Elevate Reflects on Success of Fintech in Personal Loans

The unsecured personal loan market hit an all-time high in 2018, jumping 17 percent year-over-year to $138 billion, according to data from TransUnion released today and featured in a CNBC story.

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

According to the data, fintech companies, like LendingClub, Prosper and Elevate, issued 38 percent of all U.S. personal loans last year, which is up from 35 percent in 2017 and just five percent in 2013. Conversely, banks’ market share for unsecured personal loans is shrinking. Traditional banks’ share of these loans is down to 28 percent from 40 percent five years ago.

Will this trend continue? The non-bank consumer lenders think so.

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.

“Although regulations are starting to loosen, banks still cannot provide the kind of emergency funds that so many Americans need,” Chief Operating Officer of Elevate Credit Jason Harvison told deBanked via email.

He said that the rise of the gig economy has created near-constant income volatility for a large number of Americans and cited a recent JP Morgan Chase study that found that 41% of U.S. households experience income fluctuations of 30% or more month-to-month.

“Many consumers who need access to funds quickly in order to weather financial emergencies can’t access personal loans from banks,” Harvison said. “Online lenders can help fill this void.”

By lending to non-prime borrowers, do these lenders worry a lot about what might happen in an economic downturn?

“We’ve found in past downturns that non-prime consumers actually fare better than prime,” Harvison said. “Essentially, non-prime consumers are always living their lives in a state of “recession.” They experience income volatility, job insecurity, and a lack of access to necessary financial products. They live like this every day, and therefore know how to weather these challenges.”

Todd Stone was a reporter for deBanked.