Dive Brief:

• Fintechs are providing 49.4% of unsecured personal loans as of March, according to a study released Tuesday by credit reporting agency Experian, more than twice the 22.4% share they held in 2015.
• Borrowers with slightly lower — or near-prime — credit scores (601 to 660) make up a larger percentage of the fintech customer base when compared against traditional banks.
• Experian said it did not investigate why consumers are increasingly turning to fintechs for loans. But the trend comes as traditional banks are partnering with fintechs to launch digital lending platforms.

Dive Insight:

In addition to doubling their market share in the past four years, fintechs have opened twice as many loans in that time frame — 1.3 million new loan originations as of March, compared with 656,000 four years earlier, the study found.

The loans are also smaller, according to the study. The average fintech loan was $5,548 in 2019, less than half the average amount of a fintech loan in 2016, when it was nearly $12,000. It's also smaller than the $7,383 traditional bank loans are averaging this year.

Customers may be increasingly relying on fintechs because they're able to approve and fund a loan more quickly than traditional lenders, said Michele Raneri, Experian's vice president of analytics and business development. Or perhaps because, with a digital lender, borrowers don't have to leave their house. Or keypad, as it were. "We can surmise consumers may prefer to complete the process online as opposed to going into a traditional bank or lending institution," Raneri told American Banker.

When HSBC rolled out its digital lending platform last month, Marcos Meneguzzi, head of cards at HSBC USA, acknowledged fintechs had a leg up in knowing the customer.

"Fintechs were quicker to recognize that consumer lending niche and improve the customer experience with pre-approvals and quicker funding of the loans, and that spurred the growth in this area," he told American Banker.

Amount, the spinoff of online lender Avant, which is supplying HSBC with loan origination technology for HSBC, also is partnering with TD Bank, Regions Bank and Banco Popular.

"We're seeing fintechs create digitally streamlined, customer-focused experiences, which may be the key contributor to their substantial growth in the personal lending space," Greg Wright, chief product officer for Experian Consumer Information Services, said in a press release. "Fintechs may be gaining traction as they are eliminating potential barriers consumers may face and are creating a more convenient experience."

Market share may break down by age and credit score as one might expect, with a greater slice of fintechs' business taken by younger borrowers with slightly lower credit scores. Millennial consumers accounted for 34.9% of fintech loans, compared with 24.9% for traditional lenders, according to Experian. Meanwhile, baby boomers accounted for 33.5% of traditional loans, compared with 21.9% for fintechs.

Borrowers with prime credit scores (661 to 780) are lending through fintechs and traditional banks at a nearly equal clip. Those consumers account for 35.9% of traditional lenders' loans, compared with 35.3% for fintechs.

But near-prime borrowers (601 to 660) are relying on fintechs (33.6%) more than traditional lenders (27.8%), the Experian study found.