Outstanding Personal Loans at $120 Billion, thanks to Fintech (and now Crypto)

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After the 2008 financial crisis and during the Great Recession that followed, banks slowed down risky lending and were mandated to shore up capital to protect the overall financial system. That left an opening for fintech startups like Lending Club and SoFi, which used the web and Big Data to (1) distribute product more efficiently, and (2) manufacture / underwrite product that the banks were unwilling to consider. Based on Transunion data plotted in a magnificently interesting Quartz article, unsecured outstanding US personal loan balances are at $120 billion.

The truly interesting data point is that digital lenders account for 36% of those loans, up from 1% in 2010. Imagine if roboadvisors accounted for 36% of new assets raised this year, neobanks had 36% of new deposits, or insurtech companies issued 36% of new policies! That would be a total and complete customer acquisition coup. The type of coup that would see Goldman Sachs build out its fintech Marcus to have 1.5 million customers and $4 billion in consumer loans. Similar non-bank lending is happening with Square Capital partnering with eBay to provide $100,000 business loans to sellers, and Amazon funding its own merchants. Don't need banks to do banking!

Here's the Crypto twist. BlockFi, a lending company that provides cash collateralized by crypto holdings, just raised $52.5 million from Galaxy Digital and ConsenSys Ventures. If you're sitting on BTC or ETH, you can get 35% of that lent to you by the company at a 12% interest rate. That's a way to monetize your holdings without capital gains from selling the underlying asset. In the same spirit, Coinbase is partnering with WeGift to convert holdings held in brokerage accounts into gift cards at various retailers. Mechanically, this is like retailers extending users credit based on digital assets. All that to say, we see the digital lending delivery and underwriting model continue to be massively relevant, despite the operational and risk challenges at some of the larger players.

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Source: CrowdfundInsider (eBay and Square), Quartz (volumes), Business Wire (BlockFi), TechCrunch (Coinbase giftcards)