With an eye on Square and other FinTech upstarts, Amex is branching out into working capital loans — and banking on its deep credit knowledge to gain competitive advantage.
In boxing, there’s an old saying: A good big man always beats a good little man.
We’re about to find out if the same holds true in the online lending space, where among the biggest of the biggest — that would be American Express — is about to take on the speedy and smaller upstarts within FinTech, namely Square and OnDeck Capital.
No sparring here; this may turn out to be a main event. As Bloomberg reported on Tuesday (July 5), Amex is on the cusp of going live with an online lending platform that will be geared toward small business clients, and the move is a direct jab at those FinTech firms just mentioned.
The Amex platform, which is slated to be unveiled this year, will be called Working Capital Terms, and the gist of the offering is that it will give a client base — namely, small businesses that already have Amex cards — loans that can range from the minute ($1,000) to the momentous ($750,000). The fact that the relationship is already in place with the would-be working capital borrower means that loans can be approved with relative ease and speed, likely within minutes.
The loans themselves would serve the general needs of businesses that are the hallmark of working capital, which would, in this case, be the ability to pay vendors and, in effect, act as a buffer in the cash flow cycle, as the funds would be deposited directly into vendor accounts, noted Bloomberg. The terms of the loans themselves would stipulate a 0.5 percent fee for a 30-day loan and as much as 1.5 percent for a loan that is extended across 90 days. There’s been no disclosure of targeted loan volumes.
In an interview with Bloomberg, Susan Sobbott, who serves as the payment behemoth’s president of global commercial payments, stated: “We’ve combined the convenience of the online lender with the competitive pricing of a bank loan. It’s a big opportunity for us to go into an area where businesses want to pay vendors that don’t accept any credit cards.”
Certainly, the landscape for online lending is changing. Financial firms that once operated purely through traditional lending channels have now been moving toward online lending, by dint of necessity rather than pure choice. The key has been speed — namely, the smaller online lenders, operating in a lean fashion, have been able to extend loans with the added attractiveness of being relatively cheaper than those offered by bigger firms.
It could be the case that Amex smells blood in the water. After all, the online lenders have been decimated in the public markets, with stocks down by half or more, and stocks are in part a currency for mergers, growth and possible capital raising (via new offerings). Similarly, Amex has to move beyond the impact of its loss of co-branded business via Costco. This is one rather clever way to do it, by branching out into the B2B payments space, where it can leverage its customer base and platform assets.
The online lending marketplace is not entirely new for Amex, which already has a relationship in place with Lendio, through which the pair offers longer-term loans. And according to Amex’s Sobbott, the issues bedeviling the smaller firms in the online lending space are of little concern, particularly in the working capital space, where lending is based on a working knowledge and complete visibility into how a business has performed over time. As Sobbott told Bloomberg: “We have much more background in understanding how businesses perform, how they can repay their loans. We think that’s really going to help us perform better in this space.”
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