Easy lending to borrowers with sub-prime credit is winding down.

Peer-to-peer lenders, or fintech lender platforms, are back-pedaling on their early promise to provide loans to people with sub-par credit profiles, observes Bloomberg.

The share prices of these lenders are a surefire indication that all is not well with their business models. Listed fintech lenders such as Elevate Credit (ticker: ELVT), Enova (ENVA), FlexShopper (FPAY), LendingClub (LC), and OnDeck Capital (ONDK) are now trading far below their IPO prices.

Loan investors are disillusioned

The fintech model that promised to outperform traditional lenders has not delivered. Even though fintechs have no physical branches and use high-tech technology and data for loan decisions, they are still struggling.

Burned by loan losses, individual investors have revolted. As a result, the original marketplace-like model of P2P lending has long gone. Only LendingClub operates a semblance of that model, but with funds received from banks and institutions. Loans that fintechs offloaded to investors have also incurred losses far beyond expectations.

The loss experience has had a sobering impact on fintech lenders. They now look to lend only to borrowers with prime credit scores. As a result, the component of unsecured loans that went to sub-prime households this year was just 25%. That is in sharp contrast to the trend until 2018, when over 60% of fintech personal loans went to prime- or below-prime borrowers.

Fintech lenders throttle back

LendingClub said this February that the platform had cut loan approvals by 17% and bumped up interest rates by nearly 1%.

“We have tightened massively,” said Ashish Gupta, chief credit officer at Prosper Marketplace Inc. In 2019, Prosper’s borrowers had the highest average credit scores and income in six years.

The wheel has therefore turned full circle. The online lenders are now operating like the traditional lenders they once aimed to disrupt. The credit-shunned are back to square one.

[Related Story: Accenture: Global Fintech Investments Plunge in H1 of 2019  ]