Upstart, SoFi, LendingClub: which Fintech has the largest market share?

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Fintech companies fueled by Silicon Valley money have burst into the consumer lending space in recent years, using technology to provide consumers with a smoother user experience, faster decision times on loans and faster funding. One loan product that fintech players have become particularly involved in is the unsecured personal loan, which is not secured by collateral. Decisions to grant these loans are made based on the creditworthiness of the borrower.

Some of the biggest players in this space are none other than popular fintech stocks like Assets received ( UPST -6.71% ), Sofi Technologies ( SOFI -4.29% )and loan club ( CL -4.59% ). Since these stocks are all relatively popular in the stock market and all operate in a similar space, let’s take a look at which ones are looking for top market share in the unsecured personal loan market.

Image source: Getty Images.

Different businesses, same space

When I talk about unsecured personal loans, I’m actually talking about personal loans of $100,000 or less and usually under $50,000. These loans are usually installment loans, which means the borrower receives a lump sum up front and then pays that amount with interest in fixed installments.

As mentioned above, fintech players have really taken over the space as traditional lenders have become more strict about who they lend to and as people have gotten used to doing business online. According to the credit reporting company Experian, in July 2021, the total share of fintech companies in the unsecured personal loan space, particularly for loans under $50,000, reached an all-time high of 57%, which is up significantly from to the previous year. The pandemic may have played a role, so it’s a bit unclear if this is a more permanent trend in terms of market share.

In its latest earnings presentation, Upstart revealed that data from Trans Union, another consumer credit reporting agency, showed that total unsecured personal loans between the third quarter of 2020 and the second quarter of 2021 were $96 billion. And that number is actually higher than the $81 billion reported by TransUnion between Q2 2020 and Q1 2021. Now we can look at the personal loan origination volume at each of these three companies between Q3 2020 and the second quarter of 2021.

Company Q3 2020 Q4 2020 Q1 2021 Q2 2022 Total
Reached $909 million $1.25 billion $1.73 billion $2.8 billion $6.69 billion
SoFi $616 million $613 million $805 million $1.3 billion $3.33 billion
loan club $584 million $912 million $1.5 billion $2.7 billion $5.70 billion

Source of data: Company financial statements.

Data evaluation

Upstart led the way in those four quarters with nearly $6.7 billion in issuance, or about 7% market share. LendingClub followed with around $5.7 billion in origination volume, or around 6% market share, and SoFi had the least with around $3.3 billion in volume. Together, these three companies made about 16% of all unsecured personal loan originations in those four quarters. However, there are a few things to understand.

First of all, although all of these fintech companies are in the business of unsecured personal loans, they are all different. Upstart’s primary goal is to use its artificial intelligence underwriting models to better gauge true borrower quality and eventually replace traditional FICO scoring. Until recently, his main client was close to the principal.

LendingClub is somewhat similar in that it uses its data and machine learning to try to underwrite loans more efficiently. But LendingClub only serves prime and super-prime borrowers, with the average FICO score of borrowers on its balance sheet above 700.

SoFi is much more diverse and seeks to be the one-stop-shop financial services company for high-income people. Personal loans are just one of three lending segments it offers, and the average FICO score of its borrowers is around 749, so even higher than LendingClub. SoFi and LendingClub are banks, while Upstart has no intention of becoming a bank.

Another thing to understand is that origination volume in 2020 was much lighter due to COVID-19. Meanwhile, these three companies were developing or changing their business models. If you look at the last quarters, LendingClub issued over $3 billion in loans in the third and fourth quarters of 2021. Upstart made over $3 billion in the third quarter and then surprised the market with $4.1 billion. dollars of loans in the fourth quarter, because it is now the originator of loans. across the credit spectrum. SoFi has also been growing personal loans at a brisk pace.

As a result, these three companies likely have a higher market share than in the four quarters we just looked at, although the market may have continued to grow in recent quarters as well.

Who holds the first market share?

Given this data, I think it’s safe to say that Upstart is currently the market leader among these three companies in the area of ​​unsecured personal loans. The caveat is that it also lends to borrowers who are lower on the credit spectrum and therefore more likely to default. Upstart claims its technology can better assess credit quality, so if it can fully prove this concept, it will be in great shape.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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