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Bank merger analysis traditionally has focused on competition among commercial banks and, to a lesser degree, other depository institutions, relying largely on deposit-based measures of market shares and concentration. There is widening recognition, however, that these measures likely understate banking market competitiveness, due to the expanding role of nonbank financial service providers, and of fintech companies in particular. For example, as articulated by former Federal Reserve governor Dan Tarullo:[1]
“… the related factors of scale economies, technological innovation, product differentiation, and the continued incursion of non-banks are driving lending towards larger markets… The obvious implication for merger analysis appears to be that the assessment of competitive effects needs to be broadened to take account of non-bank lenders, as well as online competition from banks lacking a physical (i.e., deposit-taking) presence in local markets…” (Tarullo 2022).
While the general trend is clear, there has been a lack of research to quantify the growth of fintech companies and other nonbank financial service providers in the markets for banking products and services. This post, alongside a companion BPI working paper, provides new evidence on the role of nonbanks based on analysis of data from the Federal Reserve Board’s Survey of Consumer Finances (SCF).
Specifically, we investigate market share trends between 2013 and 2022 in the markets for three credit products: personal loans, credit cards and personal lines of credit.[2] In addition, we investigate market share trends for checking accounts, mutual funds and brokerage accounts.
Loans and deposits are generally considered two core products within the business of banking, and traditional bank merger analysis has focused on deposit concentration within a given market, which is viewed as reflective of competition on the lending side as well. However, in each of the three consumer credit markets we examine, the analysis demonstrates that nonbank presence has expanded meaningfully since 2016, and this would not be captured by the traditional deposit concentration measurement.[3] In addition, we find that checking accounts provided by nonbanks are a small but gradually growing niche market segment.
On the savings and investment side, nonbanks have long been the dominant channel for consumers seeking brokerage accounts and mutual funds. That said, selling investment products has, since the 1980s, been recognized by the regulatory agencies as part of the “business of banking” and thus a permissible activity for banks.[4] Our analysis finds that since 2016, banks have lost further ground to nonbanks in this domain as well—further confirmation of an increasingly competitive environment for banks across multiple product lines that would not be revealed by simply looking at a deposit concentration index.[5]
On the one hand, nonbanks could be taking market share away from banks by offering substitute products to the same pool of customers. In this case, banks and nonbanks are direct competitors. On the other hand, nonbanks’ gains in market share might reflect consumers’ adding new credit accounts from nonbanks to complement their existing bank credit. In that case, banks and nonbanks can be considered more marginal competitors. In either case, a deposit concentration index will understate the extent of competition, but the implications will be more significant in the first case, where banks and nonbanks are more direct competitors.
With this distinction in mind, our analysis then drills down, by credit category, to the segment of consumers with only a single borrowing or account relationship. We find that nonbank share has expanded materially in this segment in each credit category. This suggests that consumers are replacing bank with nonbank credit, underscoring that nonbanks merit greater recognition from regulators when conducting merger analysis.
We also examine whether shift of market share away from banks to less closely supervised nonbank providers has been more pronounced among consumers who exhibit indicators of financial vulnerability or who have more limited financial resources. We find that nonbanks’ share of credit cards and personal loans has increased disproportionately within segments of higher-risk consumers.
Thus, while our primary aim is to help inform the discussion of how nonbank competition should be factored into merger reviews, the analysis may have implications for where regulators should focus their attention on consumer financial protection. Expanded credit options for financially constrained consumers may reflect increased access and innovation, but it also heightens the importance of understanding prices, terms and downstream outcomes for financially constrained consumers.
By contrast, banks have increased their role in providing access to mutual funds relative to nonbanks among consumers with more limited financial resources. Because mutual funds are a product that historically has skewed toward higher-income families, banks’ role in expanding the market should be seen as broadening consumers’ access to wealth-building financial services.
Data and Methodology
The SCF is a triennial survey that collects detailed information on U.S. families’ balance sheets, income and use of financial products, along with key demographic characteristics. For our purposes, it is valuable because respondents report both the type of institution associated with each account and the number of individual accounts of a given product type that the respondent holds. We combine the 2013, 2016, 2019 and 2022 SCF waves and conduct separate analyses by product category.
For the analysis of credit cards, lines of credit, other consumer loans and checking accounts—products traditionally dominated by banks—we focus on the evolution of nonbank market share. This is measured by the share of consumers that have at least one credit or account relationship in the given product category sourced from a nonbank.[6] Note that because consumers may have multiple credit or account relationships in a given product category, the nonbank share as defined may include consumers that would also be counted within the bank share cohort (share of family units with at least one bank relationship). We choose to focus on nonbank share because our primary objective is to quantify competitive inroads made by nonbanks.
