Are FinTech Personal Loans Poised to Disrupt the Credit Card Industry?

2 minutes

Just 5 years ago, FinTech companies accounted for 5% of all unsecured personal loan balances. By Q4 2018, FinTechs now control 38% of the nation’s unsecured personal loan balances — the largest marketshare!

How are FinTech Personal Loans Changing the Marketplace?

FinTech companies pride themselves on their ability to use technology to innovate within established industries and disrupt the status quo. They have helped to accelerate the growth of the personal loan industry to the point where it’s the fastest growing category of consumer debt in the U.S. (according to a recent study by Experian). Here’s how they’re fueling this growth:

  • Offering a convenient and simple way to obtain funding online.
  • Increasing their marketshare by offering an alternative to revolving credit card debt.
  • Adding value by offering their members other services.

Creating a Market for Personal Loans Using Technology

Before FinTech companies arrived to reinvent the personal loan consumer experience, unsecured loans (or signature loans) were just another loan product offered by banks, credit unions, and a few specialty lenders. With the creation of slick mobile apps, AI enhanced lending decisions, and tailored loan products, FinTech lenders are creating a whole new market for personal loans.

Existing personal loan debt grew to $291 billion in the fourth quarter of 2018, which is an 11.9% increase from the fourth quarter of 2017. That percentage growth rate, year-over-year is double that of credit cards (5.9%) during the same period.

Comparing personal loan options, all from the comfort of your smartphone, tablet, or computer has never been easier. Check out our personal loans marketplace to compare offers, read lender reviews, and apply for loans.

Replacing Credit Cards with Personal Loans

Though credit cards are arguably the easiest way to take on debt, they’re also some of the most expensive if you carry revolving balances from month to month. While personal loans might not make sense for smaller day-to-day purchases, they could make revolving consumer credit less profitable for credit card companies if more people decide to consolidate and refinance credit card debt with personal loans.

To date, the total U.S. personal loan balance is only equal to a third of outstanding credit card debt, according to Experian. Still, the category has plenty of room for growth, and FinTech innovations in performing complex credit analysis have increased the number of potential eligible borrowers.

Adding Value For Members

Companies like SoFi, Prosper, and Upstart offer customers more than just personal loans. Many FinTech lenders also facilitate Peer-to-Peer lending and investing, while using AI and machine learning to identify the least-risky borrowers for their pool of loans.

For their investor members, these FinTech lenders are creating and using cutting-edge technology to add top-performing loans to their portfolios.

They also go above and beyond financial benefits to offer membership perks like:

  • Career coaching and mentorship services
  • Access to networking events
  • Discounts on additional products and services
  • Referral bonuses

This is a big departure from the airline miles, cash-back rewards, and points systems used by credit card companies, which are all targeted at increasing revenue through higher-volume merchant fees and larger revolving account balances.

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