Why fintechs are winning in online lending

Unsecured consumer lending has grown rapidly over the past four years, fueled in large part by consumers looking to move from revolving credit card balances to a simple installment plan to eliminate their debt. The vast majority of that growth has been fueled by online lenders who offer a simple online process that is appealing to borrowers. We believe that these loans represent a real opportunity for banks to serve the needs of their customers attract new customers, but they will need to offer a process that matches what the online lenders have built.

Online and mobile process

Consumers now expect easy and immediate access to everything in their lives on their smartphones. This trend may have started with Amazon and Uber, but those expectations carry over into every aspect of their lives. It is imperative that lenders be able to accept applications online, including through mobile devices.
Instant, online decisions (with no credit impact)

Online lenders have focused on showing a borrower what products they qualify for as quickly as possible. Many platforms allow a consumer to view different potential loan amount and durations and compare the interest rates and payment amounts. Getting prospective applicants to this point in under two minutes is critical.
Consumers also expect to be able to compare rates and offers from multiple lenders. To enable this without harming their credit, lenders use soft pulls to show applicants what credit offers they qualify for before making a hard pull that impacts their credit score.
Automated processing

Enabling an online application process is important, but to really appeal to consumers, you need to automate the full process — including borrower pain points like income and identity verification. These processes should not only be completed online, but to the greatest extent possible should be fully automated so they can be completed by the borrower instantly.
Over 60% of Upstart platform loans today go from application to origination with no manual intervention – enabling borrowers to complete the full process in less than 30 minutes on average.
We believe there is a tremendous opportunity for banks to compete effectively with fintechs for these loans. Banks are ideal lenders given their existing customer bases, low cost of capital, and brand equity. However, in order to compete, banks must offer the same capabilities currently provided by online lenders. We expect many banks to achieve this by partnering with existing fintech platforms to quickly launch effective online lending experiences.

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