FinTechs, not traditional banks, appear to be preferred method of taking out unsecured personal loans in the U.S., with the market hitting an all-time high last year. This is according to TransUnion data about the personal loan market in 2018.
The unsecured personal loan market increased 17% year-over-year last year, reaching $138 billion. The momentum in loans was driven by digital-first technology companies, noted the report.
“The rapid growth in consumer loans sits squarely on the shoulders of FinTechs,” said Jason Laky, senior vice president of TransUnion. “They continue to be the main driver.”
According to the TransUnion data, FinTechs issued 38% of all U.S. personal loans last year, up from 35% in 2017. In 2013, FinTechs accounted for just 5% of the unsecured personal loan market. Meanwhile, traditional banks accounted for 28% of personal loans, down from 40% five years ago. Credit unions’ share of the market was down 21% from 31% in the same time period.
Even though banks and credit unions saw their market share decline last year, they did see overall growth in total loan balances. TransUnion found that consumers took out personal loans with FinTechs to consolidate debt, for home improvement financing and for retail purchases.
The data also showed that during 2018, FinTechs moved further down the credit curve in terms of lending criteria, which is raising concerns about how they would fare if the U.S. economy entered an economic downturn. For many of the FinTech lenders, this would be the first downturn they would have to navigate.
“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 told CNBC. “As long as we believe [the] economy is still on [a] solid path of growth, there shouldn’t be an issue.”