Fintech lender cries foul after two big banks cut access to money transfer services

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Financial Post | Barbara Shecter | Dec 17, 2015

Future of banking battle

It’s no secret that the financial industry’s upstart fintech players have picked a fight with some of the country’s biggest banks over the future of the loan business. But this month that battle spilled over into something far less existential: A dispute over access to electronic money-transfer services.

Cato Pastoll, co-founder of the peer-to-peer lender Lending Loop, says his online platform was abruptly removed from the electronic bill-payment services of Canadian Imperial Bank of Commerce and Bank of Nova Scotia this month. It relies on the services to access online accounts from individuals who want to fund its crowd-sourced loans.

Lending Loop retained a law firm, which wrote to the banks to complain about the abrupt withdrawal of access, without notice or sufficient explanation, and the service was resumed. But Pastoll said he was then given 30 days’ notice that he will lose access again, meaning that Lending Loop will be cut off from the two banks’ customers again in early January.

“Unfortunately we do not have a back-up solution figured out as of yet but we’re hard at work to find something that will cause minimal disruption to our service,” Pastoll said.

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The two banks were unable to respond to the Financial Post’s request for comment before deadline, Wednesday.

Pastoll theorized that the large banks might be worried about competition, and suggested it would be a “typical response for an industry incumbent to make when facing the threat of new entrants.” Still, the upstart continues to use comparable payment services at Royal Bank of Canada and Bank of Montreal “without any issues,” Pastoll said.

The banks’ services allow people to transfer money online from their bank account to a Lending Loop account, from which they can lend the money to small businesses. Pastoll points out that online discount stock brokerages, such as Questrade, are allowed to use the services in a similar fashion.

Lending Loop, like other fintech firms, is combining technology and data to target a line of business traditionally dominated by the banks. So far, Pastoll says more than 1,500 individual lenders have signed up to its platform and the startup has fielded applications from more than 300 small business borrowers.

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