Financing accrued through digital platforms is drawing the attention of private lenders - here's the significance behind this development
In the ever-evolving world of finance, private credit in the fintech industry is experiencing significant growth and is projected to reach approximately $2.8 trillion by 2028[1]. This growth is driven by banks retreating from lending activities and investors seeking higher, less correlated yields[1].
Banks are reducing on-balance-sheet lending to consumers and SMEs, creating a void that private credit funds and fintech lenders are filling with more flexible, tech-enabled credit solutions[3][2]. The rise of private credit is substantially impacting on-balance-sheet consumer and SME lending by banks.
Banks have been pulling back from these lending areas due to regulatory constraints and risk aversion, especially after the 2008 financial crisis and the Dodd-Frank and Basel regulatory frameworks tightened banking regulations[3]. As a result, private credit funds have stepped in to fill the gap, offering more nimble, flexible, and responsive financing solutions than traditional banks. These private lenders provide various credit structures, including mezzanine and unitranche loans, catering to different risk-return profiles which banks cannot easily match due to on-balance-sheet regulatory capital requirements[3].
Furthermore, fintech innovations such as AI and machine learning are transforming credit underwriting processes, enabling smarter, faster, and more inclusive lending decisions in retail and SME segments, often outside the traditional banking framework[2][5]. This shift helps fintech private credit providers scale their lending operations efficiently and underwrite credit risk more dynamically than banks.
In India, direct-lending funds now finance large UPI-enabled Buy Now Pay Later (BNPL) books due to tighter capital and provisioning norms hobbling NBFCs[4]. Similarly, in Latin America, Mexico's microcredit specialist Klar raised a US$200 million blended facility from both Victory Park Capital and Goldman earlier this year, a sign of blended bank-plus-fund structures going mainstream[6].
This trend is contributing to a shift in the lending ecosystem, where private credit becomes mainstream for income-seeking investors and a critical capital source for borrowers beyond traditional banking channels[1][3]. Consultants expect private credit to reach US$3.5 trillion by 2028, with a compound annual growth rate north of 19 percent[7]. A joint study from BCG and QED Investors predicts a US$280 billion opportunity over the next five years for capital earmarked for buying or originating fintech loans[8].
In Southeast Asia, post-SVB retrenchment left cash-intensive SME lenders in Indonesia and Vietnam hunting for warehouse lines[9]. For these lenders, dollar funding married to local-currency wallets is a tantalizing carry trade, provided FX hedges hold[9].
However, this growth comes with challenges. Household credit-card delinquency hit 3.1% in Q1, and mortgage arrears are edging up, which could potentially lead to issues for fintech loans if consumer stress spikes[5]. The SEC's postponed Form PF overhaul now lands in October 2025, and a sudden leap in disclosure or capital costs could stall dry-powder deployment[10].
Despite these challenges, the venture-capital drought of 2024, compared to the 2008 haze, has almost resolved, and giant private-credit funds are now offering term sheets much larger than what was common a year ago[11]. Private credit has grown nearly ten-fold since 2010 to approximately US$1.5 trillion of assets under management (AUM) in 2024[12].
In conclusion, the expansion of private credit significantly disrupts traditional bank lending by absorbing demand that banks are less able or willing to meet, especially in consumer and SME markets. Fintech innovations accelerate this disruption by improving credit decision-making and operational efficiency. As the market matures, it is expected that private credit will continue to grow, becoming a crucial component of the global financial landscape.
References: 1. The Rise of Private Credit 2. Fintech's Role in the Future of Lending 3. The Impact of Private Credit on Traditional Bank Lending 4. India's Fintech Lending Market 5. Consumer Stress and Fintech Loans 6. Mexico's Microcredit Specialist Raises Funds 7. Private Credit's Future Growth 8. BCG and QED Investors Study 9. Post-SVB Retrenchment in Southeast Asia 10. SEC's Form PF Overhaul 11. Giant Private-Credit Funds 12. Private Credit's Growth
- The growth of private credit in the fintech industry, driven by banks retreating from lending activities and investors seeking higher yields, is leading to a transition in the business world, as private credit funds are offering more nimble, flexible, and responsive financing solutions than traditional banks, thereby impacting on-balance-sheet consumer and SME lending by banks.
- As private credit continues to grow, reaching projections of around $3.5 trillion by 2028, and with fintech innovations such as artificial intelligence and machine learning transforming credit underwriting processes, technology is playing a significant role in investing and the finance sector, particularly in lending, as private credit becomes a mainstream source for income-seeking investors and a critical capital source for borrowers beyond traditional banking channels.