For the analysis of mutual funds and brokerage accounts—where nonbank financial institutions have long been the dominant provider—we focus on bank market share, measured as the share of consumers who have at least one account obtained from a depository institution.[7] Here, our primary objective is to quantify banks’ ability to expand or at least defend their market presences in certain markets historically dominated by nonbanks.
We construct a simple summary indicator of consumer financial vulnerability: higher versus lower risk, which is analogous to a credit score and allows us to explore how nonbank market share has evolved by risk segment.[8] The risk indicator is based on credit information from the SCF and thus is naturally suited to segment the credit product categories. It also correlates with age and income and serves as a summary measure of financial capability more broadly. Hence, the indicator also can be used to segment consumers on the savings and investment side, where higher risk consumers may require tailored services adapted to reduced wealth-building capacity and more limited financial knowledge or experience.
Headline Trends
At the overall product level across credit cards, personal lines of credit, and personal loans, the analysis confirms an expanding role of nonbanks in each category. The market share calculations by product category and year shown in Table 1.
Although a notable feature of the 2013-2016 interval is that nonbank share declines for personal loans, personal lines of credit and (to a lesser extent) credit cards, this can be attributed to a large nonbank consumer finance company converting into a bank: the spinoff of GE Capital’s North American consumer finance unit into Synchrony Bank.[9]
Post-2016, however, nonbank share has risen across each lending category. We also observe a notable increase in nonbank share in checking, although the total share attributable to nonbanks remains very small. On the savings and investment side, banks’ share in brokerage and mutual fund services declined between 2016 and 2022.
Market Shares by Relationship Count Bucket
The observed shifts in market share among certain core banking products from banks to nonbanks substantiate the growing competitive role of nonbanks in retail banking markets. Yet this is not necessarily the entire story because, as noted previously, nonbanks could be offering substitute products, or they might be focusing on offering additional, complementary products.
From this perspective, it is of interest to examine market share trends with consumers segmented by the number of borrowing or account relationships for a given product. Among consumers seeking just one loan or account of a given type, it stands to reason that banks and nonbanks generally are competing to serve the same population of consumers (consumers will choose either one or the other as their provider). There is less assurance of such jockeying for market share between banks and nonbanks in multiple relationship cohorts—intuition suggests that a third credit card, second personal loan, etc. often may be a niche product not broadly available from both banks and nonbanks.
Table 2 presents market share calculations specifically for the single-relationship cohort of each product category—SCF respondents (individuals or families) reporting just one borrowing or account relationship within that category. Changes in market share over time are comparable to the trends seen in Table 1 and evidence of a substantial increase in direct competition from nonbanks.
Market share trends in the multiple relationship cohorts are similar to those in the single-relationship cohorts (see the companion research paper for details) and is evidence of broad-based competitive inroads by nonbanks. It still is conceivable, however, that nonbanks tend to focus on distinct subsegments, particularly those comprising consumers who have fewer financial resources. With this in mind, we segue to an analysis of market share trends by consumer risk segment.
Risk Segmentation
When we further segment the data using our high-risk indicator, we find some important distinctions across risk categories. For credit cards and personal loans, the analysis finds larger increases in the market share of nonbanks are observed in the segment of consumers who have two or more accounts and are high-risk.
For instance, we find that as of 2022, more than a quarter of high-risk consumers with three or more credit card accounts had at least one issued by a nonbank, as compared to only 5 percent of such consumers in 2016. The comparatively large increases in nonbanks’ share within such segments reinforce pre-existing concerns that nonbanks may be targeting financially vulnerable consumers at risk of becoming overextended from taking on additional debt.[10]
On the savings and investment side, as noted, banks’ shares of brokerage and mutual fund markets decline overall between 2016 and 2022. But the analysis by risk segment for mutual funds finds that between 2016 and 2022, banks’ share of the high-risk segment increased. Thus, it appears that banks are facilitating mutual fund access for families with limited financial resources, which—by encouraging savings and wealth-building—may lead to improved financial health (in contrast to the risk associated with additional debt). This suggests a positive, financial inclusion role of banks.
Implications for Policy
Our analysis seeks to inform the policy discussion on whether merger reviews, which currently focus narrowly on market shares among banks within traditional bank product markets, should be updated to account for growing competition from nonbanks. The evidence here suggests that it should: there has been a material shift of market share from banks to nonbanks in multiple consumer lending markets after 2016.
