Fintech Lenders are Still Learning the Hard Way

The recent bankruptcy of Parker, a corporate card startup that catered to e-commerce customers, is a good reminder that lending is one of the toughest ways to make money in fintech. 

Parker had been among the dwindling number of standalone, tech-heavy lenders geared toward small businesses that first sprung up during the fintech funding boom. These startups often adopted a common playbook of zeroing in on a subset of small businesses to offer attractive short-term credit options. Parker focused on lending to small online merchants—the type of operations that typically sell on places like Amazon and Shopify sites and tend to spend heavily on inventory and ads. For those companies, it’s often tough to juggle money going out with money coming in from online sales. 

Fintechs like Parker promised to use better data and slick software to bring financial services to customers that mainstream banks traditionally overlooked. Parker, for example, touted credit limits that could grow based on business performance or at important times of the year, like before holiday sales when merchants stock up on inventory. It also offered data analytics tools that it said could help businesses understand their finances in more detail than typical accounting software. Founded in 2019, the startup raised $80 million in equity from investors including Valar Ventures, Roach Capital and Night Capital, as well as $120 million in debt financing. 

While lending can be more lucrative in theory than offering payments or other kinds of financial services, Parker’s bankruptcy demonstrates that growing a lending business can be a delicate dance. 

Venture-backed lenders often rely on equity funding to pay for their day-to-day operations, such as employees and software. But they require debt financing to fund their loans—since many are not banks themselves, they don't have access to the cheapest forms of financing, like deposits. That creates pressure to grow revenue from their lending business quickly enough to start covering the costs of the business before depleting equity funding. Problems can arise if too much of that growth comes from risky borrowers.

Parker had offered unusually flexible credit terms, including rolling terms, which gave its merchant customers as long as 90 days to pay off each transaction individually before interest started to accumulate, instead of traditional monthly corporate card statements. That kind of flexibility was appealing to customers.

But as the company grew, it had to slow down growth in order to maintain credit quality, according to two people with direct knowledge of the company’s operations. About a year ago, Parker cut some credit limits as it weighed raising more money from investors, the people said.

Then, Parker and other e-commerce-focused fintechs hit an unexpected snag. 

The online sellers Parker catered to tend to spend a big chunk of their cash every month on Meta ads to fuel their business. But earlier this year, Meta changed how it collects those payments, forcing many advertisers to pay through monthly invoices or bank account debits, instead of allowing them to pay on credit cards as they had in the past. That means that sellers were no longer running those expenses through cards, taking away a significant source of transaction volume.

Parker tried and failed to find a buyer or raise more cash, and ultimately, the startup filed for Chapter 7 bankruptcy earlier this month. The company has up to $100 million in unpaid bills to software and other vendors, according to court filings. Yacine Sibous, Parker’s cofounder and CEO, didn’t have a comment.

We’ve seen similar patterns play out several times now across small business fintechs that focus on specific niches, such as commerce or consumer companies. Concentration in a specific industry increases the chances of a big chunk of loans souring at once, causing lenders and investors to pull back when the fintechs need them the most.  

That includes Ampla, which focused on lending to food startups like Carbone Fine Foods and MrBeast’s snack brand Feastables and abruptly cut off borrowers in 2024 after it ran low on cash. Invoice factoring company FundThrough later acquired what was left of Ampla. And 8fig, a similar lender, was acquired by the UK lender Bizcap late last year. 

As is common whenever there’s a fintech blowup, competitors are racing to highlight their differences from the failed company, while also trying to pick up their abandoned customers. One such company, Flex, said more than 5,000 businesses started the process of opening an account in the 24 hours following the Parker collapse. Flex offers a range of business banking services, and says it focuses on a broader range of customers and has more traditional credit card terms.

Meanwhile, e-commerce giant Shopify has been pushing deeper into lending to online merchants, but as an extension of a much larger existing business. Shopify already has a massive payments operation, and offers short-term loans like cash advances for merchants. And as I’ve reported recently, Shopify has started seeking money transmitter licenses that could give it a leg up as it continues building out in financial services. 

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