Welcome back to the Protocol Power Index, a ranking of the most powerful companies by tech industry subsector, as well as the companies best positioned to challenge them. This time: consumer lending.
Just 30 years ago, you couldn’t easily lend money online, get a personal loan in a day or apply for a mortgage without going into a brick-and-mortar location. Now you can do all of that before changing out of your pajamas.
Early players in online lending, like LendingTree and Rocket Mortgage, helped make finding and applying for mortgages online easier, and subsequent players have expanded into loans for everything from cars and college to personal loans that cover daily purchases.
Today, nearly every consumer purchase has some online financing option available, and companies that were once upstarts in the space have expanded into banking, credit cards, investing and more. Online lending companies have given loans faster, at lower rates, to more people than previously possible, according to a 2017 study by the Federal Reserve Banks of Chicago and Philadelphia, chipping away at the big banks that have long dominated the lending space.
Big banks haven’t sat still, though. Facing stiff competition from online-only companies, traditional financial institutions like Bank of America, JPMorgan Chase and others have rushed to digitize their loan applications, speed up their approvals and track loans more efficiently than before, making the field even more competitive. And at the other end of the spectrum a new crop of “buy now, pay later” companies have taken ecommerce by storm, with ambitions to bring flexible financing to what’s traditionally been consumer lending companies’ turf.
In this Power Index, you’ll notice that we haven’t included banks that have moved parts of their business online, focusing instead on the digital-first companies in the space. That’s because these businesses represent a fundamentally different approach to lending. It’s also not possible to neatly separate big banks’ other business lines, like business lending and investment banking, from their consumer lending practices. We’ve also excluded “buy now, pay later” companies so we can do a deeper dive on the segment in a separate, forthcoming Power Index. We’ll still talk about what their actions mean for the industry in the “What Happens Next” section after the leaderboard.
So, which companies are leading the industry? Which loan categories have attracted new startups, and which have been slower to change? And what company is best suited to capturing future customers?
|Power Score: 55.24||Momentum Score: 41.00 (3)||HQ: San Francisco, CA||CEO: Anthony Noto||Founded: 2011|
If you think about the U.S. fintech scene’s race to super app-dom like a March Madness bracket, SoFi is the odds-on favorite to come out of the “lending” region and go head-to-head with the powerhouses from banking, investing or payment processing backgrounds. But SoFi’s ascent to Wall Street darling status required the steady hand of CEO Anthony Noto to steer the company through the aftermath of its trainwreck 2017 after the company’s frat-like culture came under heavy scrutiny, leading to the ouster of CEO and co-founder Mike Cagney. Every company vying to own the super app market is looking to expand buy-in beyond its original customer base, but Noto’s commitment to SoFi’s flywheel model of cross-selling products to members has paid dividends. But can the company continue its success by expanding its other services?
|Power Score: 51.66||Momentum Score: 35.29 (4)||HQ: Detroit, MI||CEO: Jay Farner||Founded: 1985|
When not making award-winning Super Bowl ads, Rocket has been reinventing itself as a fintech platform, betting that the lending expertise the company has built over the last 35 years can translate beyond mortgage origination success. Rocket, which may be more familiar to some people as Quicken, became the country’s largest mortgage lender in 2018 and hasn’t given up its lead, amassing a 9% market share. That said, the company has endured a tough last 12 months, with its valuation falling more than 40%. Will Rocket’s strategy of doubling down on lending help right the ship as competitors look to other areas of fintech?
|Power Score: 47.76||Momentum Score: 35.00 (5)||HQ: San Mateo, CA||CEO: Dave Girouard||Founded: 2012|
While SoFi has famously targeted HENRY (high earner, not rich yet) clientele, Upstart has cast a wider net in its approach to personal loans, focusing on the broad array of consumers underserved by traditional credit products as opposed to just high earners. Founded by former Google executive Dave Girouard in 2012, Upstart sits somewhere between a loan marketer and a lender itself, leveraging AI to offer higher approval rates and lower APRs, providing instant loan approvals 67% of the time. With aggressive scaling in the cards, can Upstart continue its growth trends?
