How partnerships with private credit boost originators' returns
Unlocking new revenue streams and improving capital efficiency through strategic collaboration
Dodd-Frank. Basel III. The proposed Basel III endgame.
In the aftermath of Lehman Brothers' collapse and the ensuing global economic chaos, the business of lending changed dramatically.
Today, banks have more stringent capital requirements and liquidity ratios than ever before, and must conduct robust stress tests regularly. Prescriptive rules aside, regulators — and the public at large — also have high expectations around how banks manage risk.
The more conservative approach banks have adopted in response to this shifting landscape has gone a long way towards helping restore confidence in the industry. According to the 2024 Edelman Trust Barometer trust in banks has increased by 12 points since 2014.
The flipside is that it has widened the credit access gap.
As banks become increasingly risk-averse, it's harder than ever for certain market segments to obtain finance. In a 2024 survey of small business owners, for instance, 77% reported being concerned about their ability to access capital, and 28% said they'd taken out credit at rates they felt were predatory. This credit access gap doesn’t just limit growth for businesses; it stifles innovation, job creation, and ultimately economic development. Addressing this gap is crucial for fostering a more dynamic and inclusive financial ecosystem.
Private credit providers have swooped in to bridge some of these gaps, and have stolen significant market share in the process. In 2020, the Federal Reserve reported that banks only held 10% of middle market loans. Before the 2008 financial crisis, this was closer to 70%.
While the Fed is yet to release more recent figures, it's likely that banks' share of middle market loans is even lower in the aftermath of Silicon Valley Bank's 2023 collapse.
The upshot is that, if they're not doing so already, banks need to rethink some of their lending practices, or risk losing more ground. But, while a more pragmatic view of risk management would be undoubtedly a positive development, we'd argue there's a bigger opportunity up for grabs. One that private credit providers and banks can both capitalize on if they work together instead of fighting each other.
From niche player to serious competitor: the rise of private credit
Private individuals and groups have been funding business ventures and extending credit to consumers since before banks existed.
But private credit as we know it today — credit provided by institutional investors, from sources other than bank deposits — dates back to the 1980s, when businesses with strong credit histories began borrowing directly from insurance companies.
Fast forward to the mid-2010s, and tighter lending regulations skyrocketed demand. In 2023, private credit funds held an estimated $2.1 trillion in assets globally, which is expected to grow to $3.5 trillion by 2028.
The single biggest advantage private credit has over traditional loan originators is flexibility.
Private credit providers aren't bound by the same regulations banks must comply with. And this means they're free to serve the ever growing list of industries and verticals banks deem "too risky" (and charge higher interest rates for the privilege).
In a 2024 paper, the US Congressional Research Service also observed that private credit is: "...less prone to run-like behaviors commonly seen at banks. Some academic research also finds that private credit funds are more efficient than banks in facilitating credit supply during stress [and] exhibit lower leverage…"
And, research from Blackrock concluded that, over time, private credit's loss ratio has been lower than that of other comparable debt instruments.
Unsurprisingly, there are complaints in certain quarters, with critics arguing private credit firms should be regulated in the same way as banks in order to level the playing field.
But this misses an important point. Private credit funds approach lending in a completely different way to banks. Specifically, they have less leverage and, crucially, don't use consumers' deposits.
This means that, far from being a competitive alternative to bank loans, they have the potential to be complementary, helping strengthen banks' offerings overall.
Collaboration over competition: The bank-private credit partnership opportunity
For banks, partnering with private credit providers presents a unique opportunity to enhance Return on Equity (ROE) by serving a broader range of customers without tying up their own balance sheets. This collaboration could address both parties' limitations and create a win-win scenario.
Given banks' strict regulatory environment and capital constraints, they struggle to match the flexibility that private credit funds offer. However, by partnering with private credit funds, banks can offload a portion of the risk while still maintaining valuable customer relationships.
By partnering with private credit providers, banks can enhance their ROE through increased fee-based revenue from originating loans, while simultaneously lowering capital requirements and reducing loan loss provisions. This approach enables banks to maintain profitability even as they serve a broader range of customers.
Private credit providers, in turn, gain access to proprietary deal flow, leveraging banks' established relationships and networks to identify high-quality borrowers who may not be accessible otherwise.
Tier 1 banks such as Wells Fargo and Barclays have started exploring these kinds of partnerships.
But, while this is a step in the right direction — for banks, private credit funds, and, ultimately, for those borrowers who have a hard time accessing finance — there's a significant challenge to overcome: the lack of standardized, digital-first infrastructure to enable these relationships at scale.
Data verification, compliance, ownership tracking, and portfolio management are all highly dependent on Excel spreadsheets and other time-consuming, labor-intensive, mistake-prone techniques.
So, because every private credit agreement is bespoke, with terms that are unique to the individual originator, it's challenging to productize and scale in the same way as a traditional loan or mortgage, or to manage relationships with private credit partners efficiently, in a way that maximizes the benefits.
So what's the way forward?
Unlocking scale and efficiency in Asset Based Lending, with HighFi
At HighFi, we’ve developed a platform that transforms the way banks and private credit funds collaborate and manage partnerships through digitization and automation. Our solution streamlines the process, making it more straightforward, transparent, and efficient.
By simplifying asset allocation and automating compliance and reporting workflows, HighFi enables banks to extend credit to underserved market segments, significantly enhancing access to capital. Simultaneously, our platform provides institutional investors with access to these opportunities through a scalable, compliance-first framework—unlocking improved capital efficiency and risk-adjusted returns.
The core of our platform is an AI-powered engine that converts complex credit facility agreements into standardized, configurable risk models. These models drive robust risk analysis, advanced analytics, and real-time monitoring, while automating compliance tasks and optimizing risk allocation. This enables banks and private credit funds to manage risk more effectively and reduce the manual burden on credit analysts.
HighFi also serves as a single, trusted source of truth, offering end-to-end visibility into portfolio performance and compliance status. This transparency empowers stakeholders to make data-driven decisions, proactively manage changing requirements, and stay aligned with evolving regulatory frameworks.
By integrating these capabilities, HighFi creates the infrastructure needed to scale asset-based lending. Our platform empowers banks and private credit providers to deepen partnerships, reach a broader range of customers, and achieve sustainable growth—all while maintaining compliance and maximizing capital efficiency.
Bank-private credit partnerships benefit everyone
Think of any large, multinational company.
As hard as it is to imagine, now that that company is a household name, chances are it wouldn't have arrived where it is today without funding — most likely credit from private funds and banks.
The upshot is that, through their growing aversion to risk, banks may be stifling companies that could have an outsize impact on the world. The next PayPal, or Stripe, or Amazon.
But it's not just the fear of missing out on the next big thing that should prompt more banks and private credit providers to work together instead of trying to one-up each other.
The more important point is that collaboration is a win-win for everyone.
For those for whom accessing finance is currently a challenge, these partnerships can offer a way forward, enabling them to obtain the credit they need to grow and thrive.
For banks and private credit providers, it's an opportunity to create innovative new products, reach new markets, and build new revenue streams without putting retail customers' bank deposits at risk.
And as for investors, they have an opportunity to diversify their portfolios, accessing exciting new products and boosting their returns, without introducing new risk into the banking system.
By integrating these capabilities, HighFi bridges the gap between banks and private credit providers, making it possible to scale partnerships and unlock new opportunities for growth and innovation. Together, we can build a more inclusive financial ecosystem—one where collaboration, not competition, drives progress.