British giant Barclays is the latest bank to join the crowded online lending arena.
As part of a larger effort to grow its consumer business in the United States, London-based Barclays now offers unsecured personal loans online, targeting senior borrowers and blue-chip borrowers. It has been testing its online lending platform with select U.S. customers since late last year and plans to fully deploy it in 2018, said Curt Hess, CEO of Barclaycard US.
Barclays has $ 33.1 billion in assets in the United States, most of which are credit card loans to consumers with stellar credit histories. His personal loans typically range from $ 5,000 to $ 35,000 and can be repaid in three, four or five years. Interest rates range from 4.99% to 18.99% and the loans do not have any origination fees or prepayment penalties, Hess said.
“It’s a growing market and one we find attractive,” Hess said of unsecured personal loans. “It’s really a natural extension to not be a monoline card company anymore.”
To date, the bank has made approximately 15,000 personal loans. Hess said consumers targeted by Barclays are interested in using the loans for things like debt consolidation and home improvement.
Barclays can expect fierce competition in the space, not only from online lenders such as Prosper, SoFi and LendingClub, but also from other banks who have stepped up their digital capabilities to try and keep pace with reached.
For example, SunTrust Banks, a $ 208 billion asset in Atlanta, provides unsecured personal loans between $ 5,000 and $ 100,000 through its online lending platform LightStream, which it launched in 2013.
Goldman Sachs also offers online loans through a separate branded entity called Marcus. It offers unsecured personal loans between $ 3,500 and $ 30,000, primarily for the purpose of consolidating credit card debt, and in its first year generated approximately $ 1.7 billion in loan volume. dollars thanks to this business.
Several other banking companies, including Fifth Third Bancorp, Synovus Financial and Regions Financial, have also boosted consumer lending through a partnership with fintech GreenSky, which offers point-of-sale loans at home improvement stores.
“There is a range of different fintechs that have entered this space all with slightly different strategies, but generally what they have shown to the industry is that consumers are eager to access these. unsecured personal loans ”. said Alex Johnson, senior director of solutions marketing and sales engagement at FICO.
Craig Schleicher, senior director of the consumer finance group at PricewaterhouseCoopers, said the success of fintechs in attracting customers who want quick lending decisions has forced banks to improve their game.
“We have seen this become a more central part of banks’ campaigns to retain their customers and preserve customer relationships,” he said. “This has led to more investment in digital technologies, an improved experience and price competition among traditional bank lenders.”
Barclays has taken a page out of the fintech lender handbook by making the entire process from application to finance fully digital and giving borrowers near instant decisions on loan applications. It also adds its own features, like giving borrowers or potential borrowers access to a customer service representative if they need help during the loan process.
Johnson warned that banks entering this field should fully understand their target market and how borrowers will use their unsecured loans. Even prime and super-prime companies are not completely risk free.
“If you are targeting consumers who want to refinance credit card debt, you may find that some of those consumers may have good indicators of high level credit risk. When you look at it, you might find that they keep paying the minimum on their credit card, but they are racking up more debt, ”he said. “Their actual risk may be a little higher than it appears on the surface.”