This story was delivered to BI Intelligence "Fintech Briefing" subscribers. To learn more and subscribe, please click here.Incumbent banks have recently been upping their efforts to appeal to small- and medium-sized businesses (SMBs), as alt lenders aggressively target this lucrative and underserved market segment.However, with their cumbersome legacy IT infrastructure and slow, manual loan application processing, many are not in a position to provide quick funding, which is what most SMBs need.Now, the American Bankers Association (ABA), a US industry group, is trying to help its members overcome this problem by collaborating with Akouba, a fintech startup that provides loan processing and underwriting technology, Reuters reports. According to Reuters, the ABA began seeking a third-party provider of SMB lending technology back in January.Akouba's platform wants to make it easier for banks to offer SMB lending. Chicago-based Akouba's cloud platform facilitates loan application processing and underwriting for banks. It allows SMB applicants to submit and track their application online, with a decision made usually within 48 hours. The company claims that the advantage it has for banks over other platforms is that it allows incumbents to retain full control over elements such as pricing, loan amount, credit policy, and customer experience. The platform also configures its underwriting to each bank's credit policy. It says that its automation of much of the lending process makes SMB lending faster and cheaper for banks.The platform is likely to prove particularly attractive to the ABA's smaller members. While bigger incumbents have the resources to push back against alt lenders' encroachment, smaller banks often do not have the time or funding to modernize their lending processes. As such, solutions such as Akouba's will likely see high uptake among smaller banks, which are numerous in the US. Moreover, this could mean that some smaller alt lenders are pushed out of the game, given that many consumers still trust banks more than fintechs and see them as a first choice when it comes to loans.Small businesses represent 99% of US companies, 54% of total sales, and 55% of all jobs, according to the US Small Business Administration.These businesses need capital in order to grow, but small businesses are underfundedonly half of small businesses with $100,000 to $1 million of annual revenue received at least some of the financing they applied for from large banks in late 2015. This is partially because banks have retreated from this segment because issuing loans to small businesses using the traditional underwriting model is expensive. This leaves a massive amount of unfulfilled loans that we estimate reached $96.5 billion in Q4 2015.Alternative lending companies have stepped in to capitalize on the opportunity available in helping meet more small business' lending needs.Alternative small business lending platforms use machine learning and digital tools to extend credit to a wide array of small businesses quickly and efficiently, particularly to those that have been rejected by banks. Alternative small business lending companies provide digital platforms that connect small business borrowers to capital using nontraditional means.We estimate that alternative small business lenders originated $5 billion and had a 4.3% share of the small business lending market in the US in 2015. But alternative small business lending platforms will originate $52 billion and gain a 20.7% share of the total market by 2020, driven by the continued growth of new players, increased borrower awareness and interest, and most importantly, major partnerships with big banks.BI Intelligence, Business Insider's premium research service, has compiled a detailed report onsmall business alternative lendingthat analyzes the market opportunity for alternative lenders, forecasts the market share and volume growth of alternative lending platforms, profiles key players, and addresses the main industry risks.Here are some key takeaways from the report:Alternative lending platforms are in a position to capitalize on this underfunding and also take share from banks. These companies use machine learning and digital tools to extend credit to a wide array of small businesses quickly and efficiently. We estimate that alternative lending companies' share of the small business lending market in the US will reach 20.7% by 2020.Alternative lenders are now partnering with banks and this will propel growth going forward. New lenders are finding opportunities to offer white-label services to major banks. We expect banking partnerships, like the one between JPMorgan and OnDeck, to add 7.7 percentage points to the alternative lending industry's market share by 2020.A flurry of new lenders have entered the market, but it's still early innings. A handful of small business lenders, from Funding Circle to Credibly, have entered the market and this is creating challenges as customer acquisition costs rise and alternative lending companies struggle to differentiate themselves.In full, the report: Forecasts the market share and volume growth of the small business alternative lending sector, and breaks down the main growth drivers.Explains why small businesses are underfunded, and quantifies the market opportunity for alternative lenders.Defines the different types of platforms that alternative lenders employ, including their revenue models.Lists the advantages and disadvantages that alternative lenders have compared to traditional players.Overviews the key players in the industry and identifies their growth factors as well as the pain points limiting their growth.Pinpoints the key risks that could undermine the success of alternative platformsTo get your copy of this invaluable guide, choose one of these options:Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIPPurchase the report and download it immediately from our research store. >> BUY THE REPORTThe choice is yours. But however you decide to acquire this report, youve given yourself a powerful advantage in your understanding of small business alternative lending.Join the conversation about this story
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