Oportun puts brakes on new borrower loans amid record inflation

Consumer finance fintech Oportun continues to shift its focus to tightening credit standards, limiting expenses and returning borrowers as the economic environment strains its target customer base.

San Carlos, Calif.-based Oportun is putting the brakes on new customer acquisition and relying on a new direct marketing program to hedge its delinquencies amid record high inflation and volatile unemployment. . Over the past few months, community development financial institutions have laid the groundwork to offset the negative impact of a potential recessionary environment, CEO Raul Vazquez said Monday evening in its third-quarter earnings forecast. mentioned in the income statement.

“From July, we launched a series of measures, including significantly tightening our underwriting standards, to address the impact of inflation on our members,” Vazquez said. “We are pleased to inform you that these actions are having their intended effect. We continue to reduce our exposure to new borrowers and have already successfully repaid at least one loan to Oportun, more We are increasing our exposure to profitable repeat customers proportionally.”

Oportun CEO Raul Vazquez said the company has tightened credit standards since July in light of record inflation.

Vazquez added that Oportun will continue to expand its use of bank account data in loan underwriting decisions by giving more applicants the opportunity to share the data. Oportun is also rolling out a new direct marketing strategy to target more credible consumers with his direct mail campaigns. As of Tuesday afternoon, Oportun’s shares rose 27.5% to $5.29. The company’s shares are down 74.4% year-to-date.

This fintech was founded in 2005 to provide loans to low- to middle-income individuals with little or no credit history.

Oportun’s third-quarter net revenues were $147 million, up from $140 million in the same period in 2021. The company also aims to keep costs flat in the second half by cutting sales and marketing costs and limiting headcount increases.

“Going into 2023, we’re doing our best to keep our spending as flat as possible,” Vazquez said. We definitely recognize that we invested in people when we acquired Digit, but we are right-sized today.”

Last year, when it launched a partnership with Password, based in Sioux Falls, South Dakota, the company quickly acquired new borrowers and expanded to 30 more states.

Oportun CFO Jonathan Coblentz said the company expects an annualized net charge-off rate of 11.9% in the fourth quarter. This was primarily due to loans made to new borrowers before we began tightening credit standards.

New borrowers accounted for 51% of Oportun’s loans in the first quarter of this year. The company deliberately lowered that figure to his 44% in the second quarter when inflation started to rise. In the third quarter, Oportun’s new borrower originations accounted for only 28% of its loans.

“[Repaying borrowers]are the most profitable and proven part of the portfolio,” Vazquez said. “So I think it makes sense to really focus on that borrower today.”

Since the company began selectively adding new borrowers and focusing on repeat borrowers, its early-stage delinquency rate — the rate at which payments are made one to seven days late — fell from 3.3% last quarter to 3.3% this quarter. decreased to 3%. First payment defaults were below 1% as the company focused on “quality of loans, not quantity.” This corresponds to pre-pandemic levels in 2019.

Vazquez added that Opoltun probably won’t try to win back new borrowers until inflation drops, borrowers have more balances and unemployment drops.

Analyst notes from Keefe, Bruyette & Woods said Oportun had “pluses and minuses” in the third quarter, but the company’s efforts to mitigate macroeconomic challenges have helped fintech stabilize in the long term. I came to

JP Morgan’s analyst notes said the firm is focused on the underserved consumer market and offers relatively attractive interest rates compared to pawn and payday lenders. , differentiated from traditional lenders. In the second quarter, Vazquez said: Oportun maintains annual rate 36% rate cap.

“The quarter reflects continued market share gains in opportuns, but there are positive arrears trends that point to the impact of tightening tightening,” said Jefferies analyst notes. We believe Oportun will lean towards growth once macro conditions stabilize, noting the company’s strong cost control.Oportun is well positioned for long-term growth and the stock is attractive. I think it’s really appreciated.”

Last December, the company acquired San Francisco challenger bank Digit for about $213 million. Vasquez told American Banker at the time: Merger Creates ‘Neobanking Platform’ Digit’s financial performance “exceeds our expectations,” Vazquez said on a conference call.In August, the Consumer Financial Protection Bureau $2.7 million fine For failing to prevent consumers from charging overdraft fees to their bank accounts.

Oportun will begin testing a mobile application that integrates Digit savings, banking and investment products and Oportun credit products into a unified platform. The company is also expanding its lending-as-a-service capabilities, and plans to launch its previously announced partnership with buy-now-pay-later platform Sezl by the end of the year.

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