Analysis Featured

The Growth of Lending-as-a-Service

OnDeck small business lending

You’ve likely heard that OnDeck recently expanded its relationship with JPMorgan Chase. Lending-Times decided to take the opportunity to discuss the deal with OnDeck CEO Noah Breslow. Here’s what he had to say.

The relationship goes back almost four years, Breslow said. “Right before we went public,” which happened in 2014. At that time, JPMorgan Chase was involved in developing their internal business strategy and focused on small business products. “The small business loan experience was expensive, and it took a long time for customers to get approved.”

In fact, Breslow said there were several pain points, but the solution turned out to be a partnership with OnDeck, which specializes in small business loans.

“The contacted us and said they wanted to enter into a trial with us to build a digital loan experience,” Breslow said. The non-bank lender said yes, and the rest, as they say, is history. “For us, it meant getting into the highest level of banking. We helped Chase take the small business loan process from six weeks to six clicks.”

A Partnership Made in Nirvana

While the idea made sense for both OnDeck and JPMorgan Chase, it took a while to take the partnership from idea to market.

“There were a million different hurdles,” Breslow said. “That included compliance and regulatory risks, governance issues, and more.” Finally, after a long trek and many discussions, the first loan was made in April 2016. But what, exactly, does each party do for the other?

Chase has customers. Lots of them. According to its 2016 annual report, average business deposits were $110 billion.

Overall, Chase serves 4 million small business across the country and extended more than $24 million in new credit to small businesses through its Business Banking, Chase Ink business credit card, and Commercial Term Lending products. That customer base was completely out of reach of OnDeck until they partnered with the bank. Chase Business Quick Capital simplifies Chase’s small business lending processes for loans up to $200,000 and a term of 24 months or less.

The bank agreed to market the loan product to its customers in exchange for OnDeck’s technology. They take care of the approval process and provide the capital for the loans. In return, OnDeck provides lending as a service using its proprietary technology to give Chase customers an approved end-to-end digital experience. They takes care of sales, servicing, collections, and customer service.

“When it was time for JPMorgan Chase to decide whether to continue the relationship, they double downed,” Breslow said. And the next four years should demonstrate to the world that bank-fintech relationships really work.

What OnDeck Hopes to Get Out Of Its Partnership with JPMorgan Chase

“It’s not lending revenue for us,” Breslow said. “It’s technology revenue. It’s transactional. So there’s no credit risk.”

That can take a load off. But there is always a give and take where risk and reward meet. For OnDeck, those transactional revenues are small per capita. They get just a small payment for each loan in exchange for the use of their technology. But at scale, those small dollars can add up to millions in revenue each year when Chase customers use the service. And judging from last year’s annual report, Chase’s digital lending apparatus is working quite well.

“It’s a little impact,” Breslow said. “We hope to see it grow in 2018 and 2019 as we scale. Long term, we hope this relationship will become a bellweather for other banks to partner with us so we can integrate our technology into their systems to reach more customers.”

OnDeck has had discussions with other banks, but so far, Chase is the only one to turn a nibble into a bite. “Banks have gone from questioning fintech to realizing that they have to build a digital experience for their loan products,” Breslow said. “The question for them is, ‘Should we build, buy, or partner?’”

Breslow is hoping they’ll opt for the partnership and choose OnDeck.

“We have a great engine to make small business loans, to leverage our platform for the direct lending business. We haven’t been in business for 100 years,” Breslow said. “We don’t have the customer relationships, but banks have them.

Breslow’s Crystal Ball: More Partnerships On The Way

OnDeck has made some major structural changes to its business in the last year to bring itself back to the growth stage. It is liquid with a solid balance sheet and has funding in place from several key institutional investors. Now the focus is on building on that growth, adding new products, and building more partnerships.

“As we head in 2018, we’ll be incorporating new features into our technology, and we believe we’ll have one or more new products by the end of 2018,” Breslow said.

Regarding business lending in general, Breslow sees a couple of trends emerging. First among them is the ability for technology companies to profit. “Profits will come faster and easier,” he said. “We’ll see more data sources, new accounting systems, bank transactional technologies, credit bureaus, and more. Right now, data is flowing in one direction. But I think it’s going to be more frictionless and accurate.”

The second trend he sees is more partnerships between traditional banks and fintech companies.

“It’s happening in consumer lending and small business lending,” he said. “These partnerships will happen all over the world.” Breslow said OnDeck may even be in a position to buy up a smaller company in the next year or two.

One thing is for certain: The future is looking up, both for OnDeck and for online lending. If more banks like Chase partner with technology companies like OnDeck, consumers won’t be able to know the difference. When they go online to apply for a loan, they’ll be applying through their bank (Bank of America, JPMorgan Chase, CitiBank, or a smaller regional or community bank), but the interface that will make it happen will be OnDeck’s or one of its competitors.


Allen Taylor
Allen Taylor


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