NEW YORK–Is there a bubble in fintech that’s at risk of bursting?
An analysis by Tech Crunch suggests that if not a bursting of the bubble, a correction may be at hand.
To be sure, investment funds continue to pour into fintech companies, including $12 billion in 2014, up from $930 million in 2008, Tech Crunch reported. But a number of start-ups, including Lending Club, TransferWise, Prosper, and Affirm have also hit some speedbumps, especially in the P2P space. The stocks of LendingClub and OnDeck Capital, for instance, have both hit all-time lows, Tech Crunch noted, and the Department of Justice has indicated it is looking into the practices in the industry that has largely escaped the kind of scrutiny and regulation under which credit unions and banks operate.
“The other problem in the lending space is the lack of capital available to lend out,” Tech Crunch noted. “The normal supply of capital from hedge funds, banks and other investors has dried up as they can find the same rate of return elsewhere. When interest rates were low, P2P lenders offered a great return. Now that rates have gone up, there are many other attractive investment vehicles like corporate bonds offering similar rates of returns. Investors have also become concerned about the transparency of the loans, and they are afraid these loans could have issues similar to the housing loans in 2008.”
Tech Crunch further noted that the robo advisor industry is also facing new challenges.