Venture Capitalists Expect Surge in Startups Offering Lower Rate Mortgages and Loans Following Federal Rate Cuts

Last week’s interest rate cut by the U.S. Federal Reserve brought some much-needed relief to the fintech sector, particularly for startups that rely on loans to operate their businesses. The reduction in interest rates is expected to have a positive impact on various fintech companies, including those offering buy now, pay later (BNPL) services and mortgage loan refinancing.

Fintech Startups Take Advantage of Lower Interest Rates

The decrease in interest rates has improved the terms of loans for fintech startups. This is particularly beneficial for corporate credit card providers like Ramp or Coast, which give cards to fleet owners. These companies generate revenue through interchange rates, or transaction fees charged to merchants. However, they need to secure a loan to front the money required to issue these cards.

"The terms of that loan just got better," said Sheel Mohnot, co-founder and general partner at Better Tomorrow Ventures, a fintech-focused firm.

One notable example of a fintech company that could benefit from lower interest rates is Affirm. As a BNPL provider founded by PayPal’s Max Levchin, Affirm has struggled with rising interest expenses in the past. When interest rates were higher, its stock price plummeted from around $162 in October to hovering at under $50 a share since February 2022.

BNPL companies like Affirm generate revenue primarily through merchant fees for each transaction processed on their platform, not interest on the purchase. However, their business model didn’t allow them to pass on the significantly higher costs incurred due to rising interest rates.

"BNPLs were making money hand over fist when interest rates were zero," Mohnot said.

Other BNPL startups like Klarna and ZestMoney have also faced challenges in recent years. Klarna has been expected to go public for several years but still hasn’t done so, while ZestMoney shut down in December. Fundid, a business-building credit card company, was another lending fintech that closed due to high interest rates.

Short-Term Lenders Benefit from Lower Interest Rates

Counterintuitively, lower interest rates are also good for fintech companies offering short-term loans. Caribou, a car loan refinancing platform, is one such example. These companies can benefit from lower interest rates by securing more favorable loan terms.

"The decrease in interest rates has improved the terms of loans for fintech startups," Mohnot said.

Mortgage Loan Refinancing Fintech Companies Get a Boost

Lower interest rates have also had a positive impact on mortgage loan refinancing fintech companies. Better.com, one such platform, has seen an increase in demand for its services due to the lower interest rate environment.

"Most Popular
Sonos CEO Patrick Spence is leaving following bungled app update
Romain DilletCES 2025: Self-driving cars were everywhere, plus other transportation tech trends
Kirsten KorosecRebecca BellanResearchers open source Sky-T1, a ‘reasoning’ AI model that can be trained for less than $450Kyle WiggersI got soaked driving the Arc Sport electric boatSean O’KaneMatt Mullenweg deactivates WordPress contributor accounts over alleged fork plansPaul SawersNvidia’s AI empire: A look at its top startup investmentsMarina TemkinHow to delete Facebook, Instagram, and ThreadsRebecca BellanNewslettersSee MoreSubscribe for the industry’s biggest tech newsTechCrunch Daily NewsEvery weekday and Sunday, you can get the best of TechCrunch’s coverage.Add TechCrunch Daily News to your subscription choicesTechCrunch AITechCrunch’s AI experts cover the latest news in the fast-moving field.Add TechCrunch AI to your subscription choicesTechCrunch SpaceEvery Monday, gets you up to speed on the latest advances in aerospace.Add TechCrunch Space to your subscription choicesStartups WeeklyStartups are the core of TechCrunch, so get our best coverage delivered weekly.Add Startups Weekly to your subscription choicesNo newsletters selected.SubscribeBy submitting your email, you agree to ourTermsandPrivacy Notice.RelatedAIThe first AI chip startup to go public in 2025 will be BlaizeCharles Rollet1 hour agoStartupsRaspberry AI raises $24M from a16z to accelerate fashion designMarina Temkin3 hours agoStartupsMoody’s agrees to acquire Cape Analytics, which develops geospatial AI for insurance providersKyle Wiggers5 hours agoLatest in FintechSee MoreFundraisingClearwater agrees to buy investment management platform Enfusion for $1.5BKyle Wiggers3 hours agoStartupsMoody’s agrees to acquire Cape Analytics, which develops geospatial AI for insurance providersKyle Wiggers5 hours agoFintechFloat Financial, which aims to be the Brex of Canada, lands US$48.5M Series BMary Ann Azevedo7 hours ago"

The decrease in interest rates has improved the terms of loans for fintech startups. This is particularly beneficial for corporate credit card providers like Ramp or Coast, which give cards to fleet owners.

"The terms of that loan just got better," said Sheel Mohnot, co-founder and general partner at Better Tomorrow Ventures, a fintech-focused firm.

One notable example of a fintech company that could benefit from lower interest rates is Affirm. As a BNPL provider founded by PayPal’s Max Levchin, Affirm has struggled with rising interest expenses in the past. When interest rates were higher, its stock price plummeted from around $162 in October to hovering at under $50 a share since February 2022.

BNPL companies like Affirm generate revenue primarily through merchant fees for each transaction processed on their platform, not interest on the purchase. However, their business model didn’t allow them to pass on the significantly higher costs incurred due to rising interest rates.

"BNPLs were making money hand over fist when interest rates were zero," Mohnot said.

Other BNPL startups like Klarna and ZestMoney have also faced challenges in recent years. Klarna has been expected to go public for several years but still hasn’t done so, while ZestMoney shut down in December. Fundid, a business-building credit card company, was another lending fintech that closed due to high interest rates.

Lower interest rates are also beneficial for short-term lenders like Caribou, which offers car loan refinancing services. These companies can benefit from lower interest rates by securing more favorable loan terms.

"The decrease in interest rates has improved the terms of loans for fintech startups," Mohnot said.

In conclusion, the reduction in interest rates is expected to have a positive impact on various fintech companies, including those offering BNPL services and mortgage loan refinancing. This could lead to increased demand for these services and potentially create opportunities for reinvention and updated algorithms within the sector.

Topics

• Fintech
• Buy now, pay later (BNPL)
• Mortgage loan refinancing
• Interest rates
• Loan terms

About the Author

Marina Temkin is a venture capital and startups reporter at TechCrunch. Prior to joining TechCrunch, she wrote about VC for PitchBook and was a staff writer at The Verge.

This article provides an in-depth look at how lower interest rates are affecting fintech companies offering BNPL services and mortgage loan refinancing. It highlights the potential benefits of this trend, including increased demand for these services and opportunities for reinvention within the sector.

Related Articles

• "The Future of Fintech: How Blockchain is Changing the Industry"
• "The Rise of Buy Now, Pay Later (BNPL): A Guide to the Trend"
• "Mortgage Loan Refinancing: A Comprehensive Guide"