As it becomes more difficult to recruit investors in the face of rising interest rates and higher return expectations, FinTech lenders are securing more loans with deposits.
The Wall Street Journal reports that banks and investors are becoming more cautious about the economy as a whole and where they put their money.
The credit quality of loans has declined due to a rise in late payments from borrowers with less-than-ideal credit ratings and other borrowers in the current climate.
Upstart Holdings, a personal lender for subprime borrowers, is searching for investors who are willing to buy loans when other investors pull back, according to Sanjay Datta, the company’s chief financial officer. The majority of the loans issued by the Silicon Valley-based FinTech came from Cross River Bank in Fort Lee, New Jersey.
According to Datta, the usage of what was formerly purely at-will money is being replaced by the quest for more permanent, long-term capital partners.
During an investor conference in June, Affirm CFO Michael Linford claimed that the buy now, pay later (BNPL) startup is planning to gather a cross-section of loan buyers and funding channels.
Linford explained that they have examined designing their funding scheme such that it is not dependent on any one partner, route, or type of partner.
According to the report, personal lending business LendingClub, which paid $185 million last year to buy Boston-based Radius Bank as well as its bank charter, is funding more loans using bank deposits.
“If you don’t have the capacity to fund your own loans, you’re going to be dependent on capital markets and alternative funding,” said Tom Casey, the organization’s financial director. It is difficult for you to predict the price at which you will be able to sell your debts.
