By Selina Stoller, Summit Consumer Receivables Acquisitions, LLC
Technology is reshaping the lending industry by connecting lenders to borrowers.
The previously slow consumer lending process has now been streamlined thanks to a variety of online lending companies. These enterprises offer a quick loan process and easier access to money in a variety of categories like student loans, personal loans, mortgages, etc.
Online lending companies use partner banks to ensure borrower regulations are met. Consumers are well protected, and borrower fraud is tightly managed.
TransUnion data shows financial technology lenders now account for over a third of personal loan origination. But these new businesses have evolved during an unprecedented period of economic growth and low default rates.
The impact and viability of these online lending companies may come into question should a recession hit.
Many of these online loan companies warehouse their loans and could be exposed to large capital losses. These companies may experience funding sources drying up – particularly lenders who rely heavily on hedge funds that demand drastic returns and/or pull funding during periods of economic turmoil. Some experts think non-banks with diverse and stable funding sources will be better positioned in the market than those reliant on hedge funds.
Recently, online lenders have been facing an uphill battle. Investors question if they are getting the appropriate loan transparency needed to confidently invest in online lending. Investors, credit providers, and rating agencies are worried about loan data integrity as well as collateral and loan ownership rights.
Comparisons are being made to the 2008 mortgage crisis where the market faltered due to lack of proper operational risk controls and investor transparency across the mortgage industry.
Online lending companies now face their biggest challenge – and also their greatest opportunity – to put the proper risk and transparency infrastructure in place to attract more permanent capital to drive the industry forward.
- 6 Jun, 2018
- Josh Smith