Mobile Lending Seen Tightening Its Collective Standards

June 14, 2018         By: Steven Anderson

Mobile lending represented a great concept, in its early days. After all, who wouldn’t like to just pull out a mobile device and set up a car loan, a home loan, or most anything else? Better yet, there weren’t all that many options involved in securing that capital, either, so the funds were comparatively low risk, at least to the lender. Things seem to be changing, though, and now those mobile and digital lending operations are putting much tighter controls over who can borrow, how much, and under what terms.

The latest word suggests that the biggest figures in the field, names like Avant and Lending Club, are coming under fire from the investors themselves to tighten ship and insist on not only lending to those with higher credit scores, but also with shorter loan terms, as investors actively package those loans into asset-backed securities for resale elsewhere.

Driving this move was a revelation that the loans issued weren’t exactly performing up to par, and with a large number of borrower defaults, the attraction phase has clearly passed and now the investors want more solid results.

Originally, the plan was to try and go after millennial borrowers, who would be especially comfortable with using mobile technology to secure loans. In the process, companies had to relax their standards as to who could and could not be lent funds. Now, the pendulum is swinging the other way, and the penetration strategy is swinging toward skimming instead.

This is a reasonable enough response; after all, no one wants to lend money to someone who won’t pay it back, or doesn’t have a good chance to. Admittedly, everyone has to start somewhere as far as creditworthiness goes; the old Catch-22 comes to mind about how you can’t get a job without experience but you can’t get experience without a job. So mobile lending might well have filled that gap in nicely, giving new lenders a chance to build that credit without undue difficulty.

Investors want returns; that’s the inevitable rule of business. It’s important to consider the long term; sometimes it’s worth losses today to secure market share for tomorrow. For now, though, tightening credit may prove helpful as well.