Fintech companies fueled by money from Silicon Valley have stormed into the consumer lending space in recent years, using technology to offer consumers a sleeker user experience, faster decision times on loans, and faster funding. One lending product that fintech players have gotten particularly involved in is the unsecured personal loan, which is not secured by collateral. Lending decisions on these loans are made based on a borrower's creditworthiness.
Some of the biggest players in this space are none other than popular fintech stocks like Upstart Holdings (UPST 3.90%), SoFi Technologies (SOFI 4.55%), and LendingClub (LC 1.36%). Seeing as these stocks are all relatively popular in the stock market and all operating in a similar space, let's take a look at which one looks to have a leading market share in the unsecured personal loan market.
Image source: Getty Images.
Different companies, same space
When I talk about unsecured personal loans, I am really referring to personal loans for $100,000 or less and usually under $50,000. These loans are typically installment loans, meaning the borrower receives a lump sum upfront and then pays that amount down with interest over fixed installment payments.
As mentioned above, fintech players have really taken charge of the space, as traditional lenders have gotten more strict about who they lend to and as people got more accustomed to doing commerce online. According to the credit reporting company Experian, as of July of 2021, fintech companies' total share of the unsecured personal loan space, specifically for loans under $50,000, has climbed to a record-high 57%, which is up significantly from just a year prior. The pandemic may have played a role, so it's a bit hard to know if this is a more permanent trend in terms of market share.
In its most recent earnings presentation, Upstart disclosed that data from TransUnion, another consumer credit reporting agency, showed that total unsecured personal loan originations between the third quarter of 2020 and the second quarter of 2021 came in at $96 billion. And that number is actually up from the $81 billion TransUnion reported between the second quarter of 2020 and the first quarter of 2021. Now, we can look at personal loan origination volume at each of these three companies between Q3 2020 and Q2 2021.
| Company | Q3 2020 | Q4 2020 | Q1 2021 | Q2 2022 | Total |
|---|---|---|---|---|---|
| Upstart | $909 million | $1.25 billion | $1.73 billion | $2.8 billion | $6.69 billion |
| SoFi | $616 million | $613 million | $805 million | $1.3 billion | $3.33 billion |
| LendingClub | $584 million | $912 million | $1.5 billion | $2.7 billion | $5.70 billion |
Data source: Company financial statements.
Assessing the data
Upstart led the way in these four quarters with close to $6.7 billion of originations, which is about 7% market share. LendingClub followed with about $5.7 billion of origination volume, or about 6% market share, and SoFi had the least with about $3.3 billion of volume. Together, these three companies did about 16% of all unsecured personal loan originations in these four quarters. However, there are a few things to understand.
First of all, while all of these fintech companies operate in the unsecured personal lending space, they are all different. Upstart's main goal is to use its artificial intelligence underwriting models to better assess the true quality of the borrower and eventually replace traditional FICO scoring. Its core customer up until recently has been near-prime.
LendingClub is somewhat similar in that it uses its data and machine learning to try to underwrite loans more effectively. But LendingClub only serves prime and super-prime borrowers, with the average FICO score of borrowers on its balance sheet over 700.
SoFi is much more diversified and seeks to be the one-stop-shop financial services company for high-income earners. Personal loans are just one of three lending segments it provides, and the average FICO score of its borrowers is about 749, so even higher than LendingClub. SoFi and LendingClub are banks, while Upstart has no intention of becoming a bank.
Another thing to understand is that origination volume in 2020 was much lighter due to COVID-19. During this time, all three of these companies were ramping up or changing their business models. If you look at recent quarters, LendingClub has originated more than $3 billion of loans in Q3 and Q4 of 2021. Upstart did more than $3 billion in Q3 and then surprised the market with $4.1 billion of originations in Q4, as it is now originating loans all over the credit spectrum. SoFi has also been growing personal loan originations at a high clip.
Therefore, all three of these companies likely have a higher market share than during the four quarters we just looked at, although the market may have continued to grow as well in recent quarters.
Who has the leading market share?
Given this data, I think it's safe to say that Upstart currently is the market leader among these three companies in the unsecured personal loan space. The caveat is that it is also lending to borrowers who are lower on the credit spectrum and therefore more susceptible to default. Upstart claims its technology can better assess credit quality, though, so if it can fully prove this concept, then it will be in very good shape.
