Americans are getting more and more in debt. In fact, they just hit a record-breaking number at $138 million in personal loans. Reports are saying that a big chunk of this debt comes from financial tech companies or fintechs. Five years ago this sector was only a 5% part of this problem, but fast forward to today, and fintechs are now 38% of this huge loan issue.
Now despite this upward trend for fintech loans, most other types of loans only went down. From traditional banks went down from 40% to 28%. Credit Unions, on the other hand, went from 31% to 21%. Both of these happened during the same five years wherein fintech loans skyrocketed. This can come from many reasons, one of which is because Fintechs do not only look at FICO scores to determine applicant trustworthiness.
According to Senior Vice President of TrasnsUNion, Jason Laky said, “The rapid growth in consumer loans sits squarely on the shoulders of fintechs.” Laky, who is also leading the consumer lending sector of TransUnion, sees fintechs as the driving force of these huge loan numbers. The question now is “what are these loans for?”
In general, there are three areas where these loans go to our home improvement Financing, debt consolidation, and the rising popularity of e-commerce. The first two areas are pretty common. It is the third one that seems a bit off-putting. E-commerce is a great innovation as you can virtually go shopping without going to the mall. However, this trend has provided Americans instead with a way to pile up more loans thanks to targeted marketing and strategic discount seasons.
Still, there is not as much concern when it comes to this debt. As Laky said, “As long as we believe [the] economy is still on the solid path of growth, there shouldn’t be an issue.”