Worried a recession is coming, online lenders reduce risk

U.S. online lenders such as LendingClub, Kabbage and Avant are scrutinizing loan quality, securing long-term financing and cutting costs, as executives prepare for what they fear could be the sector's first economic downturn.

A recession could bring escalating credit losses, liquidity crunch and higher funding costs, testing business models in a relatively nascent industry.

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.

"This is very top of mind for us," LendingClub Chief Executive Officer Scott Sanborn said in an interview, referring to the possibility of a recession. "It's not a question of 'if,' it's 'when,' and it's not five years away."

https://www.msn.com/en-us/money/markets/worried-a-recession-is-coming-online-lenders-reduce-risk/ar-BBVX347?li=BBnbfcN