Within the Fintech industry, the most successful lenders are those who can best execute the key financial services of controlling customer acquisition costs, managing bad debts and obtaining access to capital at a reasonable cost.
As more Fintech lenders enter the alternative lending market, costs associated with AdWords, Facebook, and other online marketing are escalating along with referral fees paid to lead generators and brokers. You can always increase your spending in these areas to keep deal flow high; however, this is not necessarily a sustainable approach.
Another way for a Fintech lender to increase their portfolio is to make more loans by lowering credit scoring criteria. This may produce short-term gains, but is certain to result in long-term pain. There is probably no metric more important for your business than the measurement of credit risk and the resulting bad debts. It is critical for any lender, but imperative for Fintech lenders with borrowers who have a higher risk profile to measure and track credit risk accurately.
The optimal level of credit risk for your business may vary depending on what type of Fintech lender you are, but will take into consideration several factors, including your average yield, customer acquisition costs, loan duration, available security and recovery costs. These factors will also play a vital role in determining your cost and access to capital.