Experian released its first Fintech Marketplace Trends Report, highlighting the latest findings in fintech unsecured personal loans. According to the report, competition in personal lending between traditional financial institutions and fintechs is increasing with fintechs more than doubling their market share in four years to 49.4 percent, up from 22.4 percent in 2015. Experian data also shows that the unsecured personal loan category has grown significantly in the past four years as new loan originations were 1.3 million in March 2019 compared to 656,000 in March 2015.
When comparing the spread of loan amount, Experian revealed, the average fintech loan was $5,548 while traditional lenders' average loan was $7,383. This is a stark difference from the 2016 peak when fintech lenders' average loan was closer to $12,000. While the average fintech loan has steadily decreased over time, consumers are increasingly turning to fintech lenders for unsecured personal loans.
"We use analysis like our Fintech Marketplace Trends Report to provide insights that help lenders make more informed decisions," said Michele Raneri, vice president of Analytics and Business Development at Experian. "We know unsecured personal loans represent the largest product offering in the fintech industry and our report reveals continued growth in this area over the last four years. We believe significant changes in the financial profile of fintech borrowers and an increase in adoption from younger consumers is fueling this growth."
Financial profile of today's fintech borrower
Today's fintech borrower has an average VantageScore® of 650, down ten points from 2016, compared to 649 for traditional borrowers, up one point since 2016.
When comparing portfolios and average borrower credit scores for fintechs and traditional lenders, Experian found more near prime consumers are borrowing from fintechs than traditional lenders at 33.6 percent compared to 27.8 percent for traditional. While traditional lenders have more super prime borrowers (6.8 percent compared to 5.5 percent for fintechs), they also have more subprime (26.5 percent compared to 24.6 percent for fintechs) and deep subprime borrowers than fintechs (2.9 percent compared to 1 percent). Prime borrowers make up 35.9 percent for traditional and 35.3 percent for fintech, showing that fintechs are going mainstream and actually targeting the same consumers as traditional institutions. Borrower's loan scores are defined as super-prime: 781–850, prime: 661–780, near prime: 601–660, sub-prime: 500–600 and deep sub-prime: 300–499.
The report also found delinquency rates for traditional lenders' loans are increasing while fintech remains somewhat steady. Analysis reveals 5.7 percent of traditional loans are 90 days or more past due, representing a 46 percent year over year increase. While fintech lenders have a similar percentage of overall delinquencies (5.4 percent 90 days or more past due), they've seen a two percent decline in delinquency rates year over year.
"We share a common goal with our fintech and traditional lending clients – to help more consumers gain access to the financial services they need," said Greg Wright, chief product officer, Experian Consumer Information Services. "We're seeing fintechs create digitally streamlined, customer-focused experiences, which may be the key contributor to their substantial growth in the personal lending space. Fintechs may be gaining traction as they are eliminating potential barriers consumers may face and are creating a more convenient experience."
Who are the fintech borrowers?
In addition to looking at the financial profiles of borrowers, Experian's report revealed which generations are more inclined to secure personal loans with fintechs versus traditional lenders. Findings include:
- Baby Boomers, Gen X and Gen Y account for the largest share of both personal and fintech personal loan borrowers.
- More members of Gen X (ages 38-52) are taking out personal loans from fintechs, accounting for 35.9% compared to 32.6% for traditional. Those in the youngest generation, Gen Z (age 18-23) are also more inclined to secure personal loans from fintechs at 5% compared to 3.1%.
- A similar trend is seen for Gen Y (ages 24– 37). This group accounts for 34.9% fintech personal loans compared to 24.9% in traditional.
- The most significant shift in borrower base is seen among Baby Boomers (those ages 53– 72). These borrowers have a higher propensity to secure loans from traditional lenders, accounting for 33.5% in traditional loans and 21.9% in fintech loans.
- Similarly, the Silent Generation (those 73+) are more inclined to borrow from traditional lenders at a rate of 6% compared to 2.2% from fintech.
- California is the state with the most unsecured personal loans from fintechs followed by Texas, Florida and New York.
Download additional findings from Experian's Fintech Marketplace Trends Report and a free eBook