Q2 2025 Review | Consumer Lending

Hi all, Cole here,

We come to you today with our quarterly consumer lending review. Catch up on the latest trends in the consumer lending space:

• Takeaways from nonbank and bank earnings:
  • Originations (personal loan, BNPL, cash advance, high APR, second look, LTO)
  • Credit data (BNPL, cash advance, nonbank, bank)
  • Deposits
• And an increase in MPL new issue volume

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Missed last quarter’s report? Recap key trends with my Q1 Consumer Lending Review.

Consumer Loan Originations Maintain Upward Trajectory

Originations

In the second quarter, lenders capitalized on consumer demand for credit, reporting a YoY surge of origination growth across lending products (BNPL, cash advances, higher-APR (36%+ APR) loans, personal loans). A strong labor market has helped many lenders loosen their credit tightening measures.

Personal Loan-Focused

After a two-year period (mid-2022 to mid-2024) of declining or stagnant originations due to credit tightening efforts, unsecured personal loan volume growth continues to accelerate.

In Q2, Upstart’s +154% YoY origination growth accelerated further driven by model improvements which led to an increase in conversion rate (approving more loans) to 24%, from just 15% a year prior. Specifically, Upstart posted strong growth in its small dollar (+158% YoY to $111Mn) and super prime (720+ credit score) originations (+183% YoY to $699Mn). As a reminder, its small dollar loans have terms of 6-18 months compared to Upstart’s core product (3-5 years) and the average size is “just north of $1,000” compared to $10,000 for its core product.

SoFi also reported elevated levels of growth, with originations up +64% YoY, led by personal and home loans. SoFi launched SmartStart, a student refinancing solution that allows for lower (interest-only) payments for the first nine months of the loan, before stepping up into regular payments.

Additionally, SoFi launched a reward debit program with Wyndham Hotels & Resorts. It plans to launch similar co-brand debit programs with other travel and hospitality companies later in the year. Galileo, SoFi’s tech platform, powers the Wyndham debit card, but the card is issued by Sunrise Banks, likely due to Durbin interchange regulations. Few debit cards offer rewards, given the margins of the business. This represents both an opportunity for growth but also a challenge to profitably run the program.

LendingClub management attributed its 32% YoY origination growth to the execution of product and marketing initiatives. 32% of originations were from its structured certificate program, under which LendingClub retains the senior note and sells the residuals, while 29% were retained held for investment, 23% were whole loan sales and 16% were extended seasoning HFI. Strong loan buyer demand drove an improvement in its loan sales prices.

Oportun reported double-digit origination growth +11% YoY for the third straight quarter, led by success in its secured personal loan product, whose portfolio grew 58% YoY, reaching 7% of its owned portfolio. Oportun’s secured personal loans allow borrowers to secure their loans with their car titles, potentially allowing access to larger loans at lower rates than an unsecured loan. In Q2, the lender launched its secured personal loans product in two more states. It has reported significantly better credit performance in this product, with the FY24 secured NCO rate ~(500)bps lower than the unsecured NCO rate.

As we reported last quarter, Oportun had been embroiled in a proxy fight with Findell Capital Management (its largest shareholder) which wanted to take actions such as changing its Board members (including replacing CEO Vazquez), removing the lender’s 36% APR cap, and reducing operating expenses. As of July, Oportun announced a multi-year cooperation agreement with Findell to end the contested director election under which Findell would vote for Oportun’s board nominees (including CEO Vazquez), and Oportun’s board would appoint Findell nominee (Warren Wilcox) to the board.

OneMain reported a +9% YoY increase in originations, even as the company has maintained tighter credit standards and higher pricing. Further, auto finance originations have continued to scale, growing +29% YoY and accounting for just under 10% of total originations. OneMain has also gained traction with its BrightWay credit cards, growing receivables +61% YoY to $752Mn. As covered last quarter, OneMain filed an application with the Utah Department of Financial Institutions and the FDIC to form OneMain Bank (an industrial loan company).

BNPL-Focused

BNPL remains hot, with consumers increasingly embracing the newer form of payment.

Sezzle’s +74% YoY growth in GMV led BNPL players, with its growth driven by both an increase in active consumers and increased consumer engagement. Quarterly purchase frequency rose to 6.1x, up from 4.8x a year prior. Notably, Sezzle Anywhere subscribers are power users of the product, averaging 11 more orders than non-subscribers in Q2. Further, the top 10% of Sezzle’s Anywhere subscribers used the product an average of 38x in the past 90-days.

