AmEx Challenges Square, On Deck With Online Loan Marketplace

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  • Industry turmoil ‘does not worry us,’ unit president says
  • Customers made $200 billion in business purchases in 2015

American Express Takes on Square, On Deck Capital

American Express Co. plans to debut an online loan platform for small-business clients this year, targeting territory occupied by startups like Square Inc. and On Deck Capital Inc.

AmEx’s venture, Working Capital Terms, will approve loans in minutes for existing small-business cardholders, who can use the money to pay vendors. Debts may range from $1,000 to $750,000 with fees of 0.5 percent for a 30-day loan to 1.5 percent for a 90-day loan. AmEx will deposit funds directly into vendors’ accounts in as soon as two days.

“We’ve combined the convenience of the online lender with the competitive pricing of a bank loan,” Susan Sobbott, AmEx’s president of global commercial payments, said in a telephone interview. “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.”

Big financial firms are developing online lending channels after internet ventures popularized the idea of making loans faster, and sometimes cheaper, to consumers and entrepreneurs. New York-based AmEx is betting its longstanding ties to small and mid-size U.S. businesses, as their dominant card issuer, will give it an edge over upstarts, many of which are struggling to fund their rapid growth.

Industry Turmoil

“AmEx can do this because they have good credit knowledge,” said Karen Mills, former head of the Small Business Administration, who’s now a paid adviser for Working Capital Terms. “This will challenge the online competitors, whether or not they respond.”

So-called fintech companies have seen their stocks punished as they face mounting competition and struggle to draw enough money from outside investors to fund the growing pile of loans they arrange. On Deck’s stock is down 52 percent this year. Square, known for card readers that plug into smartphones and tablets, slumped 32 percent, in part because of concern that it will struggle to expand its small-business loan program. LendingClub Corp., which lends to both consumers and businesses, is down 63 percent.

Working Capital Terms represents “a new type of product for American Express that could eliminate the need for the very expensive, unsustainable products from Square and other online lenders,” said Gil Luria, an analyst at Wedbush Securities Inc.

AmEx shares fell 2.7 percent to $59.08 at 2:46 p.m. in New York. On Deck tumbled 6.9 percent to $4.89, while Square declined 3.6 percent to $8.94. Representatives from On Deck and Square declined to comment.

AmEx has been looking for new streams of revenue to rejuvenate earnings after deciding last year to part ways with its biggest co-brand partner, Costco Wholesale Corp. In addition to its new in-house loan product, the card issuer offers longer-term small-business loans -- ranging from $35,000 to $2 million -- through its partnership with Lendio, another online marketplace.

Crowded Field

The turmoil in online lending “does not worry us,” Sobbott said. “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.”

She declined to disclose AmEx’s target for Working Capital Terms’ loan volume.

AmEx isn’t the only big lender pushing into the fray. Wells Fargo & Co., the third-biggest U.S. bank by assets, said in May it was starting a program to offer small businesses online loans in as soon as one day. Larger rival JPMorgan Chase & Co. is collaborating with On Deck to speed up the process of providing loans to some of the bank’s 4 million small-business customers.

AmEx told investors in March that it will increase lending in the U.S. to bolster revenue while contending with aggressive bidding on card partnerships with retailers, airlines and other companies that bring in customers. Chief Executive Officer Ken Chenault said the firm has the skill and assets to build a “superior” lending model.

“With the customers that already do business with American Express, we can continue to help them grow their business,” Sobbott said. “And, in so doing, we will grow as well.”