According to Finextra, a recent report from credit fund WinYield paints a challenging picture for European fintech lending startups in 2023. Despite accumulating over €11 billion in debt facilities, the report identifies significant “cracks” in their credit models and approaches. Notably, less than 10% of these fintechs have staff with relevant credit experience, relying heavily on basic regression analysis without human assessment in their underwriting models.
A concerning find in the report is the high rate of delayed payments in fintech lenders’ portfolios, reaching up to 10%, which is four times higher than that in bank SME portfolios. Moreover, the risk is heightened by the €514 million in venture capital with first-loss exposure, in contrast to the predominance of senior debt in the $12 billion debt facilities.
WinYield’s report suggests that many of these fintech firms are unlikely to achieve profitability, primarily due to significant underestimation of marketing and operational costs and an overhyped market opportunity. For those that might succeed, the path will likely involve multiple pivots and eventual partnerships with banks.
Fabricio Mercier, CEO of WinYield, comments on the situation, noting that the recent VC funding drought has brought much-needed discipline and rationality to fintech lending. He foresees the emergence of Fintech 3.0, characterized by more experienced founders and efficient operations. Mercier anticipates a reshaping of the fintech sector for a more promising future, with growth driven by serious, institutionalized partnerships with credit funds and banks.
