Fintech hits records in unsecured personal loan market

US consumers are turning to fintech startups for personal loans, CNBC Reports.

Newly released data from TransUnion reveals that the unsecured personal loan market hit an all-time high last year, growing 17% year-over-year to $138 billion, and the fintech sector deserves most kudos.

“The rapid growth of consumer lending rests entirely on the shoulders of fintechs,” Jason Laky, senior vice president and head of the consumer lending business line at TransUnion, told CNBC. “They continue to be the main driver.”

According to TransUnion, fintech companies issued 38% of all US personal loans in 2018, up from 35% the year before and just 5% in 2013.

Traditional banks’ market share is declining, currently falling to 28% from 40% five years ago. Credit unions also felt the pinch, falling from 31% to 21% over the same period. On the positive side, overall growth in total loan balances increased for both, according to this report.

Laky described the three main types of consumer lending as debt consolidation, home improvement financing and retail, pointing to gains in e-commerce and online shopping.

Fintech companies typically issue unsecured personal loans, which saves the borrower from having to post collateral. By using data points other than FICO to assess creditworthiness, these companies often lend to people other lenders might overlook.

“Subprime borrowers are those who, if the economy turns and growth slows, are at risk of losing their jobs or hours, it creates financial stress. As long as we believe [the] the economy is still on a solid growth trajectory, there should be no problem.”

Laky explains that much of the growth in 2018 was on the lower end of the risk spectrum, with the level of subprime rising the fastest at 4.3% year-over-year, according to Trans Union.

“Subprime borrowers are the ones who, if the economy turns and growth slows, are at risk of losing their jobs or hours, which creates financial stress,” Laky said. “As long as we believe [the] the economy is still on a solid growth trajectory, there should be no problem.”

He also points to the consistent rate of defaults found in TransUnion’s research as an indication that the growth in subprime loans does not bode well for a credit crisis on the horizon.

Priscilla C. Carnegie