Banks increasingly disintermediated by alternative lenders - Visa
(28 May 2019 - United States) Fintechs offering installment loans are significantly impacting credit card lending volumes and card issuers are poorly equipped to compete according to Visa’s Chief Economist Wayne Best.
In 2010, fintechs held roughly 1 percent of unsecured installment debt in the US according to Visa's analysis of anonymized personal loan data from TransUnion. But that figure has now jumped to 36 percent as of 2017 and is estimated to have surpassed 40 percent in 2019.
A sizeable portion of consumers driving this change are millennials with minimal credit history favouring debit cards. Best has worked at Visa for 29 years and has held his current role for 24 years. His global teamwork with Visa issuers and acquirers to provide insights into the economic changes happening to their industries.
Millennials are a target of fintechs offering instalment loans however marketing reaches older demographics as well. “Many people don’t think that Boomers are very tech savvy. They have computers and they know how to use them,” Best said. Boomers are more likely to view an instalment loan as an option for a home renovation or a trip rather than a way to pay off their debt. But the card issuers are still feeling the impact. “It’s not to say financial institutions aren’t also playing in this space, but it’s not growing as rapidly,” Best said.
“We’re seeing a massive increase in alternative lending. When you as a consumer move a balance from credit cards … to unsecured instalment credit, it doesn’t weigh as heavily on your credit score. Let’s say I was a near-prime customer prior; now, that has bounced me into a prime category" Best said. Visa attributes this to the ease at which these fintechs have made it possible to move balances to their own products, such as through a mobile app or by partnering with retailers.
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