Given the increasingly competitive conditions that banks face on the consumer lending side, deposit concentration measures used to assess proposed mergers are likely to understate market competitiveness. One possible way to remedy this limitation of the current approach is to raise the threshold concentration level for whether a merger raises competitive concerns. Another is to include the role of nonbank lending as a standard, mitigating factor to consider when examining competitive effects.
Moreover, we show that banks’ shares of brokerage and mutual fund markets decline between 2016 and 2022. Merger analysis traditionally does not consider banks’ activities on the savings and investment side. But these markets (and likely others) are a part of the overall competitive environment that banks operate in and thus are relevant to merger analysis; hence, these observed trends bolster the case that deposit measures may understate the competitiveness of banking markets.
The analysis also raises considerations for consumer financial protection. As noted, in the case of credit cards and personal loans, the rise in nonbank market share is especially pronounced within the segment of consumers who are high-risk and have multiple borrowing relationships. This finding suggests that nonbanks’ gain in market share may to some degree reflect nonbanks’ targeting financially more vulnerable consumers. It raises concerns around these consumers’ ability to repay their obligations and the potential effects on their financial well-being and highlights a need to monitor and assess these effects and develop policy responses as needed.
In contrast, in the case of mutual funds, it is banks that exhibit a growing role among higher-risk households. Context matters here: mutual fund holders have substantially higher weighted median incomes than credit card and personal loan holders, consistent with the notion that mutual fund activity historically has skewed toward more affluent and discretionary financial activity.[11] Against this backdrop, banks’ expanding role among higher-risk households in the mutual fund market may be interpreted as broadening consumers’ access to wealth-building financial services.
[1] Similarly, Federal Reserve Vice Chair for Supervision Bowman has argued that the bank‑merger review frameworks are outdated and fail to adequately account for fintech competition, nonbank credit providers and digital distribution channels (Bowman 2022).
[2] The personal line-of-credit category excludes lines of credit secured by home equity, commonly known as home equity lines or HELOC.
[3] Concomitantly, banks have expanded their funding of nonbank financial institutions, particularly through provision of credit lines. See, for example, Acharya, Cetorelli, and Tuckman (2024).
[4] In the mid-1980s, the OCC determined that banks could establish subsidiaries to sell mutual funds, while the Federal Reserve (by amending Reg Y) permitted bank holding companies to engage in securities activities, including sale of mutual funds, through special securities units; see GAO (1995). The Gramm–Leach–Bliley Act of 1999, by repealing key provisions of the Glass-Steagall Act, enabled banks to directly offer investment brokerage services to retail customers.
[5] Many banks offer investment products to their customers, typically through separate investment or wealth management divisions or through affiliated brokerages. The mutual fund options they offer may include both proprietary funds (managed by the bank) and third-party funds. Banks benefit from offering these products in at least two ways—first by generating fee income, and second by serving as a “one-stop shop” that enhances customer convenience and strengthens the customer relationship.
[6] In the SCF context consumers are family units—related individuals living in the same household—as the SCF is a survey of U.S. families.
[7] The bank category consists of commercial banks and trust companies, savings and loans or savings banks and credit unions.
[8] The high-risk indicator equals one if the respondent has a credit card utilization ratio exceeding 50 percent; has been turned down for non-mortgage credit in the past 12 months (an indicator of credit-constrained); or has experienced one or more recent credit stresses. The latter involve: falling behind schedule on a debt payment in the 12 months prior to the interview; filing for bankruptcy in the past five years; or having a home go through foreclosure in the past five years. If none of these conditions is met, the indicator is set to zero.
[9] Although it is not possible to verify this directly from the SCF data, it is known from Synchrony’s 2014 S1 and S1/A SEC filings that prior to the spinoff, GE Capital Retail Finance had a huge market footprint consisting of 62 million active accounts as of year-end 2013. It also had the distinction of being the largest U.S. issuer of private-label credit cards in 2013.
[10] For example, Dolson and Jagtiani (2021) and Flagg and Hannon (2023) observe a tendency for fintech lenders to focus on below-prime credit segments. See Calem (2022) for a review of consumer protection concerns around lending and other activities of fintech companies.
[11] For example, across 2016-2022, in 2022 dollars, the weighted median income of mutual fund holders is around $150,000, versus about $86,000 for credit cards, and $55,000 for personal loans.
