Private credit exists as an essential part of the capital spectrum, especially for firms that cannot get, or choose not to get, traditional bank channels. The private credit firms — including venture capital companies, buyout funds, hedge funds, direct lenders and others — are in turn significant partners for FinTech platforms that, themselves, extend loans.
The capital flows that connect banks, private credit firms, FinTechs and the latter’s end customers is increasingly interwoven, with risks and rewards extending across that continuum.
In a report by the Boston Fed, research shows that banks have been increasing their exposure to non-bank financial institutions (NBFI), a category that includes private equity (PE) and private credit (PC). The data shows that large banks’ total loan commitments to PE/PC funds are approximately $300 billion, or 14% of large banks’ total lending to NBFIs, as of the end of 2023. The tally was less than $10 billion in 2013.
The central bank contends that “understanding the scale and complexity of bank-NBFI connections is important for identifying potential risks to financial stability — that is, the financial system’s ability to continue supplying capital to the economy if strained by shocks.” The PE and PC firms, in turn, put money to work in the economy.
But, as the Fed report details, when these firms are hit by shocks, “they tend to draw down their bank lines of credit at a faster rate than firms with only bank credit. This creates a channel through which PC funds may increase banks’ credit and liquidity risks, on balance.”
In recent months, PYMNTS has reported on the opportunities and growth industries funded by private credit. AI has been a particular area of increased investment, representing a $1.8 trillion market for funding to help build out data centers and other infrastructure. And in general, banks such as JPMorgan have been ramping up their own efforts to the tune of tens of billions of dollars, to increase private credit transactions. HSBC has reportedly been mulling making inroads into the private credit.
Within FinTech, last year, for example, SumUp, a U.K. FinTech focused on POS hardware and issuing services, garnered a $1.6 billion loan provided by lenders including Goldman Sachs Asset Management, BlackRock, Apollo Global Management, Oaktree Capital Management and Vista Credit Partners.
Earnings results have also underscored the presence of private, institutional investors on platforms, buying loans extended by those digital lenders. Upstart, in one example, has detailed in its filings with the Securities and Exchange Commission that “out of the total principal of loans transacted on our marketplace during the three months ended March 31, 2025, 60% were purchased by institutional investors.”
Personal loans originated in the most recent quarter stood at $2 billion. Earlier this week, Upstart signed a capital arrangement with Fortress, where the private credit firm is purchasing up to $1.2 billion in consumer loans originated across the platform.
As for the state of these arrangements, Upstart CFO Sanjay Datta said on the call that “these committed partnerships are frankly behaving exactly as designed. The basis of these partnerships was that we essentially committed to navigating the different parts of the macro cycle together … We believe we have the tools to read and react to shifts in the credit risk environment very quickly on behalf of the partners.” The securitization markets are functioning well, the executive said on the call.
Upstart CEO Dave Girouard said on that same call that “we’ve had no pullbacks from our private credit … committed capital partners, and we likewise had no pullbacks from banks or credit unions … our credit continues to perform.”
LendingClub, in its own earnings report, said that its structured certificates are a “preferred structure for private credit” and represented 29% of the nearly $2 billion in consumer loans originated across the platform in the first quarter.
Drew LaBenne, CFO of LendingClub, told analysts on the conference call that “the opportunity is massive in the insurance market. And if you think about a lot of the transactions that we’re doing today with asset managers and private credit, a big pool of the money that they’re managing is insurance money.”
The Fed paper states: “Private funds may be growing more reliant on bank loans, both by taking larger loan commitments relative to fund assets and by utilizing a higher percentage of those loan commitments.”
The read across here is that the interconnectedness, and the leverage, bear watching in an environment where things are functioning well but where the clouds of macro volatility can gather at a moment’s notice.
