Have Fintech lenders been reaching out to the underserved consumers?

Shadow banks and Fintech lenders have been gaining market shares in both personal lending and mortgage lending. For example, LendingClub has become the largest personal installment lender in the U.S. (have originated $48 billion of consumer loans with 3-5 years maturity). In addition, more than half of Federal Housing Administration (FHA) mortgages are now originated outside of the banking system. We explore the changing landscape in consumer lending and whether Fintech lenders have been able to reach those consumers who are unbanked or with thin credit files. We also explore whether these consumers have been able to access credit at lower cost than what they would have had to pay through the traditional lending channel. In this paper, we utilize data from the Mintel credit offer survey of 8000 households (monthly), in conjunction with several other data sources, including TransUnion data for VantageScore credit ratings, Federal Reserve Bank of New York (FRBNY) Equifax consumer credit panel, and the various economic factors -- to explore lender behavior across institutional types (traditional banks & credit unions vs. non-bank shadow traditional lenders, and non-bank Fintech lenders). We focus on two important consumer financial products – personal loans and mortgage loans. Specifically, we ask whether Fintech lenders tend to reach out to the underserved consumers, such as those who live in the low- or moderate-income (LMI) areas or areas with low average risk scores, those with low income, consumers who are less creditworthy as measured by traditional standards (low Fair, Isaac and Company (FICO) scores), etc. We also compare interest rates and fees (measured as annual percentage rates (APRs)) that different lenders offer to different the consumers, controlling for their risk characteristics.