Personal loan balances are growing at a staggering rate. TransUnion reports that the amount of unsecured personal loan balances in the USA topped $156 billion in 2019. Not only is the amount of unsecured personal loan balances topping new heights, but the number of personal loans taken out is also reaching new highs. 22.5 million unsecured personal loans were taken out in 2019, a sharp increase of over 16.2 million unsecured personal loans in 2019. 

The increase in loan balances is driven by both the demand and supply side for unsecured personal loans. Financial technology firms are driving the growth in the supply of personal loans available to consumers. TransUnion data estimates that almost 40% of all unsecured personal loans originated from fintech companies in 2019. In 2013, TransUnion reported that a paltry 5% of personal loans came from fintech firms. That is an almost 800% increase in only six years.

Experian puts the number of personal loans originating from fintech companies at an even higher figure than TransUnion. They report that about half of all personal loans come from financial technology companies. Traditional banks and credit unions make up the remaining share of the unsecured personal loans market, with banks having about a 30% share of the total market and credit unions taking the remaining 20% share. 

The demand side for unsecured personal loans is being driven by a key demographic that is coming of age now. Millennials are that key demographic, and they seem to be taking out much more debt in the form of unsecured personal loans than previous generations. While millennials are taking out more loans than ever before, consumer research by CB Insights reveals that this demographic is incredibly picky about where they decide to borrow money. The CB Insights study commissioned by Bank of America found that Millennials are less trusting of traditional banks and prefer a faster and more convenient way to be approved for a loan than by going through the traditional banking route. 

A close look at why millennials choose fintech companies over traditional banks and credit unions for financial services and loans reveals additional vital insights. They strongly prefer the fast and intuitive online interfaces that fintech companies offer for personal loans. However, Millenials’ love affair with fintech companies extends beyond just loans. This generation is increasingly using fintech companies to save and invest too. The low barriers, ease of use, and low fees to investing offered by fintech companies such as Robinhood and Stash make them a favorite among millennials for saving and investing. 

Millennials are driving a shift away from the traditional branch banking and lending experience to one increasingly driven by technology. The shift is only expected to grow. Banks and investment companies would be wise to pay attention to this trend as their new customer base increasingly votes not only with their voice but their dollars as well.