Traditional banks have entered the online consumer lending space, making a crowded market more competitive.
A little over a year ago Goldman Sachs launched its consumer loan platform Marcus as part of a digital strategy to establish itself in the retail banking segment. They have since grew faster than any online lending platform with arrangements approaching $ 2 billion. Goldman Sachs Now Believes Online Loan Income Will Be Equal that of commerce in the near future.
One of the main drivers of these movements is the level of consumer debt. They have increased for 13 consecutive quarters and have reached a record $ 12.96 trillion in the third quarter of 2017. Most consumers using an online loan will consolidate their credit card debt, although there are other typical uses such as home repairs or unforeseen medical expenses.
Barclays embarks on online consumer credit
UK based Barclays has increased its presence in the United States in recent years through the Barclaycard brand. They are now part of the Top 10 credit card issuers in the USA. New broke last month that Barclays would launch a digital bank in 2018 and switch from Barclaycard to Barclays in the United States.
An integral part of this strategy will be a unsecured consumer loan offer, something they’ve been testing since late 2016. They target prime and super-prime borrowers, loans will range from $ 5,000 to $ 35,000 and can be repaid in three, four or five years. Interest rates range from 4.99% to 18.99% and the loans do not have any origination fees or prepayment penalties. They plan to fully launch in 2018, as they have made around 15,000 loans so far during the testing phase.
PNC Financial Services
Based in Pittsburgh PNC Financial Services Group is one of top 10 biggest banks in the United States with $ 371 billion in assets. They seek to launch their online consumer loan product in new branches and through their mobile wallet product. The new platform is expected to be launched in 2018.
This is a bit unusual for the bank as they have yet to have a national offering like this, instead focusing on the 19 states where they have established a presence. The new product will facilitate their deployment into new branch markets in Minneapolis, Dallas and Kansas City. It appears to be part of a larger digital overhaul the bank has carried out in recent years as it seeks to serve its customers in a more digital way.
We have seen a lot of success by people like Loan Club, Prosper, SoFi, Marlette financing and more since the financial crisis by providing consumers with a better and smoother lending experience. What Marcus has shown over the past couple of years is that banks can also offer an experience that equates to these fintech entrants.
It remains to be seen how this changes the consumer loan market. Banks have decided on advantages in certain aspects of the lending process, such as lower cost of capital and low customer acquisition costs with their large customer bases. However, the problems of the financial crisis have seriously damaged consumer confidence in the big banks.
Will more bank entrants lead to the consolidation of fintech lending platforms or will banks view these platforms as partners? We have seen both of these strategies over the past few years and it will be interesting to see where the market goes. One thing is for sure, however, banks are much more interested in consumer loans today than at any time since the financial crisis.