Fintech lenders taking more market share from banks, survey finds

Register now

Fintechs are continuing to siphon away customers for unsecured personal loans from traditional lenders, according to a study released Wednesday by Experian.

The study found that digital lenders more than doubled their market share in the past four years, with consumers across the credit spectrum increasingly turning to fintechs like LendingClub and Social Finance.

Fintechs now provide 49.4% of unsecured personal loans as of March, compared with 22.4% in 2015, according to Experian.

“While our Fintech Marketplace Trends Report did not look at why consumers may choose to secure personal loans with fintechs, we can surmise consumers may prefer to complete the process online as opposed to going into a traditional bank or lending institution,” said Michele Raneri, vice president of analytics and business development at Experian.

LendingClub, SoFi and other startups have long touted convenience as a perk for the personal loans they offer through digital-only channels.

Raneri also said speed is a factor. Fintechs often are capable of approving and funding a loan much quicker than traditional lenders.

However, banks in recent months have acknowledged shortcomings. A number are striking partnerships with fintechs to improve their loan origination process.

Banks such as Banco Popular, HSBC USA, TD Bank and Regions Bank are licensing loan origination technology from Chicago-based Amount. The fintech is a spinoff from online lender Avant, which itself has originated over $6 billion in loans for some 800,000 consumers since 2012.

Amount’s technology enables banks to offer personal loans either online or through a mobile device for up to $30,000, with terms ranging from two to five years. Raneri said both fintechs and traditional lenders share a common bond in that they should focus on identifying the most creditworthy consumers using a combination of data and analytics tools.

“In order to remain competitive, both fintech and traditional lenders will need to continually leverage new means for identifying creditworthy consumers while relying on the power of data and analytics to make more informed decisions,” she said.

In general, originations for unsecured personal loans hit 1.3 million as of March, compared with 656,000 in March 2015. Experian found that borrowers with prime credit scores between 661 and 780 are choosing fintech and traditional lenders almost equally for unsecured personal loans. Such consumers make up 35.9% of loans for traditional lenders and 35.3% for fintechs.

That’s an indication fintechs are more mainstream and catering to the same type of borrower as traditional lenders, according to the report.

Near prime consumers with credit scores between 601 and 660 are turning to fintechs more (33.6%) than traditional lenders at 27.8%.

Traditional lenders have the advantage with superprime borrowers at 6.8%, compared with 5.5% for fintechs. Subprime borrowers also prefer traditional lenders at 26.5%, compared with fintechs at 24.6%.

Experian found age did not necessarily matter when it came to consumers utilizing fintechs for personal loans. Generation X borrowers led the way, accounting for 35.9% of fintech personal loans, versus 32.6% for traditional lenders.

Experian found similar results for millennials. Those consumers accounted for 34.9% of fintech loans versus 24.9% for traditional lenders.

“Fintechs are winning with younger generations, particularly millennials, which may point to an opportunity for traditional lenders,” Raneri said.

Baby boomers, however, still prefer traditional lenders over fintechs. The demographic accounted for 33.5% of traditional loans, compared with 21.9% for fintechs.

For reprint and licensing requests for this article, click here.
Marketplace lending Consumer lending Lending Club SoFi