U.S. financial technology companies are tightening their lending standards, a move that has bolstered their access to debt financing from Wall Street investors, Reuters reports.

During the COVID-19 pandemic, many fintechs began lending to borrowers with imperfect credit, but Wall Street investors were comfortable buying their asset-backed securities as government stimulus ensured consumers had the money to meet repayments.

Asset-backed securities (ABS) are a type of bond backed by a pool of assets, such as auto or credit card loans, which pay a fixed yield. They are a key source of financing for some fintech lenders, which have fewer funding options than banks. As the end of pandemic stimulus and rising inflation led delinquency rates to normalize, investors shunned the fintech ABS market late last year.

Fintechs like Upstart, Affirm and OneMain Financial say they are boosting credit quality, in another example of how lenders have been pulling back amid uncertainty over the economic outlook. That in turn has improved the quality of their ABS offerings, executives say.

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