Retail Banking

What is Consumer Finance ?

Consumer finance is the division of retail banking that is involved in lending money to consumers. It includes a wide variety of loans such as credit cards, auto loans, mortgage loans, and can also refer to loans that are taken out at either the subprime rate or the prime rate.

Consumer finance in financial technology started in the UK in 2005 with the Launch of Zopa. It spread to the US in 2006 and reached China in 2007. In the UK, Zopa provided the first consumer loan on 4th March 2005, and began the era of marketplace lending. Today, the company has a market share of 56% in the unsecured consumer credit lending. It matches savers with persons who want to borrow money, cutting out the bank and providing better rates. Since it was founded, the company has helped savers lend over £520 million in peer-to-peer loans.

Launched in 2010, RateSetter is another dominant player in the UK consumer market. Currently, RateSetter occupies 42% of the unsecured consumer loan lending market. Since the company was launched, it has invested about £1.2 billion. Last year, Ratesetter was the largest peer-to-peer lender in the UK. The company has more than 1,000,000 registered users and has matched over £1.5bn in peer to peer loans.  Other fast-growing consumer finance platforms include LendInvest, Wellesley & Co and many others.

By 2012, the main peer-to-peer companies in the UK– Zopa, Funding Circle and RateSette – had issued more than £250 million of loans. In 2014, they issued more than £700 million. Others P2P lenders that are increasing their market share in the UK are companies such as Assetz Capital which claimed to have lent £170 million in two years, recorded October 2016.

In the United States, Prosper was the first mover in marketplace lending. When it was opened to the public in early 2006, it attracted about 100,000 members.  Within 9 months, the company had funded about $20 million worth of loans. In 2007, Lending Club was launched as a Facebook application. It emerged as an independent website to compete with Prosper.

Due to their popularity and high default losses, lending platforms attracted the regulators’ attention.  In the US, the lending platforms were required to complete the loans registration with the U.S. Securities and Exchange Commission.  As result, Lending Club was given a suspension from April to October 2008, while Prosper experienced a nine-month suspension from October 2008 to July 2009. The Lending club expanded fast due to a relatively lower default rate and active communication with regulators, and soon became the largest online lending platform in the US. Since they were suspended, both Prosper and Lending Club became more involved in risk management. Particularly, Prosper tightened the minimum credit requirements for consumers to get a loan.  This had a positive effect because the company has restored its reputation and attracted significant institutional capital.

Following the US and the UK, many countries such as China,  Australia, Switzerland, Sweden, India, Canada, Israel and Japan started Consumer Finance services with many marketplace lending platforms springing up with region-specific characteristics.

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