A lender targeting the 'New Middle Class' is working to hand out higher credit limits to struggling Americans

Elevate

• Elevate, a fintech lender serving nonprime borrowers, is looking to partner with a bank to produce a credit card with "significantly higher lines" of credit than what exists on the market today.
• The company, which announced earnings Monday, outlined a number of expectations for 2018 including new products and partnerships.
• Nationally, credit card defaults have spiked as banks have loosened credit standards.
• Elevate's CEO told Business Insider the product would utilize machine learning technology to ensure the company is not lending customers more than they can afford.

Elevate, a Texas-based tech lender, is looking to expand into the credit card business.

The company, which serves subprime borrowers, announced third quarter earnings Monday of $172.9 million, up 12.3% over the same period last year. The stock dropped 5.49% to $7.75 after reporting earnings on Monday after the bell. The stock is still up from where it priced its IPO, at $6.50, but down sharply from the original IPO price range of $12 to $14 per share.

The company views itself as an alternative to pay-day loan providers, and says it targets 170 million nonprime consumers in the US and UK, a group it called the "New Middle Class." The firm has now originated near $5 billion in loans for 1.8 million customers.

In an earnings deck released Monday the company outlined its ambitions for 2018, which include new products and partnerships with banks. Ken Reese, the CEO of Elevate, told Business Insider one of those possible products includes a new credit card.

"We are looking at a variety of partnerships of different flavors," Reese said. "We are looking at a credit card product for next year with a third party bank."

The potential card, which would serve subprime borrowers, indicates a broader trend in the credit markets. Subprime borrowers are gaining access to credit cards at an accelerating rate, according to Fed research. And Americans have suddenly stopped paying off their credit cards, as reported by Business Insider's Alex Morrell.

What's striking about the spike in defaults is that it is paralleled by a declining unemployment rate, indicating that banks have lowered their standards and are approving people for cards who aren't as creditworthy.

Historically speaking, so-called charge-offs are pretty low. Still, a partnership between a subprime lender and bank could illustrate increased interests on behalf of banks to tap into this market.

So far, credit cards to subprime borrowers have had limited lines of credit. For example, the median credit limit was $1,000 in 2015; in contrast, the median new card credit limit for those with a 780+ credit score was $8,000.

Reese told Business Insider the credit card would offer "significantly higher lines" of credit than other subprime cards, but it would use machine-learning capabilities to ensure they don't give borrowers more than what they can afford to pay back.

He told Business Insider:

"We believe that the credit card product will be an important addition to our product line and serve millennials and others who are struggling to attain sufficient credit to meet their needs. In particular, we expect our card product to have significantly higher lines than other "subprime" cards that may only provide a few hundred dollars to customers and isn't sufficient credit to deal with real-world financial challenges."

According to research carried out by Elevate's Center for the New Middle Class, a bill becomes a crisis for nonprime Americans at $1,400. For prime borrowers, it's $2,900.

"It's hard for many to believe that unexpected car repairs can cause a major upset in a household's finances," Jonathan Walker, executive director of Elevate's Center for the New Middle Class, said earlier this year. "Unfortunately, it happens all too often, simply because nonprime Americans don't have the available resources to help absorb some of these financial shocks. This can cause a downward spiral on their daily finances as well as their credit history."