Personal loans surge to a record $138 billion in US as fintechs lead new lending charge

  • Total outstanding U.S. consumer loans hit a new record last year, driven by digital-first lending options.
  • Financial technology, or fintech, companies now make up 38 percent of the personal loan market — up from just 5 percent five years ago, according to new data from TransUnion. Banks’ market share is going the other direction.
  • “The rapid growth in consumer loans sits squarely on the shoulders of fintechs,” says Jason Laky, senior vice president and leader of TransUnion’s consumer lending line of business.

Americans are turning to up-and-coming fintech firms instead of traditional banking options to pile on debt.

The unsecured personal loan market hit an all-time high last year, surging 17 percent year over year to a total $138 billion, according to data from TransUnion released Thursday.

Digital-first financial technology companies were largely responsible for that momentum.

“The rapid growth in consumer loans sits squarely on the shoulders of fintechs,” Jason Laky, senior vice president and leader of TransUnion’s consumer lending line of business told CNBC in a phone interview. “They continue to be the main driver.”

Last year, fintech companies issued 38 percent of all U.S. personal loans, according to TransUnion. That’s up from 35 percent a year earlier and just 5 percent as recently as 2013. Banks’ market share however, is heading in the other direction.

Traditional banks’ share of those loans is down to 28 percent from 40 percent five years ago. Credit unions are down to 21 percent from 31 percent in the time period. While their market share shrank, they still saw overall growth in total loan balances, according to Laky.

The consumer loans fell into three main categories: Debt consolidation, home improvement financing, and retail thanks to a surge in e-commerce and online shopping, Laky said.

An unsecured personal loan does not require the borrower to put up any collateral. Fintech firms like SoFi, LendingClub, Prosper, Avant and GreenSky offer digital or mobile-first options that often use data points aside from FICO scores when assessing creditworthiness. Square and PayPal use similar metrics.

But they tend to reach further down the credit curve, raising questions over how many would fare in their first-ever economic downturn.

In 2018, most of the growth was at the lower end of the risk spectrum. The subprime tier grew the fastest at 4.3 percent year over year, according to TransUnion. Any inherent risk in those subprime loans is tied closely to the outcomes of the economy, Laky said.

“Subprime borrowers are the ones that if the economy turns and growth slows are likely to be at risk of losing their jobs or hours, that creates financial stress,” Laky said. “As long as we believe economy is still on solid path of growth there shouldn’t be an issue.”

He highlighted a steady rate of delinquencies as a sign that growth in subprime loans does not signal an impending credit crisis. Delinquencies “have remained stable with little to no change across most risk tiers,” according to the report.

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