NCFA Fintech Confidential December 2020 (Issue 3)

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THE RISE IN BIG TECH AND FINTECH CREDIT As a Gen Z, technology has played a big role in my everyday life ever since I was young and now as a remote intern at NCFA, I’m excited to share some research and insights on Big Tech and Fintech credit markets. Big Tech and its expanding dominance Lending institutions such as banks and credit unions have traditionally been the chief sources of finance in most economies in the world, however large technology firms are uniquely positioned to capitalize on a technologyfocused alternative to financial services. Their advanced AI and machine learning capabilities allow these companies to utilize the swaths of data that their user base generates to tailor prices, determine creditworthiness, and screen loans. Amazon’s e-commerce sales for example, reached a staggering $416.48 billion in 2020. As online channels expand due to general trends and the global pandemic, they pose an existential thread to traditional brick and mortar models. UBS analysts estimate that 75,000 brick-and-mortar stores could be forced into closure by 2026. Companies like Walmart have seen their supply-side economies of scale diminished by competing and efficient online marketplaces that operate with lower overheads forcing them to integrate more technology into their business model. Walmart has already taken several steps in the Fintech credit direction. One is the creation of Walmart Pay, a payment app that enables shoppers to transact at the register via QR code. Other methods adopted include a prepaid card plan with Walmart MoneyCard and a money transfer service with Walmart2Walmart. Global Alternative Credit Trends As illustrated in the chart below, there has been a surge in popularity in Fintech and Big Tech credit – collectively known as alternative credit – reaching an estimate of 795 billion USD globally in 2019. While alternative credit has been on rise collectively, the data shows that global Fintech credit volumes have declined between 2017-2019 from an estimate of 410 billion to 223 billion USD. One major factor for this decline is due to the greater regulatory developments in China. In the same period, Big Tech credit growth has surged at a more rapid pace than the previous years, rising from an estimate of 197 billion in 2017 to 572 billion USD in 2019. 58
TRENDING P2P Lending and Fintech Credit in the U.S. Interestingly while Big Tech seems to be the dominant player globally in recent years, Fintech credit is much more prevalent in the US, accounting for nearly 89% of the total US alternative credit. Research shows that the Fintech credit market in the US is primarily made up of P2P/marketplace consumer lending with investment coming predominantly from institutional investors rather than individual lenders. Fintech credit describes credit activity facilitated by online platforms that are not operated by commercial banks. One popular form of Fintech credit is peer-to-peer (P2P) lending, where borrowers are matched directly with investors through a lending platform. Traditionally, one’s FICO score has been the gold standard of credit bureaus in determining one’s ability to open a bank account, obtain a loan, or get a credit card. Now, with the ability to process lots of data at high levels of efficiency thanks to machines, Fintech companies are creating more holistic creditworthiness rating systems that help alternative lenders better assess risks and serve up loans to a segment 59
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NCFA Fintech Confidential December 2020 (Issue 3)

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