JP Morgan recently announced a pilot project with OnDeck, one of the largest alternative lenders and one of the first, having started operations in 2007. This is only the most notable example of banks or credit unions entering “partnerships” with alternative lending companies (AFCs).

Over 200 small business platforms exist in the small business space and at least 100 in consumer-related areas. While some will disappear due to low origination, poor risk decisions, or other factors, AFCs are now part of the permanent lending space. For example, in a recent research report Morgan Stanley estimated that AFCs would generate more than eight percent of total consumer unsecured lending and 16 percent of small business lending within five years. More dramatically, Larry Summers, the former Secretary of Treasury and a Lending Club and Square Board member, said that he would “not be surprised“ if within ten years AFCs generate 75% of “non-subsidized” small business loans and 30-40% of direct consumer lending.