FinTech Firms Lead Personal Loan Boom
With a term as broad as “FinTech,” it’s not surprising that there’d be a variety of companies that would all fit under the same umbrella. Still, one of the leading verticals in the space has always been lending, as peer to peer options like Lending Club and Prosper made their debuts around the time of the banking crisis, earning notability in the process. Now, more than a decade later, it seems that online lenders aren’t just growing themselves but are also driving the entire industry forward. According to a study by TransUnion reported on by Bloomberg, the number of personal loans being issued is on the rise with FinTech’s share of those originations climbing.
Back in 2010 FinTech lenders accounted for only 1% of personal loan originations. However in 2017 that figure rose to 36%. Moreover TransUnion found that outstanding personal loan balances increased by 18% last quarter to total $120 billion. At the same time, one of the leading FinTech lenders Lending Club also reported lending $2.1 billion during the first quarter of 2018, marking a 20% year over year increase
Speaking to Bloomberg, Jason Laky of TransUnion acknowledged the growing role of FinTechs, stating, “A lot of credit goes to the FinTech lenders for reinvigorating a loan category that’s been around forever.” He went on to note the importance of personal loans in the banking industry, saying, “If you think about ‘It’s a Wonderful Life,’ George Bailey and his bank offered personal loans to the consumers. It’s a core banking product that’s been around since the beginning of banking.”
While they may be an important function of finance, personal loans only account for 1% of the $12.9 trillion of consumer debt. Instead mortgages make up nearly three-quarters of that amount, followed by student loans and auto loans. However Wells Fargo analyst Don Fandett says he expects personal loans to continue their growth trend as consumers see them as alternatives to credit cards or home equity loan options for large purchases or debt consolidation. Fandett also stated that he anticipated personal loan will grow in popularity while lenders “pull back” from credit cards and auto loans.
Speaking to the increasing diversity in loan options, Laky stated, “It’s never unhealthy for the consumer to have more choices.” In fact, based on TransUnion’s latest findings, it would seem that — to reverse a phrase — the lifting of boats is raising the tide of personal loans. As a result perhaps it won’t be long before FinTech’s dominate this “core banking product” and beyond.