In the confusion after the 2008 market crash, new, innovative financial players cropped up and started nibbling at the edges of several profitable markets, including consumer lending, investment management, and small business lending. Now that nibbling is starting to turn into bigger and bigger bites–and banks are starting to take notice.


Non-bank originators already hold 25% of outstanding small business loans, and experts in the field believe that number will continue to grow. According to a recent research report by Goldman Sachs, the entire $186 billion small business lending market could potentially move to the so-called “shadow banking sector” — along with the entire mortgage lending market, the entire student lending market, and about a third of unsecured personal lending.
Paper-based bank lending practices can’t compete with new online lenders on speed or ease of customer experience. These new marketplace lenders can make loans faster, and the customer experience is seamless. Applications are done online and borrowers get their funds within a couple of days. They typically offer much higher interest rates, but a borrower who needs money fast may not care about how much they’ll pay for the cash–and if the terms are complicated enough, they may not even realize how much the loan is costing them.

More and more banks are starting to realize they can’t beat these upstart competitors–so they’re joining them instead. Major banks are forming partnerships with marketplace lenders, using this innovative online technology to make small business loans to banks’ broad customer base. JPMorgan Chase has partnered with OnDeck, Regions Bank with Fundation, and Scotiabank with Kabbage.

Other banks are creating their own online small business lending platforms. Wells Fargo recently launched an online platform, with a goal of making $100 billion in small business loans by 2019. Amex, already a major player in the small business lending space, also recently launched its own online lending platform. Both banks are highlighting the speed with which these new platforms will be able to make loans–borrowers should get money into their accounts in just a day or two.

Goldman Sachs, following up on that report about the massive threat posed by alternative lenders, is about to launch its own online lending platform. They’ve even purchased parts of GE Capital Bank to help fuel the effort, providing them with a pool of deposits on which they can base their lending. This effort is beginning with personal loans, but internal sources have suggested that small business lending could be coming soon.

Big banks have seen the writing on the wall. They’ve read the dire reports about the vast sectors of their core business areas at risk from alternative lenders who offer the convenience and speed of online applications and near-instant money transfers. And they’re not sitting around, waiting for online upstarts to eat their lunch. They’re moving lending online and beating these innovative competitors at their own game.

How should smaller community banks respond? While partnering with marketplace lenders is gaining traction among larger banks, it’s also rife with hidden conflicts of interest. With limited funds for acquisitions, community banks can’t buy their way into online lending. Without a dedicated IT department, they can’t build their own solution either. To deliver the speed and convenience small business borrowers increasingly demand, community banks must embrace fintech partners that modernize their lending practices, instead of compete with them directly. Mirador can help.


As bigger banks embrace these new paradigms of speed and online convenience, consumer expectations will shift forever. Will your bank be ready? Download our recent white paper, “Adapting the Best of Fintech to Small Business Lending” to learn more about how a partnership with fintech helps banks compete in a rapidly evolving digital banking world.

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