A little over a year ago Goldman Sachs launched their consumer lending platform Marcus as part of a digital strategy to move into the retail banking segment. They have since grown faster than any online lending platform with originations approaching $2 billion. Goldman Sachs now believes revenues from online loans will equal that of trading in the near future.
Seeing this success more traditional banks have started to move into the online consumer lending space. In this article we will focus on two recent entrants: PNC Bank and Barclays.
A significant driver behind these moves is consumer debt levels. They have increased for 13 consecutive quarters and hit a record $12.96 trillion in the third quarter of 2017. Most consumers using an online loan will consolidate credit card debt, though there are other typical uses such as home repair or an unexpected medical expense.
Barclays Enters Online Consumer Lending
U.K. based Barclays has been increasing their footprint in the U.S. the last few years through the Barclaycard brand. They are now one of the top 10 credit card issuers in the US. News broke last month that Barclays would be launching a digital bank in 2018 and rebranding from Barclaycard to Barclays in the US.
An integral part of this strategy will be an unsecured consumer loan offering, something they have been testing since late 2016. They are targeting prime and super-prime borrowers, loans will range from $5,000 and $35,000 and can be repaid in three, four or five years. The interest rates range from 4.99% to 18.99% and the loans carry no origination fees or prepayment penalties. They plan to launch fully in 2018 as they have originated about 15,000 loans to date through the testing phase.
PNC Financial Services
Pittsburgh based PNC Financial Services Group is one of the top 10 largest banks in the US with $371 billion in assets. They are looking to launch their online consumer lending product in new branches and through their mobile wallet product. The new platform is expected to launch in 2018.
This is a bit out of the ordinary for the bank as they have not yet had a nationwide offering like this, instead focusing on the 19 states where they have established a presence. The new product will help with their rollout to new branch markets in Minneapolis, Dallas and Kansas City. This looks to be part of a wider digital overhaul the bank has been doing the last few years as it seeks to service customers in a more digital fashion.
We have seen a lot of success by the likes of Lending Club, Prosper, SoFi, Marlette Funding and more since the financial crisis in offering consumers a better, more seamless lending experience. What Marcus has shown in the last couple of years is that banks can also provide an experience that equals these fintech entrants.
How this changes the consumer lending market remains to be seen. Banks have decided advantages in certain aspects of the lending process such as lower cost of capital and small customer acquisition costs with their large customer bases. Having said that, the problems of the financial crisis put a significant dent in consumer confidence when it comes to large banks.
Will more bank entrants lead to consolidation of fintech lending platforms or will banks look to these platforms as partners? We have seen both of these strategies in recent years and it will be interesting to see where the market goes. One thing is for sure, though, banks are taking much more interest in consumer loans today than at any time since the financial crisis.