April 24, 2016
Kensington Blake Capital’s Managing Principal Brian Zwerner serves as a Senior Advisor to Provider Web Capital, a leading finance provider for small businesses in the healthcare sector. Zwerner provides commentary on banks partnering with FinTech firms.
There has been a lot of press recently on banks partnering with FinTech companies. Early adopters included BBVA Compass, who partnered with OnDeck, and Regions Bank, who partnered with Fundation. Both of these partnerships were about bringing small business lending to a larger portion of the bank’s client base. Banks generally struggle to offer business loans below $250,000 in size, and a partnership with a FinTech finance company can effectively allow the bank to offer financing to more of its customers.
We have seen more activity in this space with the recent announcement of JP Morgan Chase partnering with OnDeck to reach more of Chase’s small business clients. There are three ways we are seeing banks partner with FinTech platforms. First, banks like Chase are using FinTech companies as service providers, with Chase taking the risk on the loans originated using OnDeck’s highly developed platform. I expect this will be an exception pursued only by the largest banks.
More commonly we are seeing banks simply choose to lend to FinTech platforms that house their originated loans or to the investors that buy loans from these platforms. I have heard of leverage as high as 5-10X the investment capital dedicated to small business finance contracts.
Lastly banks are creating origination partnerships where the bank refers its clients to FinTech platforms that can better serve the needs of its clients. This mirrors Regions’ deal with Fundation. In these cases, the banks are letting the FinTech platform bear the risk on these contracts typically, but I expect the banks will eventually provide capital for the loans as well.
We will see many more of these emerging partnerships as more banks realize the value of working with FinTech platforms. What form will be most common and deliver the most value for banks and their customers is still to be seen.
Link to article from American Banker on banks and FinTech:
Link to article from American Banker on FinTech business growth plans:
More information on Provider Web Capital: