Can Banks and Alternative Lenders Exist in Harmony
When online alternative lenders initially emerged on the credit scene, many did not know how banks, borrowers, or investors would react. Some thought that ultimately technology-led online lenders would challenge the old style way of banking, especially community banking. Most banks simply failed to pay attention to the trend or bothered to care simply because online origination of SMB loans was tiny compared to traditional banking. And to be fair, online origination is still small compared to traditional banking, but the year-over-year growth is staggering.
For the banks that are taking note, a partnership model is starting to develop. Since the recession, banks have grown comfortable making low interest, over-collateralized loans. Although traditional banks are distancing themselves from small business loans, they do like performing the ancillary services for small businesses such as credit card processing, depository account services, etc. The ability for a bank to service its small business customers with loans, even through a partnership, is valuable. For local and regional banks, the ability to expand their reach through an online originator is very attractive. We are at the early stages, but the future bodes well for traditional banks working in partnership with alternative lenders.