But investment appetite for online lending continues to grow steadily
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Nonbank fintech online lenders are concerned about the cost of funding the most, a survey conducted by the Deloitte Center for Financial Services and LendIt Fintech has found.
The survey of 34 lenders revealed that 38% listed cost of capital as their top concern, with 77% of all respondents listing the concern as among their top three issues. Only 39% listed any other issue among their top three concerns, let alone their first concern.
Other concerns listed by the lenders included liquidity, inability to diversify, lack of demand, and regulatory issues.
The size of a nonbank lender plays a major role in its ability to lower costs, with larger lenders having a greater ability to lower their cost of capital compared to smaller players. The survey also found that a lender’s ability to offer products at a competitive discount in the market reflects its scale.
Larger lenders can offer customers lower rates given their ability to operate with lower gross asset yields as a result of their lower cost of funding. The study found that as company size decreases, not only do the yields follow, but the difference between their lowest and highest gross yields shrinks as well.
Access to additional and diverse financing sources allows larger companies to have lower funding costs, the survey found. Instead of costly types of financing such as equity and bank lines of credit, larger lenders were found to have moved increasingly to securitization.
Despite the funding advantage among large online lenders, the study found that online lending continues to see continuous steady growth in investor appetite. An analysis of global data found that investments into fintechs that are involved in lending are forecast to increase to almost $11 billion in 2018, versus $9.3 billion in 2017 and $9.4 billion in 2016.