Affirm’s YoY GMV growth of +43% also benefited from a more engaged user, with transactions per active consumer of 5.8x, up from 4.9x a year prior. At the same time, its average order value declined (6)% YoY to $276, in-line with strategy. GMV growth was led by 0% APR products, with its 0% APR Monthly products +93% YoY and Short-Term 0% APR +50% YoY. Its interest-bearing product grew +35% YoY.

The Affirm Card has shown consistent expansion, with 2.3Mn active cardholders at quarter end, up +97% YoY and card GMV of $1,176Mn, up +132% YoY. The current trailing twelve-month GMV of the average cardholder was about $4,700.

Zip Co, a BNPL provider that operates in the U.S., Australia, and New Zealand, reported a +30% increase for its 2025 Fiscal Year. For context, a little more than 70% of its volumes come from the U.S. market. In Q2 Zip Co announced that it signed agreements with Cathay Pacific, GameStop, Take 5 Oil Change and more. Building on this, Zip went live for all businesses on Stripe in the U.S. in August. Zip, currently listed on the Australian Securities Exchange, disclosed that it is considering a dual listing on the Nasdaq.

Klarna posted +19% YoY GMV growth YoY, helped by a +37% increase in U.S. GMV, +38% increase in U.K. GMV and +74% increase in Southern Europe GMV. Klarna’s most mature market, Sweden, posted solid +16% YoY GMV growth. In addition, Klarna’s Fair Financing (typically a 6-12 month term product which may charge interest) volumes have surged, up +108% YoY. Klarna added 55k merchants to Fair Financing in Q2, bringing the total to 126k.

The Klarna card accounted for over 10% of total transactions, up +33% YoY. The BNPL provider is preparing to go live with Nexi, Worldpay and JPMorgan Payments, which it says process a combined annual transaction volume of $5Tn.

Cash Advance-Focused

Consumers looking for a way to bridge the gap between paychecks have increasingly turned to earned wage access and short-term cash advance products.

Dave reported a +51% YoY increase in originations, driven both by the size of originations (+24% YoY to $206) and by growth in monthly transacting members (+16% MoM to 2.6Mn). At the same time, Dave has continued to grow its average revenue per ExtraCash advance, which grew +42% YoY to $13.

Dave rolled out its new $3/month subscription fee for new members during the quarter, while existing members will be grandfathered into the prior $1/month fee for now. Additionally, Dave amended its program agreement with Coastal Community Bank and plans to move a significant portion of its ExtraCash receivables off balance sheet.

Brigit has reported strong growth since being acquired by Upbound Group, with volumes growing at +21% YoY. Brigit grew its average revenue per user +13% YoY to $13.45 on higher expedited transfer fees, deeper engagement with marketplace offers, and a continued shift toward the Premium tier.

Notably, Brigit is piloting a line of credit offering with a loan size up to $500, twice the cap on its Instant Cash advances. This move may enable the company to better compete with cash advance competitor products like Chime MyPay and Dave ExtraCash, which both offer up to $500. By piloting the longer-term line of credit product (6-9-month term), it may enable it to compete with small dollar loan products from players like Upstart (6-18-month term, ~$1k average loan size).

Higher APR-Focused

Enova (offers unsecured installment and lines of credit with APRs 34-200+% depending on state and product type), reported +15% YoY growth in consumer originations. Consumer originations came in “slightly softer” than anticipated, as the company made model adjustments in response to tariff uncertainty.

Higher-APR lender OppFi, saw originations grow +14% YoY, driven by returning customers and credit model improvements. OppFi’s average yield hit 136%, up marginally from 135% a year prior, while its average loan size increased by $100 YoY.

Second Look-Focused

Pagaya, a second-look lender, reported a +14% increase in network volume, driven by its personal loan segment which grew +23% YoY. At the same time, its combined point-of-sale (“POS”) and auto volumes reached 30% of total volumes, up from just 9% a year prior. Application volume from lending partners reached $238Bn, up from $193Bn a year prior, while the average conversion rate of applications remained at ~1%.

Lease-to-Own-Focused

For those that are unfamiliar, Katapult provides lease-to-own solutions to nonprime consumers. Lease-to-own (“LTO”) offers an alternative to BNPL and credit products, allowing customers to make payments towards owning a product. Customers can make payments to lease, buyout the plan or return the product at any time. On average, Katapult’s typical lease is for about $700.

