STARTUPS in the world of financial technology, or “fintech”, think of banks as hulking mediocrities ripe for disruption. Banks in turn look down on fintech outfits as little more than gadflies swarming over chicken feed. As any fan of romantic comedies would know, such apparent incompatibility is often the precursor to a close relationship. On December 1st JPMorgan Chase (JPM), America’s biggest bank, announced it would make small-business loans through OnDeck Capital, a “marketplace lender” of the sort that usually claims to be on the verge of putting financial-services behemoths out of business.
The deal may seem odd at first: after all, banks like JPM have customers wanting to borrow and the money to lend to them. The catch is that their desire to make smallish loans—the pilot will focus on credits of $250,000 or less—is limited by the cost and hassle of originating them. It is “the kind of stuff we don’t want to do or can’t do,” said Jamie Dimon, JPM’s boss.
OnDeck, whose share price spiked on the news, is one of hundreds of lending platforms active in America. Most of them started life by matching individuals or firms needing money with those with too much of it, dubbing themselves “peer-to-peer” lenders. But the relatively high returns on offer attracted banks and other financial institutions, which began to buy up the...Continue reading
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