Digital lending

1. 1. Opening the data troves

   → Traditional lenders’ decisions are based on applicants’ financial history. This leaves consumers and businesses with thin credit files underserved.

   → Startups’ alternative credit scoring models use data from bank transactions, social media and Google Analytics to more accurately assess debt and disposable income.

2. 2. Revenue-based financing

   → High-growth, high-risk startups struggle to access loans from legacy banks just like plain old SMEs — but alternatives are now emerging for subscription businesses.

   → Revenue-based financing companies provide loans that startups repay according to a fixed percentage of their future monthly revenue: more expensive than bank loans, but preferable to offering heavy discounts on their subscriptions.

3. 3. Next-gen BNPL

   → After taking the B2C market by storm, a new wave of BNPL startups are targeting B2B transactions, improving the age-old practice of invoice factoring.

   → The real innovation here isn’t so much buyers paying in installments, but shifting payment collection and default risk from the supplier to the BNPL provider.

4. 4. Plug and play

   → Some lending startups are leaving the headaches of consumer-facing business to their clients, and only providing the infrastructure to embed lending products.

   → For financial institutions, this represents a chance to upgrade legacy infrastructure, while non-financial companies can use it to more easily acquire new customers and deepen engagement with existing ones.

Who early stage startups are up against