Last Week in Lending: Tuesday, 7 November

👉 3 important lending updates you should know about:

📢 Plaid launches new legal entity, which will operate as a consumer reporting agency (CRA)

Plaid is disrupting the fintech landscape once again by transforming into a Consumer Reporting Agency (CRA).

As a CRA, Plaid will be able to offer valuable credit risk insights from consumer-authorized cash flow data. It will help lenders refine raw data and create attributes and models that they can then use to make more informed credit risk decisions.

Plaid’s shift is redefining how lenders approach data-driven credit assessments – particularly cash flow-based underwriting. I’m excited to see how lenders leverage these new insights to assess credit risk more accurately and serve a wider customer base.

💵 Digital lending funding in Q3’23 rose by 70% QoQ to hit $1.7 billion

CB Insights ' latest State of Fintech Q3’23 report has uncovered the strength of the digital lending market this year. According to its research, although the number of funding deals fell 56% QoQ, digital lending funding increased by 70%.

“Digital lending’s funding boost was driven in part by mega-rounds, which brought in more than half of the sector’s quarterly funding.” - CB Insights

According to CB Insights, the top 3 deals of the quarter went to:

• Hong Kong-based microfinance platform Micro Connect ($458M Series C)
• US-based spend management company Ramp ($300M Series D)
• India-based digital lending solution Perfios ($229M Series D)

🌱 McKinsey & Company report highlights growing emphasis on cost management to achieve fintech profitability

McKinsey's recent report highlights how, after the 2022 market slowdown, fintech companies are becoming more cautious about their growth strategies. 

Last year, B2B fintech segments, particularly in areas like Banking as a Service (BaaS) and SME services, proved to be the most resilient from a funding perspective. But regardless of segment, cost management has emerged as a crucial factor in distinguishing profitable from non-profitable fintechs.

The report highlights the growing emphasis on unit economics to achieve sustainable growth while maintaining profitability. For example, comparing the lifetime value (LTV) of customers to the cost of acquiring them (CAC). This approach is similar to findings in Taktile 's recent State of Lending Report, which uncovered that high-performing fintech lenders are achieving profitability by carefully optimizing key metrics, such as CAC.