Subprime Lending Venture, Tilt, Introduces Distinctive Approach to Credit Evaluation
In the competitive world of credit, Tilt, formerly known as Empower, is making a name for itself in the sub-prime credit market. As Director of Credit at Javelin Strategy & Research, Brian Riley, notes, addressing this segment is not without its challenges.
Tilt's entry into the sub-prime market presents several potential hurdles. High default and delinquency rates among sub-prime consumers can lead to increased risk exposure[4]. Traditional credit scoring excludes many potential sub-prime customers, necessitating innovative approaches to evaluate creditworthiness effectively[1][5]. The sub-prime segment can also be vulnerable to fraud and tighter regulatory oversight around lending practices may add operational complexity[2]. Established players and fintech firms like Klarna, PayPal Credit, and others are diversifying offerings, intensifying competition for sub-prime consumers[2][5].
To navigate these challenges, Tilt employs a strategic approach. They leverage innovative credit scoring, using alternative data beyond traditional FICO scores to better assess creditworthiness for nonprime customers[2][5]. The company is also launching unsecured credit cards targeting sub-prime borrowers, enabling broader access without traditional collateral requirements[3].
Emphasis on digital-first, streamlined application processes, and possibly machine learning to manage credit and fraud risk are key components of Tilt's strategy[5]. Acquiring Petal's portfolio has helped Tilt enter the sub-prime space with an existing customer base and technology[2].
Tilt's approach must balance risk mitigation with extending credit access and differentiating in a difficult market segment characterized by elevated defaults and regulatory challenges. As Riley suggests, considering ways to weight investments in retail lending with additional products such as secured auto loans, Buy Now Pay Later (BNPL), etc., could help manage risk and cater to the comprehensive needs of their customers[6].
Tilt's recent relaunch of a version of an unsecured cash back lineup, originally issued under the name Petal, demonstrates their commitment to the sub-prime market[7]. WebBank continues to be the issuer of the cards.
Customers with subprime credit scores, particularly those below the 660 cutoff, are especially vulnerable to economic downturns[8]. Tilt's strategy, based on alternative data underwriting, unsecured credit card products, and technology-driven risk management, aims to carve out a sustainable presence in the sub-prime credit market[2][3][5].
Tilt's strategy in the sub-prime credit market, driven by alternative data underwriting, unsecured credit card products, and technology-driven risk management, aims to address the increased risk exposure and operational complexity that come with this segment [2, 3, 5]. To stay competitive, they are also focusing on digital-first, streamlined application processes, innovative credit scoring, and possibly leveraging machine learning to manage credit and fraud risk [5].
