Recently released data from TransUnion reveals that the unsecured personal loan market reached a record-breaking high last year, increasing 17 percent year over year to $138 billion, and the fintech sector deserves most of the kudos.
"The rapid growth in consumer loans sits squarely on the shoulders of fintechs," Jason Laky, senior vice president and leader of TransUnion's consumer lending line of business, told CNBC. "They continue to be the main driver."
Fintech companies originated 38 percent of all U.S. personal loans in 2018, according to TransUnion, compared to 35 percent the previous year and only 5 percent as recently as 2013.
The market share of traditional banks is sliding, currently down to 28 percent from 40 percent five years ago. Credit unions also felt the pinch, down to 21 percent from 31 percent during that same length of time. In positive news, overall growth in total loan balances went up for both, according to this report.
Laky described the three major consumer loan types as debt consolidation, home improvement financing and retail, pointing to gains in e-commerce and online shopping.
Fintech companies commonly issue unsecured personal loans, which eschew the need for a borrower to put up collateral. By using data points aside from FICO to assess creditworthiness, these companies often lend to people that other lenders might overlook.
"Subprime borrowers are the ones that, if the economy turns and growth slows, are likely to be at risk of losing their jobs or hours, that creates financial stress. As long as we believe [the] economy is still on solid path of growth, there shouldn't be an issue."
Laky explains that much of the growth in 2018 was at the lower end of the risk spectrum, with the subprime tier growing the fastest at 4.3 percent year over year, according to TransUnion.
"Subprime borrowers are the ones that, if the economy turns and growth slows, are likely to be at risk of losing their jobs or hours, that creates financial stress," Laky said. "As long as we believe [the] economy is still on solid path of growth, there shouldn't be an issue."
He also points to the steady rate of delinquencies found in TransUnion’s research as an indication that growth in subprime loans does not bode a credit crisis on the horizon.