Digital lenders underwrite over $100 billion per year across the US, UK, Europe and China with increasing operating efficiency. Is this digitization theme sustainable for standalone companies, or will incumbents maintain their hold on both capital and client acquisition? 

We are excited to share with you our latest keystone analysis titled “Digital Lender Evolution”, which expands on our 2015 white paper on digital lending. In the updated deck, we highlight the major drivers of the space across the US, Europe and Asia -- from venture funding, to addressable market sizes, to current origination volumes, as well as operating performance. Additionally, we highlight systemic risks and technological opportunities facing the sector today. 

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Key Takeaways

  • The Digital Lender model continues to raise $5 billion in annual venture capital investment, dominated by the US, with Asia becoming a close contender year on year

  • The opportunity is large:

    • In the US, the addressable market is $250 billion in originations or $1 trillion in outstanding debt;

    • for Europe, including the UK and the continent, it is $150 billion in originations or $450 billion in outstanding debt;

    • for China it is $600 billion in originations or $2.7 trillion in outstanding debt (though the Chinese market is undergoing major crackdowns on fraud and collapse of SME lending)

  • Digitization of the lending process shows clear cost advantages across onboarding and ongoing servicing (up to 70% reductions) ; however, marketing costs have been unable to scale lower than $250 per loan, high cost of capital hurts pricing from being competitive with banks, and surprise expenses, like legal fees or new product development, have eaten into margin

  • Financial incumbents such as BBVA and Nordea have been going through their own digital transformation, launching mobile banking tools and services that can compete with digital lenders on convenience. Large global banks have begun to track digitally active or mobile-first customers as a KPI, going from <20% to 40%+ digital penetration at some of the key institutions

  • Tech companies like Amazon, PayPal and Square have also entered the space, with the extension of credit-as-a-feature into e-commerce point of sale

Selected Charts & Market Maps

Annual Venture Investment.PNG
US Underwiting & Origination data.PNG
Europe & uk underwriting & origination data.PNG
China underwriting & origination data.PNG
market map.PNG

Are you a financial enterprise or institutional investor interested in our help with understanding digital lenders? Reach out to learn more.