Online lending is the future. Everybody knows that. It is easier, faster, and more convenient for both lender and borrower. Over the past decade or so, a good number of direct lenders, be they balance sheet, marketplace or other, have cropped up to service the needs of both consumers and small businesses. Platforms continue to evolve and iterate to better compete with traditional financial services firm – such as old school banks.
In fact, a report by TransUnion (NYSE: TRU) from last February indicated that in 2018 online lending accounted for 38% of all unsecured personal loans – a greater portion than the banking sector. A mere five years ago, that percentage stood at just 5%.
Traditional bank share has decreased to 28% from 40% in 2013, while credit union share has declined from 31% to 21% during the same period. This is a dramatic shift. Fintechs are on the rise and banks are declining.
TransUnion also said that Fintechs are competitive with banks across all risk tiers and lending types.
Jason Laky, Senior VP at TransUnion, said that online lending is both convenient and simple. This implies that traditional banks are, well, not so much.
To counter this competition, traditional finance has taken various approaches. Partner, build, acquire or watch. Of course, the banks that sit on the sidelines and watch are the ones at the greatest risk of finding themselves behind the times.
One bank that has decided to launch its own bespoke brand of online lending is SunTrust Bank (NYSE:STI), based in Georgia.
The online consumer lending division of SunTrust, LightStream, is said to deliver a “revolutionary loan experience that allows customers to focus on their purchase, rather than on their financing.”
Loans may be approved, and funds received, on the same day as a customer applies – just like one would expect. In the Fintech world, credit should be nearly instantaneous.
Crowdfund Insider recently communicated with Todd Nelson, SVP Strategic Partnerships for LightStream, to learn more about LightStream.
We asked Nelson if LightStream operated independently from SunTrust Bank and if it is a direct competitor. Nelson said that the bank acquired one of the first Fintech startups in the unsecured lending market and re-launched it as LightStream in 2013 providing loans in all fifty states (and Washington DC) to customers with good credit. He did not clarify how the two entities interact.
Nelson said that in comparison to other leading online lenders such as LendingClub, Prosper and Marcus (part of Goldman Sachs), LightStream typically offers lower rates to borrowers:
“We provide highly competitive, fixed interest rates for loans up to $100,000 and terms as long as 144-months, and no fees,” said Nelson. “LightStream is also completely transparent about our rates, which are featured prominently on our website. If you’d like to check out our rates and terms, they are available on every landing page…without any requirements to provide personal information.”
Nelson said they are very confident about the competitiveness of their rates. LightStream offers a “Rate Beat Program” where they will beat any comparable rate from another lender by .10 percentage points. They also have a “Loan Experience Guarantee” program where they will send you $100 if you’re not completely satisfied with your loan experience.
As for categories of lending, it is pretty much the full stack of consumer loans. Debt consolidation, home improvement, and auto financing are popular LightStream loan categories.
We asked Nelson about platform volume and he said that since 2013, they have originated $13 billion in loans:
“These are simple interest, unsecured amortized loans,” said Nelson. He added that they do not provide default statistics.
Nelson said that, as a bank, they are able to provide lower interest rates on loans because they can leverage their deposit base.
We asked Nelson as to what point physical bank branches disappear and how traditional banks manage the digital transformation but he decided not to comment on these industry challenges. It’s a tough question to answer for a publicly traded company.
LightStream is just one example of how traditional finance is evolving to compete with Fintech lending and digital-only challenger banks. Fintech is forcing banks to provide updated digital services to their customers and that is good for everyone.