FinTech lenders scramble for investors

FinTech lenders are backing more loans with deposits as investors become harder to find amid rising interest rates and expectations of higher returns.

Banks and investors have also become more selective about where they put their money and are cautious about credit risk and the overall economy, according to the Wall Street Journal. reported Monday (August 22).

The current climate has reduced the credit quality of loans, as people with less than ideal credit scores and other borrowers have increasingly shown late payments.

See also: 45% of businesses see slow payments as a top issue

Upstart Holdings, a personal lender for subprime borrowers, is looking for investors who would be willing to buy loans when other investors pull out, chief financial officer Sanjay Datta told the Journal. The Silicon Valley-based FinTech makes most of its loans to Cross River Bank in Fort Lee, New Jersey.

“We are currently in a paradigm shift from using what historically would have been purely ad-lib capital to finding more permanent-style long-term capital partners,” Datta said.

Meanwhile, Affirm’s chief financial officer, Michael Linford, told an investor conference in June that the buy now, pay later (BNPL) company planned to build a representative sample of buyers of loans and funding channels. Affirm funds its installment loans through a combination of securitizations, whole loan sales and warehouse lines of credit, according to the report.

“We thought about building our capital program to not be dependent on one channel, one partner, one type of partner,” Linford said.

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Additionally, the report notes that personal lending company LendingClub, which acquired Boston-based Radius Bank last year for $185 million with its bank charter, is funding more loans with bank deposits.

“If you don’t have the ability to fund your own loans, you’re going to be dependent on capital markets and disparate funding,” said Tom Casey, the company’s chief financial officer. “It always becomes difficult for you to predict the price at which you can sell your loans.”

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