The online lenders set up to upend US retail banking in the wake of the financial crisis are still expanding in spite of scandals and setbacks at some of the biggest names in the business.
Financial technology groups originated $15bn of personal loans in the first half of the year, according to figures published on Thursday by TransUnion, the credit bureau whose database covers the borrowing habits of 220m consumers.
That was almost a third of the total US market for new personal loans — a bigger share than banks or credit unions or other traditional consumer finance companies — and compares with just 4 per cent in 2012 and 28 per cent in 2015.
Demand for personal loans has swelled as consumers load up on debt and low interest rates encourage refinancing. The wave of new lending has increased total personal loan balances to more than $100bn in the US.
Expansion has been fuelled by the online platforms, which have sought to capitalise on consumers’ loss of trust in big finance and post-crisis regulation that has curbed banks’ ability to take on risk.
While the pace of their market share gains has moderated after an explosive period, the data show the tech-driven newcomers remain a big force even after a series of high-profile difficulties.
The market capitalisation of upstart Lending Club, however, has collapsed from 2014 highs of more than $10bn to $2.3bn after a governance scandal erupted last year that forced out its founder Renaud Laplanche. The company has since sought to strengthen internal controls.
Ron Suber, former president of another big San Francisco-based group Prosper, quit earlier this year. His departure came not long after Prosper struck a deal to sell up to a third of its equity to a consortium led by Fortress, Jefferies and Third Point.
Meanwhile it emerged in September that Mike Cagney, chief executive and chairman of SoFi, was standing down in the wake of lawsuits alleging sexual harassment and unfair work practices.
Despite these setbacks John Wirth, vice-president of fintech strategy at TransUnion, said the “fintech business model appears to be working nicely. Their use of the latest technology . . . has likely helped them become leaders.”
While typically used to consolidate existing borrowings, the cash from personal loans can also be used to fund consumption directly. Volumes tend to rise towards the end of each year because of festive spending.
By the second quarter of this year, more than 16m Americans had a personal loan — 3m more than two years earlier. Outstanding balances have leapt from $45bn in 2012 to $106bn. Subprime borrowers accounted for a quarter of such loans.
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