|Power Score: 44.10||Momentum Score: 78.82 (1)||HQ: San Francisco, CA||CEO: Adena Hefets||Founded: 2017|
Divvy Homes has found some investors with deep pockets in order to serve a clientele that lacks them. Founded in 2017, Divvy took advantage of the rent-to-own model and upended the traditional lending process by serving as the lender for those who can’t get a conventional mortgage. Divvy’s users select any home they want, put down 2% of the home’s value, and Divvy foots the rest of the bill. Customers build equity each month over the course of three years through payments to Divvy, and can exercise the option to purchase the home themselves, which they have done 47% of the time, a rate the company says is far above that of its competitors. Can the company make the model stick and continue its expansion into new markets?
|Power Score: 43.25||Momentum Score: 14.00 (9)||HQ: San Francisco, CA||CEO: Scott Sanborn||Founded: 2006|
LendingClub is a good reminder that high-flying fintech companies with next-big-thing business models will eventually need to make a consistent profit. The company was one of the first to give loans to a new category of sub-prime users, benefiting from a lack of brick-and-mortar expenses, an easy-to-use interface that made it attractive for consumers and a peer-to-peer lending model that meant the company didn’t need to hold capital reserves. But ever since its highly anticipated 2014 IPO that heralded the company as more tech and less consumer finance, LendingClub has failed to live up to the hype. Can the company now find its footing the way SoFi has?
|Power Score: 41.65||Momentum Score: 32.94 (6)||HQ: New York, NY||CEO: Vishal Garg||Founded: 2014|
Better.com CEO Vishal Garg has taught the world that running LinkedIn’s top-rated startup and raising $750 million dollars in your latest fundraising round doesn’t necessarily make you popular. But after firing 900 workers over a Zoom call like it was just another workday and being forced to take a leave of absence, tech’s Most Ridiculed CEO of December 2021 is back at the helm, with a goal of expanding the company beyond its online mortgage business into a one-stop-shop for all things home finance. To do that, the company will be relying on its Tinman workflow engine, a supervised machine-learning network for consumer finance that plays a role across a number of the company’s underwriting products and allows for quick scaling through automation. That nimbleness is becoming increasingly important as the company dips into its several-hundred-million dollar war chest to expand into student loans, personal loans and life insurance. The company nearly tripled revenue year-over-year in the first half of 2021 to $679 million, but the company lost $86 million in the quarter ending in September 2021, the most recent quarter for which data is available. Of course the road ahead for Better.com may be as much about talent as it is about leveraging its technology to enter new markets, and recruiting could prove difficult as long as firsthand accounts of Garg’s layoffs continue to make the rounds in Silicon Valley. A slew of executives have left the company in recent weeks amid bad morale, including the company’s VP of finance, head of sales and head of real estate, potentially indicating a rough road ahead for the real estate newcomer. And further headcount cuts could be on the way.
|Power Score: 39.59||Momentum Score: 75.29 (2)||HQ: New York, NY||CEO: Shaival Shah||Founded: 2017|
Buying and selling a home are the biggest financial decisions most people make in their lifetimes. Ribbon is aiming to ease everyone’s anxiety during the process by giving sellers a cash guarantee during the period when buyers secure a mortgage, ultimately shortening the timeline for the transaction. For the seller, that means less time worrying about the buyer’s mortgage financing; for the buyer, it provides more time to compare rates among lenders for the price of 1% of the transaction. While Ribbon raising $713 million on just a $500 million valuation may seem out of proportion, the company needs liquidity to offer its cash guarantees on an ever-larger set of homes across the country, especially at a time when the housing market has been crazier than ever. That careful balance means that, as a “power buyer,” Ribbon sits on a razor’s edge: If the market slows, its holdings no longer appreciate in a way that benefits the company’s margins. But if Ribbon can pull off the mission of letting both parties move faster with home closings, the company could effectively, as CEO Shaival Shah puts it, “create a liquid market” from one that is illiquid right now.
