Digital lenders will continue to pursue product diversification strategies as companies expand market share in the coming years, research from S&P Global Market Intelligence concluded.

“Digital lenders are keen to innovate their product offerings to cater more specifically to different customer segments,” S&P noted in its 2019 U.S. Digital Lending Market Report. “Term loans and lines of credit are the typical loan structures. However, several digital lenders are experimenting with alternative frameworks.”

Although many of these companies launched with personal and small business loans, they’re increasingly rolling out new products like point-of-sale loans, merchant cash advances and invoice financing. These new loan types are emerging product areas aimed at facilitating deeper relationships with clients.

The study pointed to PayPal Working Capital, Square Capital and Credibly as examples of companies offering merchant cash advances. Companies like BlueVine and FundThrough, meanwhile, offer invoice financing, while Affirm, Bread, Afterpay and others all offer point-of-sale financing. The study noted that digital lenders are trying to expand their services beyond simply loans. SoFi, for example, offers deposit and insurance products, while Kabbage recently announced an invoicing product. According to the report, expanded offerings help companies reach more customers and provide more opportunities for cross-selling.

The study found that digital lenders had a compounded annual growth rate of 72.4% over the past five years, and it predicted compounded annual growth of 14.3% through 2023. According to S&P, small business lenders will grow the fastest during this time, as banks still see this client base as risky. This vacuum should create room for digital lenders to grow.  

As digital lenders grow their product offerings and customer bases, S&P added that banking charters are seen by some as tools to help them grow. For example, OnDeck and LendingClub are pursuing bank charters. “Bank status would bring with it more regulatory burdens,” the study noted. “But the advantages of the lower cost of funds, independence from third-party bank partners and potentially greater trust from customers may outweigh the costs for fintechs of a certain scale.”

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