Known as “fintech” firms, these platforms burst through the scene with the promise of more efficient assessments and transactions, but much of the industry’s doubts stem from the fact that these platforms tend to cater to higher-risk clients, many of which have already been rebuffed by larger institutions.
“These companies are on the edges of lending. So there are question marks around how they will perform,” San Francisco-based analyst Julianna Balicka told Joe Castaldo in the latter’s analysis for Canadian Business
Balicka noted that adding fuel to the fire is that fintech companies so far have not gone through a credit cycle nor directly addressed the possibility of changing interest rates over time.
The numbers haven’t been pretty: Mogo Finance Technology Inc. stocks declined by a shocking 70 per cent less than a year after going public on June 2015, while the U.S.-based Lending Club Corp. got hit by a 68 per cent decrease in shares.
Even international fintechs have not gone unscathed: Chinese lender Yirendai, which listed on the NYSE just last December, posted massive double-digit drops for most of this year.
Digital lending executives pinned the blame for the stock declines on market sell-offs in the technology segment, but a generally perceived lack of credibility as outsiders is the more likely cause, according to Balicka.
“By figuring out how to work with banks, fintechs have effectively become third-party service providers,” she explained.
While initially hailed as innovative solutions for the mortgage and lending sector, online platforms remain the subject of much skepticism among industry professionals—due in no small part to a less-than-stellar track record.