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Credit unions, banks fall further behind fintechs in personal lending

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Even as they pour money into new digital offerings designed to help them make more personal loans, banks and credit unions still can’t keep pace with fintechs.

After first surpassing banks in personal lending in 2017, fintech lenders widened their market share lead in 2018, according to new data released Wednesday by TransUnion. Fintechs’ share of personal loan balances climbed to 38% in 2018, up from 35% in 2017, while banks’ share dropped from 30% in 2017 to 28% last year.

Credit unions and traditional finance companies also continued to lose market share to fintechs, according to TransUnion data. Credit unions’ share of the personal loan market dropped from 22% in 2017 to 21% in 2018 and 25% in 2015. Traditional finance companies’ share held steady at 13%, but has declined sharply over the years. In 2013, these companies held 24% of all personal loans, according to TransUnion.

The overall market for personal loans continues to grow at a rapid pace. Total balances of unsecured personal loans increased 18% in the fourth quarter of 2018, to $138 billion, compared with the same period a year earlier. The number of consumers with personal loans rose 13% to 19.1 million.

Banks’ business of originating personal loans is growing, but at a slower pace than that of fintechs, said Jason Laky, the consumer lending line of business leader at TransUnion. A big reason why fintechs continue to gain market share is that they have been “much quicker to adopt some of the alternative credit data that’s out there, like trended data, or data acquired from sources outside the national credit agencies,” Laky said.

Banks operate from two positions of strength — a lower source of funding through deposits, and a captive customer base.

Fintechs have found ways to offset those advantages, Laky said. They apply advanced analytical systems to their use of alternative data, an area where banks have lagged. And fintechs have been aggressive in partnering with merchants to offer personal loans, he said.

And though they incur huge marketing costs to lure customers, fintechs still have a lower cost structure since they don’t have physical branches, Laky said. That allows some — though certainly not all — to offer market-leading rates on personal loans.

Several banks, including Citigroup, have recently introduced digital personal loan products. SunTrust Banks in Atlanta has offered a digital personal loan for several years through its LightStream unit.

Banks have also partnered with fintechs to offer personal loans. Regions Financial offers personal loans through the online lender Avant and HSBC announced a similar arrangement with Avant in October.

TransUnion did not identify the fintech lenders or banks that its study covered. The Chicago credit bureau defines a fintech lender as one that originates most, if not all of its personal loans through digital channels, regardless of the source of funding. Goldman Sachs’ Marcus, for example, could be considered a fintech in this respect, even though it holds federally insured deposits. Laky declined to say if Marcus was categorized as a fintech or a bank in its study.

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