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HSBC: Fintech deal will provide access to midsize businesses in U.S.

Add HSBC to the list of banks partnering with commercial online lenders.

The bank on Tuesday announced a partnership with Neptune Financial, a San Francisco online lender that focuses on businesses with $10 million to $100 million in assets. The bank estimates that, with the access it will get to Neptune customers, the deal represents a $1.5 trillion opportunity.

“The middle market is a highly inefficient market,” said Edward Achtner, the head of digital banking for HSBC’s U.S. commercial banking division. “Through the synthesis of Neptune’s information with ours we’re going to get not only a much more holistic view of the marketplace both in terms of emerging trends and risks, but also it’s going to really inform us from a strategic growth perspective about which markets we should be focusing on.”

HSBC is Neptune’s first bank partner, and the agreement resembles partnerships that other banks have made with the online lender’s competitors. OnDeck Capital works with JPMorgan Chase and announced a partnership with PNC Financial Services Group in October. Kabbage works with Banco Santander, ING and Scotiabank.

The deal is also part of HSBC’s push for growth in the U.S., Achtner said.

“The partnership with Neptune allows us to extend our reach into new markets and to reach clients in the U.S that have international needs that up until now we wouldn’t have had access to,” he said. “There is an incredible appetite in the middle market to do more internationally.”

Neptune will also provide HSBC with market data and analytics. In return, Neptune will get access to HSBC's trade finance and other services, its strong deposit base and its ability to structure loans for clients with international needs, such as trade receivables. If HSBC decides against financing a customer, Neptune still may have a chance to take a look at the opportunity.

However, the partnership doesn’t include any white-labeled products for the bank. “It’s a public partnership,” Achtner said. “There are other things we’ve looked at to be white-labeled, but [that's] not what we're doing here.”

For banks, commercial online lenders can be like a “turnkey to come up to speed for commercial customers,” said Brian Geary, president of OnDeck’s bank partnership subsidiary, ODX.

In addition to providing a white-labeled small-business loan product for banks, OnDeck has also offered information about credit models, fraud analytics and marketing analytics. OnDeck’s deal with JPMorgan Chase was the first of its kind among commercial online lenders, Geary said.

“Even though it's been only three or four years, we feel like the grand old uncle in the industry,” Geary said.

The small-to-medium-enterprise market is one of the most profitable and sticky markets in traditional finance, and banks are looking for fast solutions to capturing it, said Lex Sokolin, global director of fintech strategy at Autonomous Next.

While banks have created either in-house technology or adopted other strategies that allow consumers to get approved quickly, there hasn’t been the same innovation in the small-to-medium market, Sokolin said.

“If you think about how a business would apply for financing to a bank, it’s definitely a human relationship, lots of paper and lots of signatures,” he said. “The idea that you would digitize onboarding and potentially the underwriting for SMEs and offer it to a bank, that is inevitable and pretty compelling."

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