|Power Score: 39.47||Momentum Score: 27.06 (7)||HQ: London, UK||CEO: Jaidev Janardana||Founded: 2005|
Like many of its peers, Zopa wanted to offer it all: loans, credit cards, bank accounts and more, and the company seemed poised to do it. But in the last few years, it has changed its tune from being a jack of all trades to a master of just a few, at least for now. After making a name for itself as the dominant force in peer-to-peer lending in the United Kingdom, Zopa hit a rocky patch in 2020 when COVID-19 lockdowns decreased its lending volume and the company nearly lost its provisional U.K. banking license — but its prospects looked more solid once its license was secured by the end of that year. The company’s pivot to credit cards and banking services has brought in more than 500,000 customers and it has since shuttered its long-established peer-to-peer lending service earlier this year after facilitating more than £6 billion in loans. But the company hasn’t exited the lending space completely, just removed itself from the thorny regulatory world of P2P: It still offers personal and car loans backed by assets from its banking division, giving the company “a diversity of funding source sources,” according to CEO Jaidev Janardana.
For now, Zopa’s smaller focus on small personal loans and car loans in the lending space helps it center on what matters for its consumers rather than handling the overhead required to facilitate peer-to-peer loans — increasingly important for a company that is said to be in a pre-IPO stage. With its slimmed-down focus, Zopa expected in October 2021 to double its 2022 run rate to $233 million and was hoping to achieve profitability by the end of last year, though it has not publicly stated whether it achieved that goal or not.
|Power Score: 38.93||Momentum Score: 24.71 (8)||HQ: San Carlos, CA||CEO: Raul Vazquez||Founded: 2005|
Low- and moderate-income families spend an estimated $127 billion on interest and fees for short-term loans, and Oportun sees plenty of opportunity in other companies’ margins. Using its A.I.-powered loan application and approval process, the company — which began as an outlet for Latino immigrants to build credit — aims to lower as many costs as possible to undercut competitors’ rates in the space for a wide group of consumers. The company has disbursed $10.5 billion in loans since 2005, and is following the playbook of many of its competitors by expanding out from its core personal loan product into banking. The company’s acquisition of challenger bank Digit in November and a partnership with buy now pay later heavyweight Sezzle to finance big ticket purchases together have shown that Oportun wants to be a super app eventually. But it has struggled through the pandemic, in part because of its litigious practices that caught the attention of the CFPB. Despite the company’s profitability and aggressive acquisition and partnership strategy, Oportun is now worth just $492 million — around half of its 2015 private valuation — with the federal probe still looming.
|Power Score: 37.41||Momentum Score: 10.00 (10)||HQ: Chicago, IL||CEO: David Fisher||Founded: 2004|
Since breaking apart from pawn shop operator Cash America in 2014, Enova has continued to focus on non-prime consumers and businesses, targeting the riskiest segment of consumers through a wide network of brands, including CashNetUSA, NetCredit and Simplic. This differs from its competitors who have mainly stuck to unified branding across their loan options, and while the business has been profitable through the pandemic, the high-interest lending model itself has come under increased scrutiny, and could be the subject of further regulatory oversight. In the meantime, Enova has set itself apart by expanding internationally to Brazil, and establishing a fast-growing small-business loan segment, which now accounts for more than half of the company’s products. Enova is another lender that is the subject of a CFPB probe, though the probe was opened due to self-reported issues which are, at the moment, unspecified. The company grew its revenue by 11% to $1.2 billion in 2021, though increased spending on marketing and technology brought down net income to $256 million in 2021 from $378 million a year earlier.
Explore the Data
The Protocol Power Index is designed to view power through a holistic lens that reflects how modern tech companies amass and exercise their strength. To do so, the Power Index takes into account 30 metrics across five categories — Economics, Leadership, Innovation, People and Politics & Policy — and synthesizes them into a single Power Score. Read our full methodology statement here.
What happens next?
