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Fintechs are ‘prime’ personal loan players

By Mike Cetera ·
Tuesday, April 12, 2016
Posted: 1 pm ET
Leonardo Patrizi/E+/Getty Images

Leonardo Patrizi/E+/Getty Images

Fintech lenders may be thought of as catering to customers with damaged credit, but new data suggests they've become powerhouse lenders to consumers with fair to good credit scores.

The analysis by the credit bureau TransUnion found that in 2015 more than half of all personal loans were issued to near prime and prime borrowers. Some 92 million consumers fit into these 2 categories, defined as having VantageScore credit scores between 601 and 720.

And while all lenders increased personal loan originations to prime and near prime borrowers, financial technology companies -- which include marketplace lenders -- far outpaced their competition, increasing personal loan originations by 122% between 2014 and 2015. During that same time period, bank, credit union and finance company lending each grew by less than 10%, according to the TransUnion data.

"Other than the traditional finance companies, most of the other players aren't doing this on a large scale," says Steve Chaouki, executive vice president and head of TransUnion's financial services business. "The fintechs are using technology to change the user experience for borrowing."

Rapid growth for every credit segment

Online lenders aren't just growing among these 2 credit segments, either. Newly released survey data of 13 marketplace lenders from the California Department of Business Oversight show that overall consumer lending grew nationwide by 716% between 2010 and 2014 to $12.97 billion.

Among the lenders surveyed are firms that focus on subprime, prime and superprime borrowers -- those are consumers with near perfect credit scores.

"Remember these fintechs are as diverse as any other lending community," Chaouki says. "I think people want to paint these universal pictures of industries or groups. It's nice because it creates simple soundbites, but it's inaccurate."

Increased scrutiny

The explosive lending growth among fintech companies has attracted scrutiny from both state and federal regulators, including the state of California, which late last year launched an inquiry into industry practices that could lead to increased oversight.

"The potential outcomes run the gamut, and could include proposed changes to laws and regulations," department spokesman Tom Dresslar wrote in an email.

Still, the market for personal loans remains small. Just 5% of borrowers have taken out a personal loan, Chaouki says. This means the industry hasn't hit a ceiling yet, he says.

What this means for borrowers

For borrowers, the rapid growth in prime and near prime lending means there is "more choice than ever" when it comes to personal loans, Chaouki says. Borrowers now have more ways than ever to find the right loan for them at the right interest rate.

"When there's more competitive intensity that's usually a good thing for consumers," he says "I'm not saying they should get a personal loan. I'm saying they should look at it and see if it's something that meets their needs and make their own assessment."

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