Fintech lending is on the rise but under the microscope, too. A report from the U.S. Government Accountability Office released in December said financial regulators should give the role of non-bank players in the small business and consumer lending markets a little more scrutiny, and clarify their views on the use of alternative data to make lending determinations.

While fintech lending accounts for a small share of the credit markets relative to the amount of credit extended by traditional banks, business is growing exponentially.

The GAO said data from a sample of 11 fintech lenders and additional literature reviewed by the agency indicated that personal loan volume for fintech lenders increased sevenfold from 2013 through 2017, from $2.5 billion to $17.7 billion. Similarly, small business loans and lines of credit grew from $582 million in 2013 to $4.2 billion in 2017, and student loans and student loan refinancing grew from $3.4 billion in 2015 to $7.8 billion in 2017.

The bank partnership model is one of the most prevalent business models used by fintech lenders in the U.S., the agency said.

“Partnering with a bank to originate loans allows the fintech lender to use the bank’s charter (instead of state lending licenses) to charge interest uniformly across the country and at rates that may not be permitted for direct lenders with state licenses due to state interest-rate limits,” the GAO’s report said. “Eight of the 11 fintech lenders we interviewed use this model to originate loans.”

In these relationships, the report continued, loan applicants are generally evaluated using the fintech lenders’ technology-based credit models, which incorporate underwriting criteria from the banks. The fintech lenders then purchase the loans from the banks and sell them to investors or keep them on their own balance sheets.

According to the GAO, fintech lenders said they “use alternative data to supplement the traditional data used to make credit decisions or to detect potential fraud.” For example, the lenders may supplement a borrower’s credit score history with information about their level of education or track record for paying rent on time.

While the GAO noted the potential benefits of using alternative data, such as the expansion of access to credit, it also warned of risks, like the potential for disparate impact and other fair lending issues.

“The Bureau of Consumer Financial Protection (BCFP) and federal banking regulators have monitored fintech lenders’ use of alternative data by collecting information and developing reports on alternative data,” the GAO said. “But they have not provided lenders and banks with specific guidance on using the data in underwriting.”

The agency said BCFP’s fair lending examination procedures, as well as banking regulators’ third-party guidance on risk, lack clarity on what would be deemed appropriate use of alternative data in the underwriting process. The agency also said most fintechs and banks they interviewed said additional guidance and regulatory clarity would help efforts to expand access to credit and manage relationships.

But what those relationships between banks and fintechs will look like, once regulators sort through how to handle all the technology-driven changes in the lending space, is anyone’s guess. Even without regulatory questions looming, there are plenty of variables to consider.

In a recent interview with Bank Innovation, Pierre Naudé, CEO of cloud banking firm nCino, predicted fintechs will more likely be collaborators with traditional financial institutions rather than disruptors to the industry. He said banks hit the brakes on lending coming out of the 2008 financial crisis, opening the door for alternative lenders, but that banks and can now combine the most effective practices of fintechs in this space with their clout, resources and expertise.

Similarly, Phillip Rosen, CEO of Even Financial, an API-powered recommendation platform company, told Bank Innovation he expects a friendlier relationship overall between banks and non-traditional players moving forward.

“I think financial services is too complex to really see these challengers do everything on their own,” he said. “I also think there’s a tremendous benefit in using partnerships. Banks are very stable, they have a lot of money, and the ability to take deposits and provide that stability is important to startups who don’t necessarily have that. I just don’t think they’re going to be independent.”

Partnership, schmartnership?

There are skeptics, of course. Ron Shevlin, director of research at Cornerstone Advisors, wrote in a contributed post on Forbes today that he expects bank-fintech partnerships will be a “huge disappointment” in 2019.

Among other things that Shevlin predicted will put a damper on any plans to partner up, he said banks are simply confusing “collaboration” for something else.

“Banks talk ‘partnership’ when all they might really need is a vendor, a consultant, or maybe just a new distribution channel,” he wrote.