Fintech Lenders Polarized: Some Plan for a Difficult Year as Others See Opportunity

AltFi | Daniel Lanyon | Aug 22, 2022

Lenders are preparing for a difficult year ahead as pandemic tailwinds cease at the same as high inflation and a host of related economic headwinds start to gather. But some also see opportunity

Sentiment and perspectives

• Lending could soon become much more polarised market with low-risk businesses and low-risk consumers still having plentiful access to credit but higher risk borrowers cut out. The former will therefore be courted more heavily by a larger group of lenders. The latter, the opposite. Lenders meanwhile will require a suite of new data sources to price both groups accurately. Fintech-enabled firms may well be best suited to these conditions.

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• While this scenario makes risks harder to calculate prompting some lenders to pull back, Wilder says fintech lenders may have the advantage to take new market share from incumbents.
• Chris Keane at GDS Link:  There's a whole cohort of consumers who are really feeling the pinch through the rising cost of living and businesses that have had their balance sheets flattered through Covid support schemes
• Katrin Herrling, Funding Xchange’s CEO: we're starting to see failure rates for a cohort of SMEs going up after the ‘normal’ signs that you would see to understand risk profiles of businesses become less muted.  The next twelve months as a result will become harder for lenders to assess SME borrowers.
• The removal of support from Government-backed Covid loan schemes’ to businesses and the unwinding of consumer savings buffers stockpiled during the pandemic means we are in a new era for lending.
• A key question for lenders is whether to pull back from lending in such uncertain times. Lenders need to know which customers are ‘good’ risks and which customers are now most vulnerable when a complete pullback is not an option.

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“At the same time if you are fast, if you have a testing mentality and if you're very analytical, and also embrace the power of additional data... then it's also still a time to win market share and support those consumers in a responsible way with capital and at the same time, do good business,” said Wilder.

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