Fintechs Drive Personal Loans to Record Levels

Mike Sorohan msorohan@mba.org

February 21, 2019

TransUnion, Chicago, said personal loan balances increased by $21 billion in the past year to close 2018 at a record high $138 billion, with much of this growth driven by online loans originated by fintechs.

The company's Q4 2018 Industry Insights Report said fintech loans now comprise 38% of all unsecured personal loan balances, the largest market share compared to banks, credit unions and traditional finance companies. Five years ago, fintechs accounted for just 5% of outstanding balances. Jason Laky, senior vice president and TransUnion's consumer lending line of business leader, said as a result of fintech entry to the market, bank balance share decreased to 28% from 40% in 2013, while credit union share declined from 31% to 21%.

TransUnion also found fintechs are competitive with banks, with both lenders issuing loans averaging in the $10,000 range, compared to $5,300 for credit unions. Across all risk tiers and lender types, the average unsecured personal loan debt per borrower was $8,402 as of the fourth quarter.

"Fintechs have helped make personal loans a credit product that is recognized as both a convenient and simple way to obtain funding online," Laky said. "More and more consumers see value in using a personal loan for their credit needs, whether to consolidate debt, finance a home improvement project or pay for an online purchase."

TransUnion reported personal loan originations increased 22% during the third quarter, marking the fourth consecutive quarter of 20%+ annual origination increases. While the subprime risk tier grew the fastest, prime and above originations (those with a VantageScore 3.0 of 661 or higher) represented 36% of all originations. More than 19 million consumers now have a personal loan product, an increase of two million from a year earlier in Q4 2017 and the highest level ever observed.

"Similar to the personal loan market, we continue to see solid performance by consumers with auto loans, credit cards and mortgages," said Matt Komos, vice president of research and consulting in TransUnion's financial services business unit. "Consumers continue to have a strong appetite for credit. And while serious delinquency rates are rising for some products, they have remained at low levels. We continue to monitor the credit market for any changes and will have a better understanding of the potential impact the federal government shutdown has had on the credit market next quarter."

The report said the mortgage market continues to "soften" even as delinquencies continued to fall. TransUnion reported the serious delinquency rate for the fourth quarter at 1.66%, down from 1.86% q year ago. In addition, 15 of the 20 largest MSAs experienced double digit year-over-year percentage declines. However, the report noted a slight increase in lending activity to subprime borrowers. While the risk mix remains steady, subprime uniquely saw a slight increase in originations at 2.1% year-over-year. As the mortgage market tightens, lenders are expressing only slight interest in subprime lending - originations to subprime consumers still represent less than 4% of total originations. This quarter, average new mortgage account balances dropped to $227,376, from $228,563 in Q4 2017.

"Only three MSAs, Houston, Miami and Tampa, experienced an uptick in year-over-year delinquencies," said Joe Mellman, senior vice president and mortgage business leader with TransUnion. "This was expected, as the comparison point is Q4 2017, a quarter when those MSAs experienced an artificially low delinquency rate due to natural disaster forbearance programs. The decrease we're seeing in new account balances could be due to a number of factors, the largest of which may be a change in the mix of mortgage originations from high priced MSAs to low priced MSAs. Of the top 20 MSAs, those with an average new account balance of over $270,000 had a decline of 17% in year-over-year originations, while those with an average new account balance of less than $270,000 saw only a 5% decline in year-over-year originations."

Last week, the Mortgage Bankers Association released its 4th Quarter National Delinquency Survey, reporting overall mortgage loan delinquency rates fell to a seasonally adjusted rate of 4.06 percent, down by 41 basis points from the third quarter and by 111 basis points from one year ago. The percentage of loans on which foreclosure actions started in the fourth quarter rose by two basis points to 0.25 percent.

MBA reported delinquency rates dropped from the previous quarter and on a year-over-year basis across all loan types--conventional, FHA and VA--and across all stages of delinquency--30 days, 60 days and 90+ days.

MBA Vice President of Industry Analysis Marina Walsh cited low unemployment rates, strong wage growth and relatively low household debt levels for the report's strong performance.

TransUnion said the number of consumers with access to a credit card increased to a record 178.6 million at the close of 2018. Over the past four quarters, four million more individuals gained access to card credit. This growth was primarily driven by subprime borrowers, with a 9.6% year-over-year increase in originations. Overall, balances grew by 4.9% year-over-year, with growth occurring across all risk tiers for the 19th straight quarter. This included super prime balance growth of 6.8% year-over-year and subprime balance growth of 7.2%. Credit lines matched balance growth at 4.9% year-over-year in Q4 2018, ending a nine-quarter trend of balance growth exceeding credit line growth. The report also found that serious delinquency rates rose to 1.94%; however they remain well below recession-era levels and are near the ‘new normal' mark.

"Balance growth was highest at opposite ends of the risk spectrum," said Paul Siegfried, senior vice president and credit card business leader with TransUnion. "Super prime balance growth was attributed to an increase in the number of super prime consumers with access to a credit card coupled with strong spend this past holiday season. However, the subprime segment was also a major driver of origination, balance and 90+ DPD delinquency trends this quarter."

The report noted after a steep decline in auto loan originations in Q3 2017, originations grew by 0.5% year-over-year in Q3 2018, with above prime consumers leading the growth. While subprime saw a slight 1.7% year-over-year increase in originations, the origination mix continues to shift toward the above prime segments, with prime plus and super prime share together increasing 0.9% year-over-year. Total balances grew at a slowed rate of 4.6% year-over-year, the lowest Q4 year-over-year increase since 2011. Delinquencies have remained stable with little to no change across most risk tiers.

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