Several trends could change the consumer lending landscape in the coming years: a push for all-in-one solutions, mimicry and acquisitions from traditional finance companies, and tightening funding and investor scrutiny.
|1||Divvy Homes ↑||78.82|
How big can all these companies really get? Consumer lending companies started out in a smaller market — Enova for payday loans, Better.com for mortgages — but have since come to incorporate more offerings in search of higher revenue and the consumer preference for a one-stop shop. They all want to do more than just lending, and it’s not clear that they’ll all succeed.
- One of the first places that several lending companies turned to in the quest for bigness was banking services. LendingClub and Avant acquired banking companies to get into the heavily regulated space quickly, and SoFi’s January bank charter approval positions the company to compete in a new market.
- Others have moved into other lending spaces or tried to solve different problems. Zopa expanded its portfolio to include auto and personal loans, while Better.com has branched out into settlement costs and home searching. These lateral moves play well to consumers who are already on the platform for one service and can now easily use another.
- As revenue for adjacent buy now, pay later companies has exploded and taken away some momentum from other lending areas, companies like LendingClub are trying to ride that wave by moving into purchase financing as well.
- But it’s unclear if these expansions will pay off for every company. LendingClub’s stock dropped 14% in January after it provided a weaker-than-expected revenue outlook, and SoFi’s bank charter is still so new that it has yet to prove itself in the market. These companies will have to fight the strong brand-name recognition of industry giants like Bank of America and JPMorgan in banking, as well as strong local organizations like small real estate agent firms.
- And the move to becoming a one-stop shop requires a company to become successful in new areas of fintech that native competitors have honed their skills in for years. Doing that requires big investments to either build or buy the necessary infrastructure, and it’s unclear for how long the fintech investment market will stay hot enough to support that.
Incumbents are increasingly fighting back, with traditional finance companies continuing to throw resources at competing with startups. And, sadly for the startups, that investment is starting to pay off for the old hands.
- Lending startups set themselves apart by offering access to credit faster, expanding eligibility for loans and providing an easier customer experience, all through heavily digitized and automated processes. Big banks have mimicked these strategies to keep up — according to the 2020 Digital Banking report, an estimated 85% of financial institutions now provide online loan applications, though only two-thirds do so for the entire end-to-end process.
- Traditional finance institutions have bought companies when they feel they can’t build a better offer: JPMorgan bought 24 companies in 2021 alone — focusing on startups covering anything from food reviews to college planning — to make its consumer offerings more attractive, and big fundraising for fintech startups last year is leading industry insiders and investors to believe that acquisitions will continue to grow in 2022.
- Investment in homebuilt technology shows no sign of stopping this year either. JPMorgan announced in January that it plans to spend $12 billion on technology in 2022, mirroring huge spending from competitors like Bank of America as they each tighten up their offerings in lending while modernizing their application stacks away from legacy platforms to create more nimble products.
And investor scrutiny is ramping up. After a year flush with cash and sky-high stock prices, lending companies could struggle to maintain their valuations without showing profitability.
- Fintechs raised a record $131 billion in 2021, more than double 2020’s $49 billion total, according to CB Insights. Massive rounds for companies like Better.com and Ribbon gave these companies big runways to expand their sales while building out new products.
- However, a market selloff in the last few months has hit fintechs especially hard. No. 1 ranked SoFi’s stock price fell 20% in January, for instance, amid pressure on companies that still promise profits down the line but continue to post losses. That mirrored big losses for financial services companies, including the likes of Robinhood, Square and Paypal as well as #4 ranked LendingClub, which saw its stock price fall 60% between November 2021 and the end of January 2022.
- This trend could spill over into the private sector in the coming months, impacting the eight private firms on our list as well as the fintech space more broadly. Companies will have to prove that they are using their funding to fuel strong growth and increase profitability if they are to maintain the lofty valuations that they have commanded over the past two years.
To rank the competitors, we've developed a formula that encapsulates 30 criteria. Those criteria span five groupings that factor into power: Economics, Leadership, People, Innovation & Politics and Policy. We then developed two systems for weighting the criteria — one for measuring power and the other for measuring momentum — such that companies can be scored on a 0–100 scale. Read our full methodology here.