Traditional sources of financing are starting to feel the pressure of new lending technologies capturing market share they might have otherwise taken for granted.
For example, credit card provider MasterCard noticed a drop in volume at one of their merchants last spring. When they investigated further, they found they had a new competitor, Behalf, a startup small-business lender with venture backing that was making credit decisions as quickly as just a few seconds—much faster than the traditional credit card provider.
“But rather than play defense, a reaction banks and credit card companies were likelier to have not that long ago, MasterCard engaged Behalf and worked with the start-up to help arrange for its customers to use MasterCard’s systems to pay their vendors,” writes Randall Smith for The New York Times.
This is a great example of how some traditional players in the small-business lending space are partnering with the new breed of lenders and other financial service providers to better compete. Companies like MasterCard area looking at these potential rivals as partners in everything from credit card processing to lending.
“We now exist in a world of what we call frenemies,” said Leslie Berland, head of digital partnerships at American Express. “Many companies that we work with may pose challenges as well as opportunities.”
MasterCard and American Express aren’t the only companies partnering with young financial services tech companies either, Citigroup, VISA, and banks like SunTrust Bank are either partnering with potential high-tech competitors, or in SunTrust Bank’s case (as Smith asserts) are buying them—they purchased online lender FirstAgain in 2012 and restarted the business as LightStream in March of 2013 to offer unsecured business loans.
MasterCard’s Rob Snyder, the executive who arranged the Behalf deal, said, “We look at alternative lenders as obvious potential disrupters of the business and, therefore, potential partners.”
There’s no question the world of small-business lending is in flux. What was considered alternative yesterday is considered mainstream today. Are traditional lenders keeping up?