British giant Barclays is the latest bank to join the crowded field of online lending.
As part of a broader effort to build out its U.S. consumer business, London-based Barclays is now offering unsecured personal loans online, targeting prime and super-prime borrowers. It has been testing its online lending platform with select U.S. customers since late last year and plans to roll it out in full force in 2018, said Curt Hess, the CEO of Barclaycard U.S.
Barclays has $33.1 billion of assets in the U.S., the bulk of which are credit card loans to consumers with stellar credit records. Its personal loans typically range between $5,000 and $35,000 and can be repaid in three, four or five years. The interest rates range from 4.99% to 18.99% and the loans carry no origination fees or prepayment penalties, Hess said.
“It’s a growing market and one that we find attractive,” Hess said of unsecured personal lending. “It’s really a natural extension away from being more of a monoline card business.”
The bank has made roughly 15,000 personal loans to date. Hess said the consumers Barclays is targeting are interested in using the loans for things like debt consolidation and home improvements.
Barclays can expect some stiff competition in the space, not just from online lenders such as Prosper, SoFi and LendingClub, but also from other banks that have been beefing up their digital capabilities to try to keep pace with the upstarts.
For instance, the $208 billion-asset SunTrust Banks in Atlanta makes unsecured personal loans between $5,000 and $100,000 through its online lending platform LightStream, which it launched in 2013.
Goldman Sachs also now offers online loans through a separately branded entity dubbed Marcus. It offers unsecured personal loans between $3,500 and $30,000, mainly for the purpose of consolidating credit card debt, and in its first year generated about $1.7 billion in loan volume through that business.
Several other banking companies, including Fifth Third Bancorp, Synovus Financial and Regions Financial, have also boosted consumer lending through a partnership with the fintech firm GreenSky, which offers loans at the point of sale at home improvement stores.
“There’s a range of different fintechs who have come into this space all with slightly different strategies, but generally speaking, what they’ve shown the industry is that there is an appetite on the part of consumers for access to these unsecured personal loans,” said Alex Johnson, a senior manager of solution marketing and sales engagement at FICO.
Craig Schleicher, a senior manager in PricewaterhouseCoopers’ consumer finance group, said that fintechs’ success in attracting customers who want quick loan decisions has forced banks to up their game.
“We’ve seen this become a more central part of banks' campaigns to retain their customers and preserve customer relationships,” he said. “That’s led to more investments in digital technologies, improved experience and competition on pricing among traditional bank lenders, as well.”
Barclays has taken a page from fintech lenders’ playbook by making the entire process, from application to funding, entirely digital and giving borrowers’ near-instant decisions on loan applications. It is also adding its own features, like giving borrowers or prospective borrowers access to a customer service representative should they need help during the loan process.
Johnson cautioned that banks getting into this field should fully understand their target market and how borrowers will use their unsecured loans. Even the prime and super-prime businesses are not totally risk-free.
“If you’re targeting consumers who want to refinance credit card debt, what you might find is that some of those consumers may have good credit risk indicators at a high level. When you dig into it, you might find that they’re continuing to pay the minimum on their credit card, but they’re accumulating more debt,” he said. “Their actual risk may be a little steeper than it appears on the surface.”