The term "middle market" may not convey much sex appeal, at least at first blush, but companies that fit that description are proving to have a powerful allure for both the biggest U.S. banks and hipper, cutting-edge fintech firms.
What makes the companies, with revenues from $10 million to $1 billion a year, valuable customers isn't surface panache but revenue and hiring growth that are outpacing the U.S. economy, customer loyalty and the possibility of lucrative expansion, according to a new report by the financial consulting firm Deloitte.
It's a market that has long been the domain of smaller, regional banks, which have the advantages of proximity and long-standing relationships. But that's changing as fintech lenders, like Kabbage, Lending Club and Bond Street offer rapid approvals through online applications that use computer algorithms to gauge credit-worthiness while traditional banks like JPMorgan Chase (JPM) and Bank of America (BAC) offer enhanced digital services such as check deposits via smartphones and tablets.
"We've known this a long time in the industry: that you win on relationship, but you can lose a deal on price," Deron Weston, one of the report's authors, said in a telephone interview. Now, bankers can also lose a deal based on "the quality of your products and services: how innovative, how automated, how digital those products are."
Deloitte's findings are based on a fall telephone survey of 100 C-suite executives at firms with $10 million to $100 million in revenue, the lower end of the middle-market spectrum. That portion "is where we see the next wave of disruption happening, as marketplace lenders and other fintech firms" move in, the authors said in the report.
From April through June, average quarterly revenue for such businesses grew 6.6% from a year earlier, outpacing U.S. economic growth of 2.7% in the same period, the reported noted. Their payrolls widened 3.8%, compared with a 2.1% gain in the U.S. labor market.
"It is reasonable to expect this growth trajectory to continue," Deloitte said in the report. A separate study, in June, showed that nearly half of smaller middle-market firms expected to increase spending within the next year, about a third expected to borrow more money and 54% were like to buy another company.