During the Digital Lending + Investment Conference in New York, the consumer credit reporting agency Transunion released the results of a studycalled ”Fact versus Fiction: FinTech Lenders.” In a nutshell, the study concluded that fintech lenders were not riskier than other lenders, and they are starting to represent a more significant part of the loan industry in the USA.
The study analyzed the portfolio performance of the personal loan originations between 2014 and 2016, and it compared loans issued by banks, credit unions, fintech companies, and brick-and-mortar finance companies.
One result showed that the number of loans granted by fintech firms rose significantly in the given timeframe. By the end of the year, the fintech lenders comprised 30 percent of outstanding personal loan balances which is up from four percent in 2012. Up through June in 2017, fintechs represented 32% of the personal loan market.
However, the study also revealed that fintech-provided loans often result in delinquency more often compared to the rivals, but the fintechs still had a better risk-return ratio compared to bank and credit unions.
According to the TransUnion’s analysis, fintech risk-return ratios in Q2 2017 reached an average of 8.7 percent, while those for the banks and credit unions saw 6.7 and 6.3 percent, respectively. The leader with the highest ratio among the traditional companies was 11.5% on average.
Surprisingly, only 10 percent of fintech personal loans were subprime compared to 14 percent over the whole personal loans market. Furthermore, in the fourth quarter of 2016, 59 percent of fintech balances belonged to near-prime and prime-risk consumers,
Overall, consumer participation in the personal loan market has seen significant growth. In the second quarter of 2016, 14.8 million people had a personal loan; after one year, that number increased to 16.1 million. Additionally, the total outstanding personal loan volume more than doubled from $45 billion in Q2 2012 to $106 billion by Q2 2017.
While the personal loan market has grown considerably in terms of volume, the number of lenders has actually dropped over the same period. In 2012, there were 7,245 personal loan lenders; in 2016, there were 6,680 lenders.
One takeaway from the report was the growth and success seen by fintech lenders, who hold a considerable portion of the personal loan market today.
Their success could potentially force the traditional lending houses to adapt in the way of fintech. Such a development could potentially increase personal loan online exposure as big banks implement the same sort of user experience as the fintech companies.
Traditional lending houses could also get more aggressive in their underwriting criteria, opening up loan options to different prime tiers. If this happened, the average consumer would have better chances to get a personal loan. This would potentially change the shared collective risk in the personal loan market among personal loan lenders.
Author: Andrew Rombach
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