LOMBARD, Ill.—The threat to banks and credit unions from alternative finance companies may not be that great right now, when consumer sentiment is considered.
New research from Raddon Financial Group shows that while a great deal of industry buzz has been created over upstarts such as Lending Club, consumers today are not highly interested in considering these new players over their friendly FI.
Raddon’s 2015 National Consumer Research reveals that 15% of all consumers shopped for and/or applied for a loan in the past two years, with Millennials doing so significantly more often than other generations.
“These digital natives are more likely to gravitate to traditional financial institutions’ sites to shop or apply for a loan, according to the research,” said Pat Bator, Raddon senior research analyst. “Only a small portion of these consumers have sought out a marketplace lender, such as Lending Club or Prosper, to do so. As a result, some analysts suggest online marketplace lenders do not pose a significant competitive threat to traditional lenders.”
However, consumers’ past behavior does not tell the whole story, Bator added.
Raddon’s research shows close to a fifth of all consumers anticipate applying for any type of loan in the next 12 months. Nine percent of all consumers would consider an online lending marketplace to apply for and obtain a loan over a traditional lender, such as a bank or a credit union.
“Once again, millennials are more likely to make such a consideration overall, particularly those who are in the market for a loan in the next 12 months. Such research findings suggest marketplace lenders are growing in popularity,” said Bator.
Alternative lenders have historically focused on providing lending opportunities to consumers who may have been shunned by traditional lenders, leveraging their automated underwriting capabilities to facilitate loan delivery, noted Bator.
“However, with younger consumers gravitating to the online channel – and a shrinking loan-demand pie – alternative lenders do pose a growing competitive threat to traditional lenders,” concluded Bator. “Their very existence in the lending marketplace is a competitive threat – and a threat that is growing.”