Many FinTechs lenders find themselves in a precarious position as uncertainty mounts over whether or not millions will be able to pay back their loans due to the impact of COVID-19. This is especially concerning for FinTech lenders that provide personal loans, which tend to be the lowest priority for consumers in difficult financial times. In fact, excessive default rates on personal loans issued by FinTech lenders could potentially put many such lenders out of business. In addition to risks stemming from increased defaults, FinTech lenders are also seeing rises in the cost to fund their loans as most do not have bank charters and must rely on bank loans themselves and/or institutional investors to fund their lending operations, both of which are not as easy to obtain in the current situation. Moreover, as more consumers fall behind on payments and default, FinTech lenders will also face increased costs related to collections.
It’s clear that FinTech lenders find themselves in an unenviable position that was almost unimaginable less than a year ago. If there is some measure of resolution to the COVID-19 in the short term, it is likely that investors will give FinTech lenders a degree of financial flexibility and that FinTech lenders will do the same for their borrowers. But if the situation lasts for any extended period, it remains to be seen what the ultimate fate of FinTech lenders will be.