There is a demographic trend happening today that no one is really talking about. It is a trend that will ensure a major tailwind for online lending platforms and a potential headwind for traditional banks. The millennial generation (those born between 1982 and 2004) is the largest generation in history and we don’t like doing business the way our parents’ generation did. We like speed and efficiency when it comes to using products and services.
Above all else, millennials are open to a new way of doing things. We will be among the fastest group to adopt nontraditional banking services. This includes services like mobile wallets, alternative payments services and yes, peer to peer lending. It is no wonder that niche peer to peer lenders like SoFi, LendLayer and Upstart are focusing on my generation.
Upstart goes beyond simple data points like FICO score and years of credit. They take into consideration schools, academic performance and standardized test scores. For millennials with a thinner credit file, accessing credit is only available with this type of underwriting.
Looking to learn software development? LendLayer focuses solely on financing students who are looking to just that. They offer loans starting at 6.49% with no payments for 6 months. LendLayer, like Upstart, is looking at hire-ability rather than solely just someones financial situation.
In the case of SoFi, who are primarily involved in student debt refinancing, it is an immense opportunity if executed properly. Student loan debt is over $1 trillion and two-thirds of American students are graduating with some level of debt. Not surprisingly, SoFi was the fastest marketplace lender to reach $1 billion in originations (30 months).
We are a unique demographic. Some of us exit college with high tech salaries and mounds of student debt. Some make paying down student loans a priority, but others want to jump into marriage or home ownership. Banks simply haven’t adapted to be able to serve such a variety of customers like that.
To the benefit of online and marketplace lenders, millennials like efficiency and already want to do everything online. Peer to peer lending is a perfect match. Having to go to a bank branch for any reason should someday be a thing of the past.
As a millennial myself, peer to peer lending represents much more to me than earning a solid return on my investments. I believe peer to peer lending is just the way Americans should get loans. Many people my age are on the other side equation, needing to borrow money for a multitude of reasons. In a survey from August 2014, millennials were ten times more likely to consider peer to peer lending than baby boomers, and twice more likely than Generation X. Adoption will only continue increase as millennials enter their prime earning years. More statistics from this study can be found here.
Even in my young age, I’ve dealt with plenty of banks. I’ve secured 3 mortgages in about 4 years, starting not long after the financial crisis. To be honest, I had it pretty easy. I started building my credit early at 18, had a solid paying job and zero debt to my name when I bought my first house. This is certainly not true for everyone in my generation. My experience with banks however, didn’t come without frustration. Throughout the tedious processes, I couldn’t help but think there must be an easier, more efficient way. Besides the immense amount of paperwork, there were surprise fees and in one case, the bank told me at closing that they approved me simply from income; making the hours I spent gathering investment statements and past tax records completely wasted.
When I went to buy my latest rental property not too long ago, I looked into a peer to peer loan. I was excited to find out that SoFi was soon going to be offering mortgages in Wisconsin. However, they didn’t offer loans on investment properties. Still, they offer more flexible terms than I have ever seen in my search for the best local bank.
Just as the baby boomers transformed society and business so too will millennials. We are very comfortable doing business online and want companies to provide an efficient, seamless experience whether it be buying a fridge or applying for a loan. Those companies who insist on doing business the 20th century way will fall by the wayside and new leaders will take their place. Could Lending Club and Prosper be the financial giants of the 21st century? It is certainly possible and it is the millennials who will decide.