$28 Bn of Loans Disbursed by Top 5 Technology-Based Personal Lending Companies

Recently, SoFi, a US-based online peer-to-peer loan platform that connects students and recent graduates with alumni and institutional disclosed that it had surpassed $6 billion in funded loans since its inception in 2011. For the past five to seven years, the technology-based personal lending industry has been experiencing the launch of multiple startups. These companies are positioned to provide generic loans or to offer industry-specialized loans such as education refinancing, house loans, auto loans etc. Companies are evolving with the use of better technological tools and are providing cross-industry lending services. This helps them to leverage the huge market potential of multiple industries under the single umbrella of personal lending. This space is becoming increasingly sophisticated with the adoption of technology-based, data-driven underwriting tools over traditional interview-based methods and credit score requirements.

LTP did some research on the top five technology-based personal lending companies which were also featured on the LTP 9 Leaderboard in the technology-based personal lending category. The loans disbursed by these companies are worth more than $28 billion.

Lending Club leads the group having disbursed more than $13 billion of loans followed by SoFi which has helped its customers by disbursing loans worth $ 6 billion followed by Prosper, Avant and LendKey with $5 billion, $2 billion and $1.8 billion of loans respectively.

Reason of success for these firms:

With high-interest rates charged by conventional financial institutions, the newly devised models launched by personal lending companies enable consumers to get access to quick and easy loans or refinance at a comparatively lower rate. These models also offer a huge opportunity for consumers to make money as an investor on the respective forums. In addition to this, the technology-based personal lending industry is introducing innovative models for purchase financing, both at online and retail and point-of-sale locations. This is offered as an alternative to credit card usage and high associated monthly interest rates. These differentiations have been successful in gaining a huge market momentum.

The credit needs of low-to-moderate-income individuals are often not fulfilled by most community banks and credit unions. The costs of brick-and-mortar service delivery outlets, and legacy and regulatory compliance incurred by these conventional sources make loan access an unviable option to this class-category. Also, for the consumer class such as students, the high loan costs create impediments for financing their education. The advent of these technology-based personal lending models has proved to be successful in addressing such concerns.

Banks & FIs are also joining the club:

The traditional lending industry has been hit the worst by new startups since there was a lot of scope for improvement within the industry. P2P lending and alternative financing FinTech startups launched products that not only helped borrowers but also helped in lowering operating costs through the use of technology. This model fits borrowers who want quick access to cash and at good interest rates. When the alternative lending industry started to gain popularity, many predicted that it had the potential to disrupt a part of the banking industry. But nobody knew that it would happen so soon and that too, in such a big way. Banks and FIs are feeling left behind and entering online lending services by way of partnerships with established and emerging lending platforms. The lending market is gathering increased interest from established financial institutions. Examples of such banks & FIs are Goldman Sachs, Blackstone, ING, Barclays, Westpac, Santander, the Royal Bank of Scotland and Metro Bank.