Elevate, a fintech lender from Texas, recently announced it wants to try out the credit card business according to Business Insider. On Monday, the company released its plans for 2018 which included a variety of new products and a possible partnership with a bank.
One of the products that Elevate is looking to release is a credit card with a third-party bank by next year. According to Ken Rees, CEO of Elevate, the company was actually looking into several different banks with a possible partnership in mind. The card would be potentially geared toward subprime borrowers, which constitutes a large group of Elevate’s customer base.
A subprime borrower is someone whose credit history is less than ideal, usually with a FICO score below 640. Because they are seen as being at greater risk for defaulting on a loan or any credit product, lenders usually charge them a higher interest rate, offer lower credit limits, or refuse to work with them at all.
Elevate looks to change that. Rees stated that most subprime borrowers don’t qualify for cards with “sufficient credit to deal with real-world financial challenges.” For that reason, Elevate plans to offer their subprime borrowers higher than normal lines of credit. Rees did add that the company would use algorithms to minimize the risk of default.
However, Elevate is not the first company to begin targeting subprime borrowers. Other companies have picked up the trend after observing certain trends in the market.
Another company, Petal, is trying to offer a new credit card in 2018. It’s goal is to increase the availability of credit cards to consumers who are lacking credit. The move by these companies aren’t entirely unwarranted.
A study from the NY Fed indicates that subprime borrowers are representing a larger portion of credit in the marketplace. According to the research, the rate of new cards being issued overall has increased since 2009 and “is now approaching pre-recession levels.” And the biggest jump of all has been for borrowers with low credit scores.
Interestingly, meanwhile, the number of Americans delinquent on their credit cards has continued to rise steadily since 2009. This is interesting because traditionally, credit card defaults have been correlated with high unemployment rates. But unemployment rates are the lowest they have been in 16 years while the stock market remains at an all-time high.
This could indicate the high default rates are related to banks lowering their lending standards. This has caused some financial experts to express concern, given that many of these same factors led to the financial crisis in 2008.
Author: Dave Rathmanner
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