reportedly faster. In addition, the bank could face low customer acquisition costs since it has an existing borrower base, and could use that base's existing information to simplify the process.
- And it could also give them an edge over other banks in small business lending. Banks' traditional underwriting practices make small business loans expensive to issue. As a result, banks have turned down many of these businesses — half of US small businesses that applied for traditional loans were rejected in the first half of 2014. OnDeck's technology could help JPMorgan serve a huge share of rejected borrowers, giving the bank an untapped borrower base to generate revenue from.
If the partnership is successful, it could set off a string of similar pairings among competitors. BI Intelligence, Business Insider's premium research service, predicted that 2016 will bring an uptick in partnerships between banks and fintech firms.
That could be especially common among alternative lenders because it gives banks an opportunity to “try before they buy” while allowing alternative lenders to focus on building great user experiences rather than attempting to scale on their own. And the success of these partnerships could encourage competing banks to pursue a similar strategy, which would inadvertently lift the alternative lending industry and bring it more towards the mainstream.
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