JPM JP Morgan Chase and Co

By Peter Rudegeair 

The largest U.S. bank is hopping on the online-lending bandwagon.

J.P. Morgan Chase & Co. is partnering with OnDeck Capital Inc. on a new type of small-dollar loan product designed for the bank's small-business customers, said Jennifer Piepszak, the bank's chief executive for business banking, in an interview. For businesses, small-dollar loans generally refer to those that are less than $250,000.

The new product will be available over the Internet to some J.P. Morgan Chase clients starting in 2016, she added.

Many details of the arrangement still need to be worked out, but the loans will be marketed under the brand of J.P. Morgan Chase and reside on the bank's balance sheet, according to a person familiar with the matter. That would make OnDeck more of a technology vendor for the bank than a lending partner.

At least 100 specialty small-business lenders have launched in the U.S. in recent years, according to Frank Rotman, a founding partner of venture-capital firm QED Investors.

Online lenders extended $4.6 billion in small-business loans in the U.S. in 2014, a figure that is forecast to grow to $47 billion in 2020, according to analysts at Morgan Stanley.

In many cases they are entering a market where many banks have retreated. Ten of the largest banks offering small loans to businesses extended $44.7 billion in credit in 2014, down 38% from their 2006 volume.

Nevertheless, online small-business lenders have been criticized at times for the interest rates they charge. An August report from the Federal Reserve Bank of Cleveland found that while the online-lending industry "holds promise for expanding access to credit, it also raises potential risks for small-business borrowers as these products can be considerably more expensive than traditional credit,"

At the end of September, the annual percentage rate on OnDeck's oustanding small-business term loans ranged from 8.9% to 98.4%.

This OnDeck partnership follows J.P. Morgan's increasing focus on growing its small business unit. Ms. Piepszak, named chief executive of Chase Business Banking in January, got her role with the understanding that the unit had a big opportunity to cross-sell small business banking, credit card and payment processing services that could lead to hundreds of millions of dollars in additional revenues.

The bank's operating committee, led by Chairman and Chief Executive James Dimon, asked for a corporate strategy report outlining those opportunities following its annual off-site retreat last summer.

Mr. Dimon said at a Treasury Department conference Tuesday morning that the bank's small business unit was partnering with a peer-to-peer type of lender. He said on a panel about financial inclusion that some new technology will be good for the market and nontraditional data will help determine if someone has good credit.

OnDeck, one of the largest online lenders to focus on small businesses, went public last December. Its shares have fallen 52% since the start of the year, but were up 28% in aftermarket trading following the news of the partnership. Shares in J.P. Morgan are up 8% since the beginning of the year.

Emily Glazer contributed to this article.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

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(END) Dow Jones Newswires

December 01, 2015 19:37 ET (00:37 GMT)

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