The AI powered and new-era fintech lending companies are in a precarious position. Wild growth numbers that were expected to carry-on in perpetuity implied that the underlying economy would continue to support underwriting on consumer loans.
$UPST $LC $AFRM $PYPL
1/7
Of course, what's happening is that these companies--who don't hold their own originations--are at the whim of their banking partners tightening up lending standards as economic conditions deteriorate.
i.e. Pass through lenders don't control their own destiny.
2/7
They can only "give" loans that their partner banks are willing to take on as risk. This could lead to higher interest rates for borrowers who then may reject the loans. And vice versa.
3/7
Belief from a lot of investors of the past decade is to think growth is always up and to the right and that there will always be loans to originate.
Hell, UPST was founded in 2012. The start of this huge bull market.
twitter.com/JonahLupton/status/1523760511577329664?s=20&t=syXePiiM8KCpZcwKPdqkKw
4/7
As a bonus these new lending companies have a mountain of competition against Buy-Now-Pay-Later, CCs, and traditional lenders. There is no shortage of options in the consumer lending space.
That lack of options was the catalyst for new entrants, so now it's kinda crowded.
5/7
We could see consolidation here if inflation continues and/or the economy rolls over.
If $UPST can't make loans they can't keep up growth rates.
If the economy swings around and consumers maintain solid credit footing, there may not be consolidation...
6/7
...but margin pressure could easily remain due to competition.
$UPST currently ~4.5x sales and profitable. But if sales slip they may regret not having done another raise at $160/share, currently sitting on $986mil in cash.
7/7
