The data provider Enigma is spinning off a small-business lending platform it has developed into a separate company with the help of Customers Bancorp and Capital One Financial.
The new company, Prime, will offer software to help community banks conduct every step of the lending process online. Executives involved describe it as a potential holy grail for small and midsize commercial borrowers, which increasingly are demanding the kinds of digital-banking tools offered to consumers.
Half of small-business owners want to apply for a loan or account on a mobile app, and 34% want to do so online, according to a recent survey by the consulting firm West Monroe.
Instead, these customers may have to submit excessive amounts of paper documentation and undergo a time-consuming, manual approval process, the way commercial borrowers typically do, said Roger Taylor, a director in the financial services practice at West Monroe.
“Historically, banks have been trying to serve small-business customers using technology, operating models and credit policies more aligned with larger commercial customers,” Taylor said. “Small-business customers recognize this, and it frustrates them.”
These customers are insisting on automated credit analyses and approvals.
“Technology has advanced to the point where you can build an operating model that meets the small-business segment where they are, which means fast, efficient, stress-free delivery of services much like they would receive if applying for a personal loan,” Taylor said.
That kind of product is what Hicham Oudghiri, the CEO of Enigma, hopes to achieve. Enigma owns part of Prime, but the goal is to launch Prime’s services this summer and make the company fully independent within two quarters.
Enigma — whose existing customers include American Express, Truist Financial and Capital One — draws data from public and private sources, including government records and online reviews. It then uses artificial intelligence and machine-learning algorithms to mold that data into a snapshot of a business’s operations and financial health.
“If Prime is a car, Enigma is the fuel,” said Oudghiri.
When it launches, Prime will consist of a software platform for small banks to manage the lifecycle of loans to small- and medium-sized businesses. Banks will be able to access a range of financial metrics about their commercial borrowers from Enigma and offer small businesses a bank-branded self-service portal through which to apply for loans. Banks will also be able to syndicate, swap and securitize loans using Prime.
Capital One declined to comment.
The involvement of Customers, a $19.1 billion-asset banking company in West Reading, Pennsylvania, in Prime began last year. The two discussed ways to layer external data on top of Customers’ existing information about Paycheck Protection Program customers so it could tailor products and marketing to these borrowers.
Customers had already been working in-house on a proprietary small-business digital lending system, but Sam Sidhu, the CEO of Customers’ bank unit, felt that co-creating Prime could help accelerate its goal of offering digital lending to small businesses.
Sidhu says Customers will use Prime to identify and market to prospective customers and underwrite loans for small-business customers. Prime’s data and analytics will help the Customers identify prospective customers and the self-serve loan application will minimize manual processes. He finds that most of the lending platforms currently available only focus on parts of the process, such as loan origination.
“Prime is unique in that it provides a full end-to-end solution including rich data for credit decisioning,” he said.
Customers is Prime’s anchor client and its go-to expert on partnering with community banks. But three other entities — Capital One, technology investor Third Point Ventures, and venture capital firm New Enterprise Associates, or NEA — joined Customers in investing a combined $49 million in Prime, according to a press release.
Oudghiri said that all were involved in the conception and development of Prime. NEA lent its expertise on how to get an early-stage company off the ground. Third Point weighed in on securitization and the credit market. Capital One shared its knowledge about technology and risk management in the small- and medium-sized business sector.
Although Prime’s offerings are aimed at community banks, “having large financial partners who are teaching us about the rigor of compliance and underwriting and economic market cycles is invaluable,” Oudghiri said. “We are trying to bring top-five bank-grade technology to community banks, and Capital One has set the bar high on how to do that well.”
A fintech partnership involving two banks is rare, Taylor said.
“Oftentimes a technology provider will partner with a singular financial institution to help them build out their product, but typically not two in tandem,” he said.