Peer-to-peer and other digital lenders sprouted up largely after the Great Recession of 2008. Unlike banks, which tend to have lower-cost and more stable deposits, online lenders rely on market funding that can be harder to come by in times of stress.Their underwriting methods also often include analysis of non-traditional data, such as education level of borrowers. While platforms see that as a strength, it has yet to be tested in times of crisis.
Their worries are the latest sign that fears a U.S. downturn is nigh are growing. Economists polled by Reuters in March saw a 25 per cent chance of U.S. recession over the next 12 months. More recently, some executives said, a Federal Reserve decision to halt interest rate hikes reinforced those fears.
To be sure, the executives said they are not yet seeing glaring signs of trouble in their loan books.A downturn is also far from certain. On Friday, JPMorgan Chase & Co, the country’s largest bank by assets, eased fears of a recession after it posted better-than-expected quarterly profits driven by what it described as solid U.S. economic growth.“All these different platforms say they can underwrite in unique ways,” said Robert Wildhack, an analyst at Autonomous Research.
Small business lender BlueVine Capital Inc, for example, is seeking credit facilities with extended durations. Given a choice to pay 10 basis points less or get a line of credit that lasts an additional year, BlueVine would choose the latter, said Eyal Lifshitz, the company’s chief executive.