FinTech Lenders are fighting for investors

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

Banks and investors have also become more selective about where they put their money and are wary of credit risk and the general economy, writes the Wall Street Journal reported Monday (August 22).

The current climate has reduced the credit quality of loans, as people with poorer credit scores and other borrowers have increasingly sent out late payments.

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

“We’re in a bit of a paradigm shift now, moving from using what historically would have been pure capital to finding more permanent, long-term capital partners,” Datta said.

Meanwhile, Affirm CFO Michael Linford said during an investor conference in June that the buy-now, pay-later (BNPL) firm plans to assemble a cross-section of loan buyers and financing channels. Affirm finances its installment loans through a mix of securitizations, whole loan sales and inventory credits, according to the report.

“We’ve been thinking about building our capital program so that it’s not dependent on one channel, one partner, any type of partner,” Linford said.

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In addition, the report noted that personal loan firm LendingClub, which bought Boston-based Radius Bank last year for $185 million along with its bank charter, is financing more loans with bank deposits.

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