Katapult grew gross originations +30% YoY, with 58% of originations from repeat customers. Katapult launched Sam’s Club, Guitar Center, and Pottery Barn in its Katapult app marketplace. In the marketplace, consumers can pay via Kpay (a 1-time user virtual card) or be re-directed to merchant-partner sites.

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Credit Data

BNPL

Headlines and memes have pointed to widening losses in the BNPL space, but underlying credit data has largely held up.

While Klarna’s provision for credit losses rose +14 bps YoY to 0.6% of GMV, its realized losses decreased (3) bps YoY to 0.5% of GMV.

Affirm’s delinquencies slightly improved YoY, with its Monthly Installment Loan 30+ Day DQ Rate (Ex-Pay-in-4) for FY 4Q2025 at 2.3%, below the 2.4% both a year and a quarter prior.

Zip Co’s net bad debts (annualized net write-offs / opening receivables) improved (14) bps YoY to 1.5%.

Cash Advance

In Q2, cash advance apps Brigit and Dave both reported modest declines in credit performance while posting strong growth in originations. Despite the declines, the short-term nature of their products and their cash flow underwriting capabilities should help deter further deterioration in credit.

Brigit’s net advance loss rate rose +20 bps to 2.6%.

Dave’s 28-day delinquency rate rose to 2.4%, up +37bps YoY. However, management notes that the DQ rate would be +18bps YoY if you exclude a one-off 3^rd party issue, which it says is now resolved. Notably, the last time Dave reported a YoY increase in the 28-day DQ rate was 4Q22.

Nonbanks

Despite serving a clientele more prone to delinquency, OppFi (100) bps improved its NCO ratios YoY. OppFi attributed the improvement in credit quality to its new Model 6 credit software. In contrast, subprime lender Enova reported a +667 bps rise in NCOs. Enova said that it observed minor cyclical fluctuations early in the quarter, due to tariff uncertainty, which led to slightly elevated default metrics for new customers. In response, it tightened its credit models to slow originations. Despite the rise, Enova management noted that the consumer NCO ratio remained within historical ranges.

OneMain Financial (110) bps reported a YoY improvement in its NCO ratio, helped in part by the reduction in the size of its “back book” (pre-Aug 2022 credit tightening).

Oportun reported a (40) bps improvement in its NCO ratio, reversing a streak of NCO ratio increases. At the same time, Oportun’s 30+ day DQs improved for the sixth consecutive quarter.

Turning to banks, LendingClub (320) bps, SoFi – Personal Loan (101) bps, Synchrony (72) bps, Ally (16) bps, Capital One (12) bps, Wells Fargo – Consumer (8) bps, PNC – Consumer (7) bps, Citizens – Consumer (4) bps, and Bank of America – Consumer (2) bps all reported YoY improvements in their NCO ratios. JPMorgan reported a nominal increase of 1bp in its NCO ratio YoY.

LendingClub’s improvement in NCO ratio was driven by improving credit performance and the dynamics related to timing of recovery and age of portfolio.

SoFi’s NCO ratio improved but was affected by the sale of delinquent loans. Management disclosed that, accounting for the sale impact, it would estimate the NCO rate for personal loans to be 4.8%, still below the 4.9% it estimated in Q1.

Synchrony attributed its improvement in NCO ratio to credit actions taken between mid-2023 and early 2024. In addition, its 30+ day delinquencies improved (29) bps YoY.

Capital One’s improvement in NCO ratio was led by its credit card portfolio, with its credit card NCO ratio down (80) bps YoY.

Despite the YoY improvement, a number of bank consumer divisions’ net charge-off ratios have risen above pre-pandemic (2Q19) levels, with Capital One +76 bps, Ally +54 bps, JPMorgan – Consumer +29 bps, and Bank of America - Consumer +27 bps.

Due to recent credit improvements, Synchrony’s NCO ratio dropped below pre-pandemic (2Q19) levels by (31) bps (after previously breaching such levels). Additionally, Citizens – Consumer came in just below pre-pandemic (2Q19) levels ((1) bp lower).

PNC’s NCO ratio came in (20) bps lower than pre-pandemic (2Q19) levels but the bank has grown home equity + residential real estate loans as a % of its consumer loan book from pre-pandemic levels. Looking at broader industry data, these types of loans have carried lower delinquency rates than credit card and auto loans and likely translate into lower net charge-offs.

