Digital Lending Platforms Are Projected To More Than Quadruple In The Next 5 Years

As digital lending continues to rise, one can only be left to wonder how it got this way? For a long time, the process of obtaining a loan was long, arduous, and downright anxiety-ridden. Living in the digital age gives our constant existence a sense of urgency, of needing to adapt or move on to the next big thing, and for financial institutions, that has been online lending.

According to Global Market Insights, the digital lending platform market was estimated at $4 billion in 2018. This number is expected to grow at a compounded annual growth rate of over 20% in the next 5 years, putting it at an estimated $17 billion by 2025. 

The growth seen in this market is attributed to the increasing adoption of online services and changing customer needs which have pushed financial institutions to transition their business models from traditional to digital. And though the projection was made before the spread of COVID-19, it seems entirely possible that the economic blowback could end up benefiting online lenders online lending in much the same way that fintechs like Affirm, Credit Karma, and Kabbage were born out of the financial crisis.

Digital lending has soared in popularity due to the various benefits of the cloud-based platforms they’re funneled through. Last year, according to TransUnion, fintech companies issued 38% of all U.S. personal loans — that’s up 35% from the previous year.

“The massive growth of the online lending marketplace over the last decade has essentially fueled the lending industry,” said Phill Rosen, CEO/Founder of Even Financial, a platform that enables businesses to offer personalized financial service offers to consumers. “The more  solutions that are out there, the better it is for consumers seeking loans.”

The technologies that a digital platform provides — such as artificial intelligence (AI), machine learning (ML), online payments, e-signature, and blockchain — are the main contributors to the success of this rising industry.

The utilization of online payment methods helps to reduce the risk of money laundering and fraudulent transactions. These digital payments provide an individual’s financial and personal data, which helps to determine a person’s creditworthiness which, in turn, reduces the risk of non-performing assets (NPAs) for loan providers. Loans become NPAs when they are in default for 90 days or more.

Digital lending platforms also help improve loan approval for small and medium-sized businesses (SME) by increasing the demand for small personal loans. This is accomplished by fintechs who are offering collateral-free loans at low-interest rates, churning out loan approval and disbursal in a short amount of time.

Rosen recently said the amount of loans funded through use of the Even API has surpassed over $1.6 billion. And some of the largest online lenders are well into the billions, including platforms like Lending Club LC (over $50 billion), SoFi (over $30 billion), and Kabbage (over $9 billion).

“The rapid growth in consumer loans sits squarely on the shoulders of fintechs,” said Jason Laky, senior vice president and leader of TransUnion’s consumer lending line of business in an interview with CNBC. “They continue to be the main driver.”