A TRIFECTA of cheap capital, growing internet penetration and seemingly gray areas of regulation has fed a growing crop of lending startups looking to disrupt traditional financial institutions. But with rising interest rates now making capital increasingly expensive, it appears lending startups are losing a key tailwind.

For now, industry observers believe that the rising cost of funds can be passed onto customers with little impact to operations.

Default rates might be another matter, though. In the wake of the pandemic, the creditworthiness of borrowers is still fragile. Rising interest rates may well result in a resurgence of bad loans.