Dollar NCOs (Banks and Nonbanks)

Declines in net-charge offs (in $ values) were reported by LendingClub (52.4)%, PNC – Consumer (17.2)%, Ally (15.9)%, Citizens – Consumer (14.8)%, Synchrony (13.0)%, OneMain Financial (10.3)%, and Oportun (5.8)% on a YoY basis.

Increases in net-charge offs (in $ values) were reported by Enova – Consumer +33.4%, Capital One +15.7%, JPMorgan – Consumer +1.1%, and Bank of America – Consumer +1.0%.

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Deposits

Despite a moderation in inflation and looming pressure from President Trump, the Fed has continued to hold rates steady. Major bank consumer divisions reported sequential growth in average deposits, Citizens +1.2% QoQ, JPMorgan +0.6% QoQ, Bank of America +0.5% QoQ, and Wells Fargo +0.4% QoQ.

At the same time, we saw period-end deposits grow QoQ at Capital One +29.1% (impacted by May closure of Discover acquisition), SoFi +8.4% and LendingClub +2.6%, but declined (1.4)% QoQ for Synchrony. SoFi’s average savings deposit growth of +6.6% QoQ accounted for much of its deposit growth. LendingClub noted that its initial LevelUp Checking results are encouraging, with it opening 6x more checking accounts per day than prior to launch.

Since obtaining bank charters, SoFi and LendingClub have benefited from a lower cost of funds, with deposits remaining key to funding loans. While SoFi and LendingClub do not rely entirely on deposits, being able to fund at a cheaper rate (SoFi 3.4%, LendingClub 3.9% average yield on interest-bearing deposits) aids profitability. Deposits now represent ~90% of SoFi’s funding base. By reducing warehouse utilization, SoFi achieved a lower rate which translates to $551.9Mn in annualized interest expense savings.

While not a direct comparison, nonbank lenders that utilize other sources of funding (e.g. warehouse lines, ABS markets) have reported significantly higher cost of funds, with Enova’s cost of funds at 8.8% and Affirm’s at 6.8%. However, both Affirm ((30) bps QoQ) and Enova ((15)bps QoQ) reported improvements in their cost of funds due to the positive funding market environment.

The cost of deposits has eased at banks, driven by the residual impact of 2024 Fed rate cuts and by an expectation of a September rate cut, with the cost of deposits declining (16) bps at Synchrony, (13) bps at SoFi, (6) bps at Wells Fargo – Total, (4) bps at LendingClub, (2) bps at Citizens, and were flat at Capital One on a QoQ basis.

MPL New Issue Volume Spikes

In the second quarter, new issue volume for the consumer unsecured MPL market surged +95.8% higher on a YoY basis and +43.5% higher on a QoQ basis. The YoY increase in new issue volume was driven by an increase in the number of deals (19 vs. 8), while average deal size declined (17.5)% YoY to $402Mn.

2025 volumes have continued to grow with cumulative new issue volume through July of $1,535Mn outpacing 2024 levels by 66.9%. 3Q25 new issue volumes of $4,190Mn (through August 14) have already eclipsed full quarter volume from 3Q24 (of $4,175Mn).

Demand for this paper remains strong, with spreads tightening across a number of lenders. Oportun CEO Raul Vazquez explained, “Finally, in June, we successfully completed our latest ABS transaction, a $439 million issuance of 2-year revolving fixed-rate asset-backed notes. I'm very pleased to note that the transaction was completed at a weighted average yield of 5.67%, a 128-basis point improvement from our prior ABS transaction in January.”

To go along with this, Upstart CEO David Girouard noted, “In June, we priced and closed our second ABS deal of 2025, delivering significantly improved execution compared to our first, which closed in April. It’s worth noting that the more recent transaction had nearly twice the number of investors as the first, including some new names.”

During the quarter, Pagaya closed its first $300Mn POS ABS securitization, which achieved a AAA rating. And while not an apples-to-apples comparison, Pagaya's issuance of its Senior Unsecured Notes was upsized and 5x oversubscribed.

And per Zip Co CFO Gordon Bell, “On 10 July 2025, we settled a new $300 million ABS bond issue with a weighted average margin of 1.79%, materially lower than the 2.13% we achieved on the previous deal in September last year.”

Per the Finsight database, Pagaya - $1,605, Affirm - $1,506, SoFi - $654Mn, Upstart - $615Mn, Upgrade - $463Mn, Oportun - $439Mn, Mariner Finance - $425Mn, Cherry Technologies - $420Mn, Lendmark - $352Mn, and Enova - $164Mn were among the most active players in the space in the second quarter.

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